Fitch cuts Sony, Panasonic ratings to junk status

11/28/2012
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Japan Inc.’s reputation recently took a tumble, when ratings agency Fitch downgraded bonds issued by industry icons Sony and Panasonic to levels regarded as “junk.” A combination of factors brought about this circumstance, which caused jitters in the stock prices of these enterprises.

TOKYO (majirox news) — In more bad news for Japan, ratings agency Fitch has downgraded the bonds of Sony and Panasonic to what it calls “junk” status. For both companies, the agency pointed to a declining market share, overseas and domestically.

“These companies were successful until the late 80s, early 90s,” said Gerhard Fasol, CEO of Eurotechnology Japan K.K. “Since about 15 years ago they have had very mediocre performance, no growth, no profit and it’s not clear how they can improve their business models. They need new business models and at the moment we can’t see them.”

Major rivals Apple and Samsung have done well. Rather, analysts pointed to Sony and Panasonic’s outmoded business models and a sense of complacency, leading to stagnation.

“They are full of good people, good technology, so they have in principle opportunities,” Fasol said. “But it’s not clear if they can find new business models in the changing world.”

The debt rating of Panasonic was slashed by two notches to BB and Sony by three to BB-. Fitch says the bonds are no longer a safe investment. Recovery is expected to be a slow and painful process.

Hiro Tanaka, a businessman, said, “To recover they need to find out what the consumers want. The founders of these companies said listen to what the consumers want, which they haven’t done. Today they are behind in technology and are ignoring the reality of the market.”

Though Panasonic has been restructuring, and laying off part of their large workforce, it still foresees a combined 19 billion dollar loss for this and the previous year. It intends to reduce investment in solar panels, rechargeable batteries — the very technologies for which it purchased Sanyo about a year ago — and also intends to cease sales of smartphones overseas.

Experts say neither company has made any impact in the global smartphone or tablet markets. They have been dominated by Apple and Samung, who have established industry standards thanks to brand cachet and scale of manufacturing and marketing operations that cannot be matched by either Japanese company. In addition, the strong yen has held back sales outside the Japanese market.

With Sony and Panasonic following Sharp into the so-called “junk” category, Japan’s dominance of the world’s electronics markets may have come to an end. It remains to be seen whether the restructuring and reinvention of these giants will succeed in the long term, the immediate prospect seems bleak.

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