Entry #13: Sony in trouble

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"Notable credit rating agency Fitch Ratings has downgraded Sony to "junk", following various hits to the company's reputation including its seventh consecutive quarterly net loss earlier this month.

Sony posted losses earlier this month, in part due to its declining video game business. Now Fitch has dropped Sony down three notches to BB-, meaning that it no longer classes Sony as an investment-grade company.

"This wasn't an easy decision," Matt Jamieson, Seoul-based head of corporate research, told the Financial Times (registration required). "But [Sony and Panasonic's] reputations have been hit so much that it'll take a long while to crawl back."

Jamieson notes that a huge part of Sony's problem is its failing TV business, and if the company was to axe the sector, further downgrades may not be necessary in the future.

Damian Thong at Macquarie Securities added, "They do need to convince people that tough restructuring moves will be done in good time, while minimising unnecessary damage to healthy businesses."

Fitch is the first major ratings agency to downgrade Sony this low, although earlier this month the Moody's agency lowered Sony to just one notch above junk. "

If you do some research into Sony's business you may find some surprising things. For one, their entire company has been kept afloat due to their video game division. Now that sales are down for them, the entire company is in trouble. It raises some interesting questions though. With this knowledge available for several years, why haven't they done anything to remedy the situation? Ah, the unheeded benefits of research.

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