MOODY'S ASSIGNS Baa2 RATING TO PIONEER ELECTRONIC CORPORATION'S DOMESTIC BONDS AND SEES DOWNWARD PRESSURE ON THE RATING
TOKYO, February 13, 1986 -- Moody's Investors Service assigned a Baa2 rating to Pioneer Electronic Corporation (Pioneer)'s ¾30 billion domestic bonds due 2000. The rating reflects Pioneer's leading position in the world audio/visual product market, its strong research capabilities, and its sound balance sheet. However, the rating also reflects Pioneer's weakening market position in some of its major products, unfavorable earnings outlook and reduced cash flow, resulting in lower debt protection measurements all of which will place pressure on the ratings of the company over the intermediate term.
Pioneer's poor operating performance in recent years is due to the sluggish world consumer electronic market, continuously declining product prices, and the appreciation of the yen. Pioneer has difficulties in some of its major products where the company had a dominant market position in the past. In the audio market, low-priced products are becoming more popular among consumers while Pioneer has its strength in high-end products traditionally, which prevented the company from coping swiftly with the change in consumers' preference. In addition, Pioneer operates its main production facilities in Japan, making the company more vulnerable to the strong yen, while competitors established low-cost overseas plants earlier. In the domestic Karaoke market, Pioneer had a dominant position with its Laser Disc (LD) systems. However, the introduction of other systems by competitors and the expansion of on-line Karaoke systems gave a significant negative impact on Pioneer's market position. In addition, unlike its favorable market position with LD, it seems difficult for Pioneer to hold a dominant market share in Digital Video Disc (DVD), the next generation consumer video product, because strong competitors are spearheaded by their new technologies in this area. Those severe operating environments for the company are likely to continue, leading to lower margins, reduced cash flow, and a weak fixed charge coverage.
On the other hand, Pioneer has strong research capabilities for the coming multimedia products. The company has a leading position in the growing car navigation systems. Pioneer is also taking various measures to attain more competitive cost structure, including work force reductions. Pioneer's balance sheet still remains relatively strong, even after the company's financial support to its troubled affiliate, Carolco Pictures, a US film company. The rating agency believes that those positive factors will help the company through the current severe operating environment.
Pioneer Electronic Corporation, headquartered in Tokyo, Japan, is one of the leading Japanese manufacturers of audio/video and car-electronics products.
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