S & P Warns Sony on Projection for 4th Consecutive Annual Loss - News
by VGChartz Staff , posted on 07 November 2011 / 6,849 Views
Milton Friedman, a famous economist once said, "There are two superpowers in the world today in my opinion. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful."
Standards & Poor's, a less powerful, but still important financial agency has just given Sony notice about the run of excessive losses the company has been posting in the past few years. Sony is now under review for a lower credit rating by Standards & Poor's which would make it harder for the company to borrow money and also to pay off existing debts and obligations. Standard & Poor's assessment, that Sony is in a bit of trouble, is essentially correct if you look at Sony's losses for the past few years and the updated projection for the year to March 2012:
Billions of Yen FY 3/2006 FY 3/2007 FY 3/2008 FY 3/2009 FY 3/2010 FY 3/2011 FY 3/2012 Projection
Profit / Loss 123.6b 126.3b 369.4b 38.3b 40.8b 259.6b 90b
Dollar / Yen 112.3 116 113.3 99.5 91.8 84.7 75
Sony is now projected to have its fourth consecutive loss in a row, after recently lowering its projection for the year to March 2012 from a 60b Yen profit to a 90b Yen loss. The losses, as can be seen by the changing value of the dollar to the Yen are partly because Sony simply has to sell three items at $200 instead of two items at $200 in the US to make the same amount of revenue in Yen in 2011 as in 2006 or 2007. That currency burden has made profit much harder to achieve for Sony, particularly with the British Pound and Euro also weakening against the Yen over the past few years.
Assuming Sony meets its 90b Yen loss for the year and doesn't lower the target again, the company will have lost $384.9m + $444.4m + $3.0685b + $1.200b (FY 3/2012) in the past four years. That's $5.0978b in losses in four years if Sony meets its projections, on revenue of roughly 29t Yen ($327.7b). Sony's profit margin is essentially -$0.015 over the past four years if it meets its projection, which is to say for every dollar the company spends it loses the dollar and an additional 1.5 cents. Since Sony spends billions and billions per year, the company sees huge losses with even a profit margin that is barely negative. Sony does of course have billions and billions in assets that can be sold if the company gets desperate for cash. With losses still set to be pretty negative, and loans about to become harder to get, Sony may have to spin off some its less profitable functions into seperate companies to avoid bringing the whole ship down.
It's definitely a sign of bad times that $327.7b in revenue from April 2008 to March 2012 may not produce a single cent of profit overall. The timing is also fairly bad for Sony Computer Entertainment, as Sony is set to exit the peak profitability of PS3 software fairly soon, in the next fiscal year or two, while R & D and launch expenses for Vita and PS4 are surely increasing quickly at the moment. Whatever profit Sony is to get from Vita and PS4 will be in late 2013 and beyond as the systems will have small profit margins initially even if they roar out of the gate.
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Exchange rates need to improve and it is making it especially hard for certain Japanese companies to post profits.
With the way the Yen is going SONY and other Japanese companies don't have much choice but to cut down on spending and hope the Yen doesn't get any stronger. To put things in perspective only a few years ago SONY got +50% Yen per US dollar and would of allowed them to be profitable in FY2011, with FY2009 and FY2012 potentially profitable instead of the losses instead.
Ok, but they just made that big purchase of the remaining stakes of the Sony-Ericcson partnership seem even MORE ill-timed.
I know we have a lot of Sony fans, loyalist and fanboys on this site, and many of them will try to tell themselves that this isn't a big deal or that Sony will be fine. I know you all WANT to believe that. But this is HORRIBLE timing. If the Vita starts off slow or shows in any way that the smartphone gaming transition is real, stockholders are going to start going start calling for some serious action. If you look back at the last 10 years, has the gaming division been worth it to the stockholders? Heck, some vocal MS stockholders have been calling for the head of Ballmer and for the gaming division to be dropped and they have been more successful than Sony Corp by far.
I know this is a long comment (should've saved this for a thread), but let's just call it what it is: very bad news for Sony Corp. We'll see what happens from here on out ...
Damn... That Dollar/Yen exchange is doing some serious damage. I'm sure they can hold on and push through these years, though.
I honestly dont see the vita being successful, I mean look at what happened to nintendo with 3DS, and its nintendo where talking about! Sony is going to be in big trouble, I just hope they can pull themselves through this
All that revenue must have went between the PSN hack and the earthquake
Sony put themselves behind the 8-ball with the horrible financial decisions/gambles made with the PS3 early on. Then they were very unlucky with the exchange rate compounded with the fact that they had to race to lower price points for market share. They're just now starting to recoup the PS3 R&D losses and they're surely already investing heavily in PS4 R&D. If Vita goes badly, they could have real issues.
Hard time for Sony. But I doubt it's going to go down.
They're not going to go down, but thay might exit from some of their divisions, like for instance cell phones.
Hope things turn out well for Sony in the end. Seems they'll be alright, despite so many losses.
Makes me sad. I contribute so much to Sony; hopefully they get through the next few years without Chapter 11
oh my god poor sony,this company never arrogant and so honest with costumers and their check card I'm crying lol
They have some pretty nifty products, but they have been run terribly for many years now. Their music division is run by jerks to put it lightly and makes awful decisions. They have been losing money forever with their gaming division, and now a lot of the company seems to be losing money... you can't blame that all on the exchange rate. Everyone has to deal with that, but they aren't in danger of posting all of those years in a row of losses. They won't go bankrupt or anything, as the article said, they have plenty of assets. But they can't let their rating drop.
Hopefully Vita isn't a failure or they could be in trouble.
The $% they get from each CoD: MW3 sold on the PS3 will help them out a bit =p
Looking forward to seeing Sony fall and end their arrogant Sony products!
Terrible stuff. MS should buy Sony.
