Fitch Rates Sony Debt as Junk

[Karloff]

Fitch Rates Sony Debt as Junk

"Continuing weakness" in home entertainment product line is part of the reason why ratings agency Fitch cut Sony's rating.

On the heels of a lackluster fiscal quarter report [http://www.escapistmagazine.com/news/view/120447-Sony-Lowers-Expectations-for-2012-Vita-PSP-Sales], Fitch Group has cut Sony's debt rating down to Junk status, otherwise known as BB- or "non-investment grade." The ratings agency cites "continued weakness" in home entertainment, sound and mobile products as the reason why investing in Sony's debt is only for the courageous or speculative investor. This comes at a bad time for Sony, which only last week had announced a plan to raise capital with another round of convertible bond sales.

Fitch's move has been criticized by Japanese bank Sumitomo Mitsui Trust CIO Masahi Oda. "I don't envision the current situation continuing," said Oda, tacitly acknowledging that Sony's current position is less than desirable. "A collapse of their core business would be a problem, but we are not at that point yet."

Oda may be correct. Though the last fiscal report made for pretty grim reading, it did at least indicate some significant recovery on the home entertainment front - a loss of $203 million, as opposed to the previous year's harrowing $526 million - and Sony's mobile operation is generating significant revenue.

However Fitch is right to say that a strong Yen and falling demand - particularly in China - has had significant impact on Sony's earnings potential. Also, though mobile sales and home entertainment are doing better than they have before, a loss is still a loss; neither mobile nor home entertainment has made it into the black yet.

Source: Reuters [http://www.reuters.com/article/2012/11/22/us-sony-panasonic-ratings-idUSBRE8AL07B20121122]


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[The Rogue Wolf]

I'm inclined to agree with Oda. Sony's on some rough ground at the moment, but they're clawing their way back, and I have a feeling the holiday season is going to give them a sizable boost. Besides, I still don't trust ratings agencies- including Fitch Group- after that whole CDO mess.

 

[Mr.Mattress]

Well it's official now: There is no way the PS4 can blow the WiiU out of the water in terms of graphics. If it does, then it would continue to hurt Sony, because greater graphics = greater price tag, and no one is gonna by a $1000 console. I can now officially guarantee that whatever Sony does, it won't be making the PS4 the Super Graphics Machine.

 

[Eri]

Well it's official now: There is no way the PS4 can blow the WiiU out of the water in terms of graphics. If it does, then it would continue to hurt Sony, because greater graphics = greater price tag, and no one is gonna by a $1000 console. I can now officially guarantee that whatever Sony does, it won't be making the PS4 the Super Graphics Machine.

Sony has never made a 1000$ Playstation. At most, the 60gb launch ps3 cost 600$. Which is still a far cry from 1000$. iPads come in varieties more expensive than the launch price.

 

[Mr.Mattress]

Sony has never made a 1000$ Playstation. At most, the 60gb launch ps3 cost 600$. Which is still a far cry from 1000$. iPads come in varieties more expensive than the launch price.

Yes yes, the infamous "Five Hundred Ninety-Nine US Dollars", I remember that well. However, correct me if I'm wrong, but didn't it cost Sony 800$ to actually make a 60gb PS3 at Launch? If the PS3 at launch was actually 800$ to make, and they reduced it to 600$, then if the hardware to make the PS4 is about 1000$, then they would probably have to sell it at 800$ because otherwise they'd be taking a very hard hit, one they cannot afford to make. My guess is, the PS4 will have Tech similar to the WiiU (Maybe a little more current), and it will cost 400$ max. They cannot have the PS4 cost "599 US Dollars", they would be hurt even more then they are now.

 

[Mr.Mattress]

Well it's official now: There is no way the PS4 can blow the WiiU out of the water in terms of graphics. If it does, then it would continue to hurt Sony, because greater graphics = greater price tag, and no one is gonna by a $1000 console. I can now officially guarantee that whatever Sony does, it won't be making the PS4 the Super Graphics Machine.

Sony has never made a 1000$ Playstation. At most, the 60gb launch ps3 cost 600$. Which is still a far cry from 1000$. iPads come in varieties more expensive than the launch price.

Wasn't the PS2 over 1000$?

No, it was 299$, with software being 49$ a piece.

 

[Eri]

Sony has never made a 1000$ Playstation. At most, the 60gb launch ps3 cost 600$. Which is still a far cry from 1000$. iPads come in varieties more expensive than the launch price.

Yes yes, the infamous "Five Hundred Ninety-Nine US Dollars", I remember that well. However, correct me if I'm wrong, but didn't it cost Sony 800$ to actually make a 60gb PS3 at Launch? If the PS3 at launch was actually 800$ to make, and they reduced it to 600$, then if the hardware to make the PS4 is about 1000$, then they would probably have to sell it at 800$ because otherwise they'd be taking a very hard hit, one they cannot afford to make. My guess is, the PS4 will have Tech similar to the WiiU (Maybe a little more current), and it will cost 400$ max. They cannot have the PS4 cost "599 US Dollars", they would be hurt even more then they are now.

I agree they cannot afford another pricing gaffe like 599$ or even 499$. Though I do quite strongly believe they are willing to take a much bigger loss per unit than Nintendo, which means I could see their 350-400$ unit having much greater hardware than a Wii U.

 

[Formica Archonis]

I'm surprised they didn't just blame it all on piracy like they normally do.

 

[fix-the-spade]

I can now officially guarantee that whatever Sony does, it won't be making the PS4 the Super Graphics Machine.

They so can.

Of course it would take a great deal of pride swallowing, the licensing of AMD or Nvidia hardware and not spending six years developing a proprietary processor (and media format) with virtually no RAM. Also not paying extra for the latest name on the GPU chip won't hurt, Sony never did disclose how much they were paying for a cut up Nvidia 7 series gpu, bet it was a lot.

Interestingly, the WiiU runs on a variant of the Cell processor (by IBM). Sony could easily build a graphic power house by buying in AMD A-series chips and jamming in 6GB of 1800mhz RAM. A-series shares system and Vram, fitting a stick of fast RAM amounts to free overclocking.

Complete laptops are already being sold with this set up for under $600, remove the need for screens, pci slots, daughter boards and Windows licenses, a PS4 could easily hit under $400 with a quad core chip and current gen gpu and be profitable.

Of course, Sony being Sony will never do this, the plan must be stuck to, all the way into the meat grinder.

 

[Mr.Mattress]

Well it's official now: There is no way the PS4 can blow the WiiU out of the water in terms of graphics. If it does, then it would continue to hurt Sony, because greater graphics = greater price tag, and no one is gonna by a $1000 console. I can now officially guarantee that whatever Sony does, it won't be making the PS4 the Super Graphics Machine.

How long were they selling the PS3 at a loss? All they really need is to rebuild investor confidence, coming out with a more powerful product and some decent launch titles would do that. As long as they don't fuck-up the storage capacity.

Doesn't matter: For most of the PS3's life, it's high price range made it dead last in sales of Home Consoles. Investors aren't gonna be confident in an ultra-powerful system that blows the WiiU out of the water, that costs 1000$ to make and sells at 800$ dollars. The PS4 is going to have to be a lot more like a PS2 to make investors confident: Something cheap, and that means something not graphically superior.

 

[Treblaine]

How many PS3 games are sold for what royalty to Sony? $10? $15? And still revenue for PSP and PSV games.

That has to be huge revenue, is Sony losing money on their Playstation brand?

"Home entertainment" is pretty broad, what are they losing money on that? Does that include their Vaio computer brand, Bravia TV? Because SOny needs to be prepared to cut their losses now and reinvest their resources into Playstation.

 

[Aiddon_v1legacy]

Sony really can't afford to have the PS4's launch be mediocre and that's before the possibility that they'll have it sell at a loss. And considering how Sony's engineers don't have a single concern for making sure people can afford their products, the PS4 will probably be overpriced.

 

[Pipotchi]

Whilst Sony has their problems no doubt, The day I give any weight to credit agencies is the day I forget that they rated Bear Sterhns (sp?) Lehman Brothers etc AAA until the day before they collapsed. So clearly they either have no clue what they are talking about or are so entrenched in the sectors they monitor as to be utterly worthless.

 

[Treblaine]

How many PS3 games are sold for what royalty to Sony? $10? $15? And still revenue for PSP and PSV games.

That has to be huge revenue, is Sony losing money on their Playstation brand?

As great as many Sony games are, the sad fact is that PS3 games sell considerably less than their 360, and often PC, counterparts. The only place they tend to be higher is in Japan, but Japanese numbers alone tend to pale compared to the American and European markets. Even worse, Sony's exclusives don't tend to sell all that highly. Gran Turismo 5 did well by selling over 9 million copies, but apart from that, none of their exclusives (MGS, Uncharted, Killzone) have sold in higher quantities than exclusives for the PS2. In fact, most of Sony's exclusives have struggled to make it beyond the 3 million sales mark. While those aren't bad figures, you have to remember that Sony is paying for development and marketing of its first-party titles. Those have to be recouped before they can then start using the money to offset the money they lost selling the PS3 under cost. Not only that, but while the PS3 is no longer selling at a loss, the Vita is. And it's tanking hard. Sony has exchanged one expensive, loss-leading console for another.

Consider this. Before this year, Sony had had only ever have to close down one of its fifteen or so first-party studios. This year, after yet another year of losses, they shut down two. That is an unprecedented move by them, and is a sign of just how financially strapped they are.

Or just consider this: Sony's worth as a company has gone from $120 billion in 2002, to $11 billion now. That's a 90% drop off. Their stock is trading at an all time low.

This goes beyond any one department being any more successful than others. The entire company is in a financial black hole, and it's going to take them shedding deadweight and cutting costs across all boards if they want avoid bankruptcy.

"Home entertainment" is pretty broad, what are they losing money on that? Does that include their Vaio computer brand, Bravia TV? Because SOny needs to be prepared to cut their losses now and reinvest their resources into Playstation.

Gaming is not going to be Sony's saviour. Sony was an electronics behemoth because there was a time when their electronics were recognised as being the best, and were therefore the most popular. You only have to look at the ubiquity of the Walkman to see this. Nowadays, other companies have stolen that mantle. Apple and Samsung dominate the smartphone market, while Sony's Ericcson/Xperia line dwindle with the other non Galaxy/iPhone phones. Samsung and others have stolen their crown when it comes to TVs. Apple have pretty much cornered the portable music market that Sony once held with the Walkman.

Pretty much every market that Sony once ruled, others have taken over. That is Sony's problem. They need to cut back the sheer breadth of electronics they offer, and start thinking more like Samsung or Apple- offer a cut-down, high end range of products (iPhone/Galaxy), rather than bombing a market with dozens of different models of the same thing.

I was asking how well Playstation brand was doing relative to their other brands. For example I know Playstation isn't doing all that bad:

http://www.vgchartz.com/analysis/platform_totals/Software/Global/

Xbox 360 global software sales: 687.60 million copies
Playstation 3 global software sales: 599.44 million copies

Xbox 360's Software sales are only 14% ahead to spite a 1 year lead.

And Sony has a higher proportion of First Party sales, first party is when Sony takes more than a ROyalty, they take ALL the return of the game (after tax and disc-manufacturing cost). Each 1st-party PS3 game may not sell as well as Microsoft's exclusives but they have MORE 1st party games so to the point it's near as damn the same as Xbox 360's earning from 1st party games! PS: MGS4 is not first party, it's exclusive but Sony gets the same royalty per MGS4 game sold as any other PS3 game like Assassin's Creed.

Also in the Playstation brand:

Playstation 2 global software sales: 1,638.95 million (still selling up till relatively recently)
PSP global software sales: 279.02 million
PSV global software sales: 6.78 million (since February 2012)

Sony online entertainment also makes money selling games on PC (with some crossover on PS3):
http://en.wikipedia.org/wiki/Sony_Online_Entertainment

while the PS3 is no longer selling at a loss, the Vita is. And it's tanking hard.

In what way is PSV tanking "hard"? It's only been out since February.

Sony had had only ever have to close down one of its fifteen or so first-party studios. This year, after yet another year of losses, they shut down two.

Sony has shut down studios before

http://en.wikipedia.org/wiki/Sony_Computer_Entertainment#Owned_franchises_and_properties

Game Republic - Defunct 2011
989 Studios - Defunct 2005
Incognito Entertainment - Defunct 2009
Relentless Software ? Self-publishing 2009
Bigbig Studios? Defunct 2012
Zipper Interactive ? Defunct 2012
SCE Studio Liverpool ? Defunct 2012
LightBox Interactive (32 employees) ? Independent 2012
Eat Sleep Play ? Independent 2012

As has Microsoft:

Aces Studio ? Defunct 2009
Bungie ? Independent 2007
Carbonated Games ? Disbanded 2008
Ensemble Studios ? Defunct 2009
Flight Team ? Defunct 2006-2012
Hired Gun ? Defunct 2007
Artoon - 2010
Bizarre Creation - Sold 2007, Defunct 2011

I'm afraid studios being closed down doesn't explain continuing poor profits. If anything it should explain profits increases as expenditures have fallen. It's an indication of hard times, not the cause of hard times. Many many studios are being closed down at the moment, by why is Sony suffering worse than others?

Companies stocks are falling EVERYWHERE. Have you seen THQ? Even EA's stock looks like a long downhill ski-slope.

Gaming is not going to be Sony's saviour.

But then you point out very accurately that Sony is no longer the kind of home music and gadgets, with Apple and Samsung having taken those with Xperia and so on being toxic brands... how does that discount Playstation? Playstation has a much better reputation than Xperia or even Vaio.

Look, Sony is competing much better with Microsoft. It ACTUALLY STANDS A CHANCE with Microsoft in that area, it's the ONLY other real competitor to the Xbox brand (Nintendo still isn't quite serious).

Sony doesn't stand a chance against Samsung or Apple as they have PROVEN! SOny has a lead in video games, it needs to push with it's strengths, not copy its old competitor.

They need to cut back the sheer breadth of electronics they offer

In for a penny, in for a pound. Cut out EVERYTHING except their video game properties and maybe their Vaio brand that is still quite valuable. Bravia, Xperia and so on, forget about it. They cannot give up on Playstation brand.

Sony doesn't jsut make tech, they also have huge presence in Hollywood films, US TV and music recording industry.