So, Moody’s Investor Services, one of the firms responsible for the near collapse of the US financial system due to their favorable ratings of various real-estate related securities that ultimately were far riskier than they had indicated. Now, that aside, Moody’s today announced (one of three companies that does these credit ratings) that they had downgraded Sony’s credit worthiness to Ba1/Not Prime status from Baa3, but confirmed the company’s stable nature which is almost a contradictory statement in of itself. Sure, Sony as it stands right now is only worth about $17 billion, meanwhile during the dotcom boom of 2000 company was trading at almost 10x what it is today.
Such a downgrade results in severely restricting Sony’s ability to borrow money at reasonable interest rates. However, I believe that Sony could easily acquire any necessary loans at relatively low interest rates from the Japanese government if necessary. The fact that Moody’s has downgraded Sony may be more symbolic than anything right now, but it will still affect Sony’s ability to finance debt on the open market.
Moody’s claims that their downgrade comes as a result of the fact that even though many of their business units have returned to profitability, Sony is still struggling in their TV and PC businesses. They also believe that Sony’s profitability will likely remain weak and volatile as a result of many of their core businesses suffering from downward earnings pressure, specifically their TV, Mobile, cameras and PCs. They claim that Sony’s primary enemy is the cannibalization of those businesses due to smartphones.
While I do agree that many of Sony’s older businesses were affected by the cannibalization of smartphones, they fail to recognize the changes in Sony’s product lines to reflect the new realities. The truth is that Sony no longer suffers from offering the wrong products or products that are too expensive. Sony’s biggest problem is one of perception and I believe that Moody’s is aware of that, but cannot quantify it appropriately. Moody’s downgrade of Sony only further hurts Sony’s actual perception with consumers, which has already suffered since their first fall from grace.
Sony makes quite good TVs, laptops, tablets, smartphones and consoles. Right now, Sony’s biggest weakness is their inability to market their product to consumers and to improve the brand’s image. For example, Sony has been one of the first manufacturers to 4K TVs, yet they failed to capitalize on that leadership by putting themselves out in front of the 4K dialogue. Additionally, they have some of the lightest and best designed Windows 8 PCs on the market, yet most people still have no idea that Sony makes such Macbook-competitive laptops. Their camera business has already morphed itself into exactly what it should be DSLRs and high-end point and shoot cameras and their console business is currently doing very well with Sony currently outselling Microsoft in PlayStation 4 vs Xbox One sales figures. And I must say, I’m quite impressed with the PlayStation 4 myself.
Sony’s media businesses, most notably their Music and Motion Pictures segment is profitable and will continue to be profitable. Sony needs to use their strong media positioning to bouy their suffering TV and PC businesses by offering content exclusively to their own devices, sort of like what they did with their own 4K content only for the Sony 4K TVs.
I honestly believe that Moody’s assessments of Sony’s credit ratings have come in far too soon to be an effective measure of whether or not Sony is going to be capable of repaying their debt. Moody’s obviously states exactly what they believe would warrant an upgrade of Sony’s credit rating, almost as to tell Sony what they believe is wrong with the company and what needs to be done. However, I believe that Moody’s rating is too early to tell with Sony’s PlayStation 4 only having been out for a quarter and many smartphones and tablets getting refreshes soon at Mobile World Congress. While Sony is clearly not the juggernaut it once was, I would not put them in the category of ‘on the way down’ or ‘on the way out’ like I would some other companies with more debt and less profitability (Blackberry).