Sony, Panasonic Face 2, 3 Years of 'Poor Profitability': Fitch
Writer CNBC.com Asia
Japanese consumer electronics firms Sony and Panasonic ace another two to three years of "poor profitability" if they do not regain their technological edge, Matt Jamieson, head of APAC Research with Fitch's corporate ratings group, told CNBC on Friday.
His comments come a day after Fitch cut Sony and Panasonic's debt ratings to "junk" status, dealing another blow to two of Japan's tech heavyweights that have faced weak demand and intense competition from the likes of Samsung and Apple .
The two Japanese firms have been making losses for years because they have been unable to come up with innovative products in the way their rivals have and unless they do so, they will continue to be plagued by a negative financial profile, Jamieson told CNBC Asia's "Cash Flow".
"Their historic leadership in key areas such as TVs, audio devices, mobile phones - it's been eroded by the likes of Samsung and Apple. And it's been too long since they've come up with successful, market-leading must-have products. We don't see this changing over the next 2, 3 years," Jamieson added.
"We expect poor profitability and weak cash flow generation to continue over the next 2 to 3 years," he said.
Fitch cut Panasonic's rating by two notches to BB and Sony by three notches to BB-, with a negative outlook, sending shares of the two firms tumbling in Frankfurt on Thursday. The Fitch announcement on Thursday came after the close of Japanese markets, which were closed on Friday for a holiday.
(Read More: Is Sony Buying Time - Or Problems?)
This is the first time one of the three major ratings agencies have put the creditworthiness of either company into junk-bond territory, according to Reuters.
The ratings agency cited weakness in the two firms' businesses and finances, seen in billions of dollars in losses over the past year, as the main reasons for the cut.
Japan's once-dominant consumer electronics industry has been hurt by cheaper, more innovative products from South Korea's Samsung, while tablets and smartphones which the Japanese makers have overlooked, have become the main consumer electronics devices.
Panasonic Better Positioned
To turn around its fortunes, Panasonic, maker of the Viera TV, is looking to expand its businesses in appliances, solar panels, lithium batteries and automotive components. Appliances account for around only 6 percent of the company's sales, but generate margins of more than 6 percent and make up a big chunk of operating profit, Reuters reported.
(Read More: Panasonic Cleans House With Writedowns, Sees $9.6 Billion Loss)
Sony, creator of the Walkman cassette and CD player, is focusing on consumer gadgets such as digital cameras and gaming devices.
Jamieson said Panasonic is in a better position than Sony to survive the slump because it has a stable business of durable goods such as fridges and washing machines.
"Although Panasonic is facing weak competitiveness in its core TV business, particularly the panels and TVs, it has the advantage of a relatively stable consumer electronics division that is still generating positive margins," he said.
However, for the two firms to stage a genuine turnaround, something they have failed to achieve so far, they will "need to bite the bullet and completely exit some of their loss-making businesses." Jamieson said.
"They need to curb, or completely exit their loss-making businesses and focus on their key strengths and these business lines, where they are able to generate profitability and rediscover that kind of technology leadership which historically they were famous for," he told CNBC.
-By CNBC's Jean Chua.