Moody's cuts Sony to one notch above junk Moody's has cut its rating on Sony's debt to the lowest level above junk and warned of possible further downgrades, as it cast doubt on the Japanese group's ability to rebuild its struggling consumer electronics franchise. The credit agency reduced Sony's long-term debt rating to Baa3 from Baa2, its third downgrade of the company this year. "Overall earnings will stay weak due largely to prolonged operating losses in TVs and mobile phones, as well as significant declines in earnings from digital imaging products and games," it said. It was only a few years ago that Japanese companies seemed to make most of the world's televisions, video recorders and audio equipment. But now competition from lower-cost manufacturers elsewhere in Asia, exacerbated by a strong yen, has turned the products that once defined their success into financial sinkholes. Sony posted its seventh consecutive quarterly net loss in the three months to September, although it is forecasting a small profit for the full fiscal year to next March. Its domestic rivals Panasonic and Sharp are together projecting $15.2bn of net losses for the year. Last week Standard & Poor's slashed its rating on Panasonic's long-term debt by two levels, from A- to BBB, while Fitch downgraded Sharp's credit rating to the non-investment grade, or junk, level of B-. Sony would be in even deeper trouble if not for its film and music businesses and its Japanese financial services arm, profitable areas whose earnings have partly offset its losses in electronics. Moody's said it did not believe that Sony currently faced any problems financing itself, thanks to "stable relationships with its major banks, as well as its good liquidity profile." Nonetheless, it said "stress on its balance-sheet metrics has recently increased substantially," with debt at its non-financial services businesses increasing by Y400bn ($5bn) between March and September, and cash and deposits falling by Y300bn, to Y420bn, in the same period. In a possible allusion to Sony's plans to spend Y50bn to buy a minority stake in Olympus, the camera and endoscope maker that has been weakened by an accounting scandal, Moody's warned that "acquisitions, which could change its business risk materially and adversely, and/or erode its balance sheet and financial flexibility, could also pressure the ratings." Sony has struggled to shift its focus from the increasingly unprofitable business of hardware manufacturing to the sort of integrated design, software and content-distribution model pioneered by Apple. On Thursday, Tim Schaaff, Sony's network strategy chief, who was headhunted from Apple as part of the effort to compete with the US group in online music and video distribution, resigned after seven years.