S&P Thumps Sony

Sony Corp. (NYSE: SNE) has been struggling with losses for the past four years and the ripple effects of those losses now include another downgrade to Sony’s corporate credit rating from Standard & Poor’s Rating Services. S&P this morning cut the company’s long-term corporate credit rating one notch from BBB+ to BBB, just barely above the cutoff for investment grade debt.

In its report, S&P said:

The outlook on the long-term corporate credit ratings is negative. We base the downgrades on our view that the pace of recovery in earnings of Sony’s mainstay consumer electronics businesses in fiscal 2012 (ending March 31, 2013) will remain slow, and a strong recovery is not likely to occur until at least fiscal 2013. We base our negative outlook on the long-term corporate credit rating on our expectation that we could lower the ratings further if Sony fails to demonstrate solid signs of recovery in weakened measures of its credit quality within the next 12 months.

Sony has tried to downplay the importance of its TV, camera and PC sales in the recent past, but S&P is having none of it:

Assuming persistent pressure on the price of key Sony products, an uncertain global economic climate, and the yen’s continued strength against other major currencies, Standard & Poor’s base scenario projects Sony (excluding financial services operations) will make a small but continued operating loss in fiscal 2012 and will not return to operating profit until fiscal 2013. While Sony no longer regards its struggling flat panel TV operation as its core business, we believe the company’s mainstay consumer electronics businesses will be key to a recovery in profits, and we still see some downside risk in the businesses.

Ratings agency Moody’s last month also commenced a review of Sony’s senior unsecured debt and short-term ratings. Moody’s, too, noted Sony’s weakness in consumer electronics and its failed efforts to enter the mobile devices market.

Sony shares are inactive in the premarket this morning, having closed down about 2.7% last night at $12.36 in a 52-week range of $10.91 to $22.49.

Paul Ausick