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S&P may downgrade Sony's rating.

TOKYO, Oct. 20 Kyodo

Standard & Poor's said Friday it revised to negative from stable its outlook for Sony Corp.'s A-minus rating, citing the possibility its performance in fiscal 2006 may deteriorate further following its downward revisions Thursday to its earnings forecast for the fiscal year.

But the major U.S. rating firm maintained the stable outlook for the A-plus rating on Sony Life Insurance Co. and the A-minus rating on Sony Bank.

Explaining reasons for its change of the outlook, S&P also said it is becoming less certain whether Sony can improve its cash flow and profits in fiscal 2007.

On Thursday, Sony sharply cut its group profit forecasts for fiscal 2006, citing large costs from recalls of its faulty lithium-ion batteries, a price cut in Japan for its PlayStation 3 game console and lower-than-projected sales of its PlayStation Portable game machine.

Whether Sony will be able to recover its profitability and cash flows depends on its future performances in the video game and electronics products operations, S&P said.

It cautioned Sony's intensifying competition with Nintendo Co. and Microsoft Corp. will further increase pressure on prices and unit sales of the PlayStation 3 console and PlayStation Portable machine.

If its game machine sales show poor results, it would undercut sales of related software, which has been the main source of profits in the game business, S&P warned, adding poor game machine sales would also make it hard for Sony to cut production costs of key parts for use in video consoles such as semiconductors.

In addition, S&P noted the impact from the recall of faulty lithium-ion batteries may extend to sales in Sony's other operations.
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Publication:Japan Consumer Electronics Scan
Date:Oct 23, 2006
Words:280
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