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Rating Action:

Moody's downgrades Sony's rating to Ba1/Not Prime; outlook stable

 The document has been translated in other languages

Global Credit Research - 27 Jan 2014

Tokyo, January 27, 2014 -- Moody's Japan K.K. has downgraded the Issuer Rating and the long-term senior unsecured bond rating of Sony Corporation to Ba1 from Baa3. The ratings outlook is stable.

At the same time, Moody's has downgraded the short-term rating of its supported subsidiary, Sony Global Treasury Services Plc, to Not Prime from Prime-3.

This concludes the review for downgrade initiated by Moody's on November 1, 2013.

RATINGS RATIONALE

The rating actions reflect Moody's view that 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.

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.

The primary reason is intense competition and the shrinkage in demand, the result in turn of cannibalization caused by the rapid penetration of smartphones.

To improve profitability, Sony has implemented extensive restructuring measures that include -- among others -- the reduction of fixed costs for its TV business, and the consolidation of its manufacturing plants.

These efforts have helped reduce losses in its Home Entertainment & Sound and Mobile Products & Communications segments, but Moody's remains concerned that the benefits are only slowly emerging and that these two large segments seem unlikely to soon regain the robust profit levels seen historically.

At the same time, the four segments of Devices, Imaging Products & Solutions, Music, and Pictures are expected to remain profitable, but not at levels, which in aggregate can support an investment grade rating for the overall corporation.

Moody's is particularly concerned about weak earnings in the Devices and the Imaging Products & Solutions segments as the rapid decline in demand for compact digital cameras continues to alter the markets for such products and associated imaging sensors.

Both of these two segments are expected to remain profitable, but at levels lower than those seen historically.

Profitability in the Games segment is expected to improve with the successful launch of PlayStation IV, but not to the extent seen with the profitability level in 2010.

The Music and Pictures segments are expected to remain profitable -- after an expected one quarter seasonal loss in Pictures -- and supportive of the company's cash flow and profitability.

Moody's considers that the continued solid operating performance of Devices, Music, and Pictures are particularly important in the midst of the restructuring of Sony's Home Entertainment & Sound, and Mobile Products and Communications segments.

However, a lack of stability in some of these segments will increase the risk of further delaying the recovery of Sony's overall profitability.

The stable outlook is based on our expectations that the company's overall credit profile will slowly improve. Operating margins are expected to remain in the 0.5% -1.0% range for the next 12 months. Adjusted Debt to EBITDA will decline over time but remain above 4.5x.

The ratings could experience upgrade pressure if Sony improves profitability and cash flow by: 1) turning around its TV and PC businesses; 2) reversing declines in earnings from its games and digital imaging products; and 3) reducing debt.

Also necessary for an upgrade would be an overall demonstration by its non-financial services businesses of 1) adjusted debt/EBITDA of 4x-4.5x, and 2) adjusted debt/capitalization below 55%.

The ratings could experience downgrade pressure if profitability, cash flow, and leverage deteriorate further, and if Sony's non-financial services overall fail to improve operating profit (excluding non-recurring gains and losses, and equity income), or maintain adjusted debt/EBITDA in the 6-7x range, or keep adjusted debt/capitalization below 65%.

The principal methodology used in these ratings was the Asian Consumer Electronics published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Sony Corporation, headquartered in Tokyo, is one of the world's leading manufacturers of consumer electronics products. Its key segments are: Imaging Products & Solutions; Game; Mobile Products & Communications; Home Entertainment & Sound; Devices; Pictures; Music; Financial Services.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 2. The Financial Services Agency has not imposed any supervisory measures on Moody's Japan K.K. in the past year.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maki Hanatate
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Richard Bittenbender
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's downgrades Sony's rating to Ba1/Not Prime; outlook stable
No Related Data.

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