Falling prices, demand and tough competition motivated the downgrade. The long-term view of Sony's credit rating "is negative," they said. Sony's profitability "significantly weaker" than others.
If there's "no meaningful sign of a recovery" within 6 to 12 months then it will slip again. However S&P believe Sony "will gradually recover in fiscal 2012" barring no more "one-off expenses".
"The outlook on the long-term corporate credit rating is negative," declared a Standard and Poor's statement.
"We base the downgrade on our view that severe circumstances in Sony's mainstay electronics businesses make a strong recovery in earnings unlikely."
"We base the negative outlook on the long-term corporate credit rating on our expectation that we could lower the ratings further if we see no meaningful sign of a recovery in Sony's earnings within six to 12 months."
Floods in Thailand have had a dramatic effect on the electronics’ market with Sony suffering significant manufacturing setbacks and costs. Prices for hard disk drives have already risen.
"Because of continuing net losses since fiscal 2008, Sony's profitability looks significantly weaker than that of its global industry peers. In addition, we believe its ratio of adjusted debt to EBITDA is likely to remain high for the next one to two years, even for companies in the 'BBB' category," the report went on.
"Standard & Poor's also believes Sony's adjusted total debt to capital (excluding finance operations) will rise to around 40% as of March 31, 2012, from 35% a year earlier."
"However, we base our one-notch downgrade on our view that Sony's profitability and financial standing will gradually recover in fiscal 2012 because there will be no repeat of one-off expenses due to floods in Thailand and impairment losses on stockholdings. Also, we believe Sony's strong short-term liquidity (excluding finance operations) continues to support its financial stability." Sony expects itself to lose ¥220 billion for this fiscal year.
Sony credit rating downgraded, "strong recovery in earnings unlikely"
10 February 2012 | By Simon Priest