09.11.2012 09:18
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Sony Corporation -- Moody's downgrades Sony to Baa3; outlook negative

About USD4.2 billion in debt affected

Hong Kong, November 09, 2012 -- Moody's Investors Service has downgraded the issuer and long-term senior unsecured bond ratings of Sony Corporation to Baa3 from Baa2.

At the same time, Moody's has downgraded the short-term ratings of Sony and its supported subsidiary, Sony Global Treasury Services Plc., to Prime-3 from Prime-2.

The ratings outlook is negative.

RATINGS RATIONALE

The rating actions reflect Moody's concern that an increasingly rapid deterioration in demand in the digital AV market due to sluggish economic conditions and fast structural changes will weigh more heavily on Sony's earning than previously expected.

The structural changes include the maturation of major digital AV products, such as flat panel display (FPD) TVs, the growing use of smartphones, and the cannibalization of demand for low-end portable digital products, including compact digital cameras.

Moody's expects the operating margin for Sony's non-financial services businesses in FYE3/2013 to remain below 1%, excluding equity losses, non-recurring expenses, as well as one-off gains, such as gains from the sales of assets and insurance recoveries relating to the effects of the floods in Thailand in late 2011. This expectation is lower than our earlier estimates of over 1%.

Despite generally stable earnings in some segments, such as the company's semiconductors (mainly image sensors), pictures and music businesses, overall earrings will stay weak due largely to prolonged operating losses in TVs and mobile phones, as well as significant declines in earnings from digital imaging products and games.

The continued negative ratings outlook reflects Moody's view that without robust restructuring in the coming 12-18 months, Sony's non-financial services businesses will at best achieve roughly break-even, and are also at risk of remaining unprofitable, after excluding equity losses, non-recurring expenses, as well as one-off gains.

In FYE3/2012, Sony's operating margin for its non-financial services businesses was break-even (excluding non-recurring gains and losses, and equity income) and adjusted debt/EBITDA was over 5x.

Operating losses in its TV business -- which accounted for 11% of non-financial services revenue in 1H2012 -- are likely to continue pressuring overall earnings. The company expects an operating loss of JPY80 billion in FYE03/2013 and then break-even in FYE03/2014. The level of operating losses dropped in 1H2012 on a year-over-year basis, due largely to cost reductions. Sony has mentioned that such reductions have exceeded its target.

However, expected weak sales in 2H2012 and 2013, as well as continued fierce competition, are likely to make it challenging for Sony to reduce -- according to targets -- the operating loss in TVs. In particular, we expect large losses in TVs to continue in FYE03/2014, although the level of these losses will decline to some extent from that in FYE03/2013 due to cost cutting measures.

At the same time, operating profit from Sony's digital imaging products and games businesses declined about 60% in 1H2012 on a year-over-year basis. The earnings from these products are now expected to decline more rapidly than expected as the growing use of smartphones increasingly cannibalizes the market for compact digital cameras and portable game consoles.

These segments accounted for 16% of non-financial services revenue in 1H2012 and have helped to a large extent offset the large operating losses in TVs.

A significant reduction in Sony's large operating losses in its mobile phone segment is unlikely in the near-term, despite expected rapid unit and revenue growth. Its Mobile Products and Communication segment, including mobile phones, had an operating loss of JPY51.2 billion in 1H2012. Intensifying competition and the company's current weak position in smartphones will make it difficult to gain market share and improve its margins quickly. Sony's sales of mobile phones comprise 13% of its non-financial services revenue.

Given the long period over which weak earnings have prevailed and the possibility of additional restructuring costs in its troubled TV and mobile phone businesses, the company is not expected to reduce debt significantly without resorting to cuts in capital expenditure or the sale of non-core assets.

Moody's recognizes that Sony's stable relationships with its major banks, as well as its good liquidity profile, will continue to support its creditworthiness.

But stress on its balance-sheet metrics has recently increased substantially. Net debt for its non-financial services businesses increased by JPY400 billion from March 2012 to September 2012, although the rise is partly because of higher financial needs -- which are seasonal in character -- for year-end sales. Gross debt for its non-financial services businesses increased to about JPY1.25 trillion in September 2012 from JPY1.15 trillion in March 2012, while cash and deposits decreased to about JPY420 billion from about JPY720 billion.

If weak cash flow leads to the write-off of assets, the company's relatively solid balance sheet would also be negatively effected. Adjusted debt/capitalization in FYE3/2012 was about 52% in its non-financial services businesses.

Liquidity remains acceptable. As of September 2012, Sony reported cash and deposits of about JPY420 billion and about JPY750 billion in unused commitment lines in its non-financial services businesses. It also holds a listed financial subsidiary, Sony Financial Holdings, Inc.Sony's share is worth over JPY350 billion.

Nevertheless, the ratings could be pressured downward if profitability, cash flow, and leverage further deteriorate. For example, if the company fails to improve operating profit (excluding non-recurring gains and losses, and equity income), maintain adjusted debt/EBITDA in the 4.5-5.0x range, or keep adjusted debt/capitalization below 60% in its non-financial services businesses on a sustained basis, then the ratings could be downgraded.

Furthermore, acquisitions, which could change its business risk materially and adversely, and/or erode its balance sheet and financial flexibility, could also pressure the ratings.

The outlook could return to stable if Sony can substantially improve profitability, cash flow and leverage. Improvements would include: 1) reducing operating losses in its TVs and mobile phone businesses; 2) reversing declines in earnings from its games and digital imaging products; and 3) reducing debt through the sale of non-core assets. A shift in focus away from commoditized consumer products would also help diversify earnings and would be positive for the ratings.

For example, operating margins above 1.0% (excluding non-recurring gains and losses, and equity income), adjusted debt/EBITDA around 4.0-4.5x, and adjusted debt/capitalization below 55% in its non-financial services businesses on a sustained basis, in addition to a strong liquidity profile, would be necessary for the outlook to return to stable.

The principal methodology used in rating Sony Corporation and Sony Global Treasury Services plc was the Asian Consumer Electronics Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Sony Corporation, headquartered in Tokyo, is one of the world's leading manufacturers of consumer electronics products.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Yoshio TakahashiAsst Vice President - Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Richard C Bittenbender Associate Managing Director Corporate Finance Group JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations -- Corporate Governance -- Director and Shareholder Affiliation Policy."

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This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

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15.09.2011Sony outperformMacquarie Research
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20.08.2012Sony neutralCitigroup Corp.
14.08.2012Sony neutralCitigroup Corp.
16.07.2012Sony holdDeutsche Bank AG
11.07.2012Sony neutralCitigroup Corp.
11.06.2012Sony equal-weightMorgan Stanley
23.11.2011Sony verkaufenRaiffeisen Centrobank AG
02.03.2009Sony underperformCredit Suisse Group
26.01.2009Sony meidenFrankfurter Tagesdienst
16.12.2008Sony DowngradeCredit Suisse Group
15.12.2008Sony meidenEuro am Sonntag
Um die Übersicht zu verbessern, haben Sie die Möglichkeit, die Analysen für Sony Corp. nach folgenden Kriterien zu filtern.

Alle: Alle Empfehlungen
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Hold: Halten-Empfehlungen wie z.B. "halten" oder "neutral"
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