The Fitch ratings agency downgraded the two Japanese companies to junk on the basis of their weak balance sheets and their continual decline in the global electronics sector in the face of strong competition from Korean rivals Samsung and LG.
Fitch cut Sony's ratings by three notches to BB- and Panasonic's to BBB-. The ratings provide a negative outlook, voicing Fitch's prediction they will default on their debt. Borrowing money will also be more expensive for the firms.
Sony: Make Believing for years
In its assessment of Sony, Fitch recognised the company's "continual suffering" in the TV, home theatre and sound. Sony has never turned a profit in its television business and the Company as a whole hasn't turned a profit since 2008.
"The downgrade reflects Fitch's belief that meaningful recovery will be slow, given the company's loss of technology leadership in key products, high competition, weak economic conditions in developed markets and the strong yen," the official Fitch release said.
Despite assigning them Junk status, Fitch does recognise Sony has a few strengths. The first is its imaging division's CMOS sensors, "where the company retains market and technology leadership."
The Sony Ericsson venture was built upon Sony's Walkman (music) and CyberShot (camera) brands. Fitch predicts it's likely "Sony will use its strength in imaging sensors to promote its next range of smartphones as best-in-category for photography." At present, smartphones are experiencing dramatic growth, (Sony's Korean rival, Samsung, owes half of its Q2 2012 operating profit to its smartphone sales).