According to credit rating agency Moody’s, Sony is ‘junk’

Despite a successful 2013 launch of its new PlayStation 4 game console, Sony’s credit rating was cut by Bond credit rating agency Moody’s from Baa3 to Ba 1 with a stable outlook. 

For those unfamiliar with the terminology, Ba1 is just below investment grade. Seen as a speculative investment now, it will become significantly harder for the company to borrow money.

Sony has made many moves to try to avoid this downgrade, including staff cuts, division of activities, etc., but the company’s several departments are either losing money or barely in the black.

Increased competition is seen as the main reason for Sony’s hardships.

As mentioned earlier, the company did launch a well-reviewed, well-received gaming console this past year. Yet, despite its success in this regard, the company didn’t generate much profit. That’s because new launched consoles tend to not bring in a lot of return because margins are thin after the launch, or the novelty of a new product on the market, has passed.

Regardless, the popularity of the PlayStation brand bodes well for Sony in the (hopefully) long-term.

It’s also worth mentioning that Sony has a long roster of well-reviewed cameras. This could help the company down the road, too, though there are two problems Sony needs to overcome right now. One is that there are more companies now than ever before throwing their hat in to the ring, and the increased amount of camera brands out there has driven the value behind Sony’s name down significantly. The other fact to consider is the increased quality of the smartphone camera. Devices like Apple’s iPhone and Samsung’s Galaxy S series come equipped with cameras that perform quite well, and today’s younger consumers no longer view a separate camera as a necessary, must-have gadget. 

For additional consideration, Standard & Poor’s still rate Sony at BBB, which is two notches above “junk” status.

Rating agency, Fitch, meanwhile, has already gone ahead and rated Sony as “junk.”

With this recent demotion, Moody’s stated that it’s unlikely Sony can expect any rating improvement in the near future.

Story via moodys.com