Despite strong sales of the new PlayStation 4 video game console, Sony’s credit rating was cut to “Junk” status today by Moody’s Investor Service.
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While Sony’s entertainment wing continues to perform well, the company has not been able to compete in the struggling TV and PC sectors, where competition from rival manufacturers like Samsung and the rise of tablets and smartphones has taken its toll.
“While Sony has made progress in its restructuring and benefits from continued profitability in several of its business segments, it still faces challenges to improve and stabilize its overall profitability and, in the near term, to achieve a profile that Moody’s views as consistent with an investment grade rating,” Moody’s said in a statement.
“Of primary concern are the challenges facing the company’s TV and PC businesses, both of which face intense global competition, rapid changes in technology, and product obsolescence.
“Sony’s profitability is likely to remain weak and volatile, as we expect the majority of its core consumer electronics businesses – such as TVs, mobile, digital cameras and personal computers – to continue to face significant downward earnings pressure.”
Moody’s also noted that Sony’s game division would likely be profitable but not to the same extent seen in 2010.
Sony recently announced its upcoming cloud-gaming PlayStation Now service as well as a new live TV streaming service, both aimed at making the company’s wider product line more valuable and appealing to consumers.
PlayStation Now will enable PlayStation game streaming directly from Sony TVs and smartphones. Whether this will be enough of a draw to sway consumers toward Sony products remains to be seen.
Last year, investors urged Sony to split up the entertainment and electronic divisions, something that Sony has so far resisted.
Instead, the company is looking to cut expenses, diverting its focus from Hollywood to television, and pledging to cut $250 million in expenses from its entertainment business.
The downgrade comes just before Sony is set to report quarterly earnings on Feb. 6th. Sony shares are down approximately 4% as of this writing.