4 mins read

It’s no secret that Japanese electronics companies in general are in bad shape at the moment. A high yen value, high costs of doing business, a depressed global economy cutting into demand for premium products, and low-cost competition from electronics companies out of China and South Korea are biting deep into the margins of the likes of Nintendo, Sony, Sharp, Panasonic, and a host of others.

And it’s threatening the very survival of some of these companies. By all accounts, Sony is directly on the chopping block. Last week, ratings agency Fitch, slashed the credit rating of both Panasonic and Sony. Panasonic lost two notches to BB and Sony lost three to BB minus. To anyone familiar with financial services, these are very bad credit ratings – called ‘junk bonds’, and a clear sign that the health of these companies is only marginally above, well, the health of the Greek economy.

It’s not just Fitch that has slashed the credit rating of Sony, either. Moody’s and S&P both also rate Sony and Panasonic just marginally above junk status.

But, even more damningly for Sony, the only reason that Panasonic is considered to be a healthier corporation and “more likely to survive than Sony,” is because it has large business interests that have nothing to do with consumer electronics.

Fitch’s head of Asia Pacific, Matt Jamieson, said in a conference call when the company announced these new ratings for both companies “has the advantage of a relatively stable consumer appliance business that is still generating positive margins.”

Of Sony, he said “most of their electronic business are loss making, they appear to be overstretched.”

It’s worth noting that Sharp – a major consumer electronics brand in Japan, needed a $US4.6 billion bail-out by a range of Japanese banks. That’s an indication on how poorly the consumer electronics space is for Japanese companies right now.

It’s not all doom-and-gloom of course, and no one is suggesting that Sony is about to file for bankruptcy. The company still enjoys the support of its bank partners, and its digital camera and gaming segments are high-margin and don’t suffer the same competition from cheap electronics from Korea and China.

And thanks to the sale of its chemicals business to a Japanese state bank, Sony is anticipating a full-year profit of $US1.63 billion.

Nonetheless, the market remains very tight for Sony, and if you’re a fan of Sony products, now might be a good time to splash out on a couple of full-priced products to support the company.

Unfortunately a lot of Sony’s problems are macroeconomic – that is, Sony’s largely at the mercy of the global economy right now. It went into the current financial crisis in Europe (one of its most important markets) in poor health, which makes it all the more difficult to ride the bad waves.

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  • Hopefully all the promotions for Vita this Black Friday will give Sony a bit of a boost. They have been cutting their bottom end significantly and hopefully this will all turn around for them going forward.

  • I'm hoping that all the consolidation that Sony is doing will leave it with highly profitable business units.

    It needs to get out of the low-end TV, laptop etc businesses. These are so low margin that there's no point competing in them. Focusing on gaming, cameras, high-end TV, phones, and so on, seems like a good idea to me, as there's less margin pressure there.

    Also, Sony's investments in online infrastructure should put it in quite a strong position if it can just buy enough time to get it all up and working properly.

  • No hope for an arrogant type of business mentality (read: the self-centered exclusive ego) that belongs to $ony these days after years of gaming domination. Anything can't be last forever, but $ony fanboys can't accept the reality and try hard to twist and spin to make themselves feel better.

    ** Stop being a nazi style dictatorship in gaming** then people will get back to embrace $ony because the gaming industry is now more expanded and shifted to Apple and Samsung, not just relies in $ony or Ninty or Micro$oft.

    Try to learn living in a new reality, those who don't are just a few bunch of sad losers. Grow up and cheers!

  • Sony has done more tricks lately to 'steal' gamers' money thru :

    * PSN+ that is no longer FREE like it used to be.
    * Call of Duty brand is used to sell a failing device, yet the lamest COD game ever.
    * 1st party hypes. Lack of 3rd party supports has driven Sony to make new IPs and label it an exclusive innovation. Sony loves to brag exclusive games waaaay before its' release to build up hypes and create an illusion of plenty games.
    * The fanboys who are self-centered ego stealthy salesmen. All you read from them is more like 'marketing testimonies' that allure people to open their wallet for Sony ONLY. Talk about one-dimensional salesmen.
    * Long cycles for playstations, the 10 year of 'supports' is only to create spaces for different SKUs. The trick is to increase sales numbers, forcing existing users to upgrade for slimmer versions.

  • I'm not sure where you pulled most of that – it's almost entirely your own personal opinion with no legitimate data to support it, but there's one very specific claim there I'd like to point out, because it's inarguably factually incorrect:

    – PlayStation Plus was never free – a month of access was given to PSN users as an apology for the big PlayStation hack, but has never been pitched as a free service. The PSN itself remains a free service.

  • You mistook me. PSN+ is a separate brand new service, because the 'free' version of PSN wasn't enough to accomodate gamers in the past. The new service should give them more speed and security.

    Not just my only opinion, there are so many similar opinions out there. Tell me how the COD version of vita turns out, sales and score wise?

  • I can't see Sony going bankrupt – it holds way too many valuable patents, IP and technology for that.

    It possibly could be acquired, though. Which may well turn out to be a good thing. It's going to be interesting to see where things go in the future.

  • PSN+ is a premium service and is an add-on to the PSN, not a replacement for it.

    In reality it's a loyalty club for free games and other rewards, as well as discounts. It's not like XBL where if you don't pay for PSN than any features (except for Cloud storage) is kept back from you.

    PSN+ has nothing to do with "more speed and security."

    I really don't care if there are "so many similar opinions" out there. An opinion is not legitimate until it has real data supporting it. "So many similar opinions," means nothing if they're presented as you've just presented them.

    I'm not sure why you're harping on this Call of Duty thing. It was a bad game. Great. Sony has made it quite clear that it sees the Vita as a long term investment. It also used Assassin's Creed Liberation as a game to market the Vita, with bundles and the like, and Liberation is incredible.

  • I don't like the thought of that Matt. 🙁 I think they just need to pull things together and find out what really defines the company. Are they an electronics company? Are they an entertainment company? We really don't know because they are a conglomerate of a lot of business portfolios. They don't have that one or two things that can really define them, because they are a lot of things (They are PlayStation to me, and they are Walkman and Sony WEGA to my father. If they can find that.. If Kaz can do what Stringer didn't and fix what the previous Sony leader before Stringer did (forgot his name.) , perhaps they can go down the right path again.

    I know, I'm not a PlayStation guy, but you see Matt, previously in our household, we adore Sony products. The TV, the radio, the walkman (in the 90s,) Heck, they are still all working fine. My father only want Sony because it is as if they can last forever, but these days, Apple churns out iPads every year. But Apple, I don't know, has the power to do that every year. I don't think Sony updating the cellphones and TVs every year and making the previous one obsolete is a good thing for them.

    I feel the problem is a lot of things, like the Yen, the competition, a lot of things. I wish Sony the best of luck.

  • It's not always a bad thing when a company is acquired – if it's acquired by a healthier company it is often a very good thing, and it means the company then has the resources it needs to.

    The problem Sony faces is that it will take years to pull the company into a solid direction that consolidates all of its interests into one unified business. People often criticise Stringer for failing, but really he actually did a lot of great work in pushing Sony in the right direction. Hirai now needs to finish executing on Stringer's vision. I'm sure he can, but it's a tough job ahead.

    The good news for Sony is that the Japanese economy should start to stabalise, and Sony has found itself some remarkably lucractive little business units that it can scale up. Gaikai was a good acquisition, and the camera business is a big opportunity. Sony has a financial services bank in Japan too, which it is looking to scale out, and done right banks are a very good business proposition (even despite what's been happening in the US and Europe).

    It's just a question of time; does Sony have the resources and time to pull off what it has the capabilities to do and become a Japanese Apple (with its own content, which is another massive advantage of the company)? It's a question I'm certainly not placed to answer, but we can hope.

  • That black friday bundle that bundled 2 games along with PS+ for $180…whoo, woulda been tempted if I lived in the States!

  • "The company still enjoys the support of its bank partners, and its
    digital camera and gaming segments are high-margin and don’t suffer the
    same competition from cheap electronics from Korea and China."

    Yikes, if those divisions are expected to lead the way to profitability there is going to be an even bumpier road ahead. Especially with digital cameras, a market which year-by-year looks increasingly smaller.

    With games, of course Sony is in a relatively strong position with a terrific stable of assets (enduring brand power, desirable hardware, 1st party studios, an expanding digital footprint, Gaikai, etc). However, given their expected loss-leader hardware strategy, it looks like they are about to eat at least a couple years worth of red with Orbis development and launch. And that is not taking into account lost marketshare at the hands of competitors (IMO, the Japanese market for one is already steadily consolidating around Nintendo.)

    Waiting on that Orbis launch price…we know Sony doesn't want to repeat PS3 mistakes there, we know their hardware offerings will reach a certain cut above Wii U and we know that even Nintendo's modest hardware (albeit with expensive controller) losses money at $300. How much of the console's cost are they willing to absorb at a time of perceived financial weakness and potentially falling game sales…while in the face of super aggressive (desperate?) competition. Their Vita strategy may hint that they are loathe to take on too much loss at the expense of share.

    What a crazy balancing act hahah.

    Man, I love how each of the console Big Three has its own past successes, mounting challenges, and differing agendas facing them…so fascinating to watch this industry in the throes of do-or-die breakneck evolution!

  • Yeah. It was nice indeed.

    I bought the pre-release bundle, so I got the terrible Little Deviants and a 4GB memory card for a lot more money. Haha Oh, it's so wonderful to be an early adopter!

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