Japan's embattled electronics sector suffered another blow on November 22 as ratings agency Fitch downgraded industry titans Sony and Panasonic to junk status for the first time. The agency slapped a speculative rating on each firm, pointing to their weak balance sheets and declining position in the global electronics sector as they come up against stiff competition from overseas.
In the wake of huge losses, Panasonic, Sony and rival Sharp have announced massive corporate overhauls that include selling off divisions and tens of thousands of job cuts as their shares plunged. Japan's electronics sector has suffered from myriad problems including a high yen, slowing demand in key export markets, fierce overseas competition and strategic mistakes that left their finances in ruins.
Panasonic has warned it is on track for a $9.6 billion annual loss, while Sony expects to eke out a small profit, after four years in the red. On November 22, Fitch said it cut Panasonic by two notches to BB, while it slashed Sony's rating by three notches to BB-, with both firms given a negative outlook. The downgrades mean their debt was no longer considered a safe investment.
Panasonic and Sony have suffered downgrades by other global ratings agencies, but November 22 was the first time either saw their credit rating slashed to speculative grade. Earlier this month Fitch cut Sharp's rating to junk, which followed a similar decision by Standard & Poor's. Fitch said its downgrade of Panasonic was due to its "weakened competitiveness in its core businesses, particularly in TVs and panels, as well as weak cash generation from operations".