(Corrects dateline to TOKYO)
TOKYO, Oct 4 (Reuters) - Sony Corp CEO Kazuo Hirai
has spent $1.8 billion in the past three months snapping up an
assortment of businesses such as medical equipment and cloud
gaming, leaving investors to worry he is blowing his firm's
waning finances on a muddled plan to revive the fading giant.
Hirai, a Sony veteran of nearly three decades, took over the
top spot in April pledging to reshape the once-stellar brand
around the pillars of gaming, digital imaging and mobile
devices. Since his promotion, the company's stock market value
has fallen by around $8 billion.
After a decade of losing money on TVs, and four consecutive
net loss-making years squeezed in the competitive vice of Apple
Inc and South Korea's Samsung Electronics,
Sony is running out of time and money.
"There are signs of change, but it's only a start," said
Tetsuro Ii, CEO of Commons Asset Management.
"From what we have seen so far his strategy appears
fractured and the investments aren't going to be profit drivers.
He should probably give a clearer explanation of his new Sony.
The only way Sony is going to improve its finances is to earn."
Anguish over the demise of Japan's electronics giants has
for the past two months focused on TV pioneer Sharp Corp
. That eased on Friday when banks agreed a $4.6 billion
bailout, averting the immediate danger of a liquidity crunch.
While still a long way from being the next Sharp, Sony has
seen its five-year credit default swaps - the cost of insuring
its debt - double to more than 400 basis points since Hirai took
charge.
Analysts, meanwhile, view its profit outlook as overly
optimistic and its finances are eroding as its credit rating
edges closer to junk amid the splurge of acquisitions.
BUYING SPREE, PROFIT SQUEEZE
In its most recent buy, announced the same day as Sharp's
bailout deal, Sony agreed to pay $643 million for a 10 percent
stake in scandal-tainted camera and endoscope maker Olympus Corp
.
The tie-up, which made Sony Olympus's largest shareholder
and will see the two firms establish a company to develop
medical equipment, offers Sony another path away from
loss-making TVs.
But it is a further drain its stretched finances for an
investment that in eight years time will add only $1 billion in
sales to a $90 billion-a-year company.
Touring the CEATEC consumer electronics show, near Tokyo, on
Tuesday, Hirai defended the investment.
"As we do these acquisitions we are very mindful of our cash
position," Hirai said, after showing Panasonic Corp's
boss, Kazuhiro Tsuga, ultra high-definition televisions lined up
at Sony's booth.
"We have done a lot in terms of realigning our portfolio
over the last six months," he added.
Last month, Hirai agreed to pay $771 million for the 42
percent Sony did not already own in medical information website
operator So-net Entertainment.
A month earlier, he said his company would buy
California-based Gaikai Inc for $380 million to help establish
an internet-based "cloud" gaming service.
Yet problems loom in its console business that threaten to
kick out one of the key pillars of Hirai's revival plan. Sony in
August trimmed its annual forecast for handheld Vita and PSP
consoles to 12 million, from 16 million.
It also cut its annual operating profit forecast to 130
billion yen ($1.7 billion) from 180 billion yen. The average
estimate of 14 analysts surveyed by Thomson Reuters is for 110
billion yen, suggesting another cut before the business year
concludes.
Speaking at the same venue as Hirai during the Tokyo Game
Show less than two weeks earlier, Yoshikazu Tanaka, the founder
of social gaming firm, Gree Inc, the latest poster
child for Japan tech, predicted the death of game consoles.
They would, he said, be victims of a conversion trend that
has already melded mobile phones and PCs into tablets and
smartphones and which will eventually absorb game machines.
"Within a few years the power of tablets and smartphones
will exceed that of current game consoles," Tanaka said in a
speech at the event.
PUTTING THE SMILE BACK
Hirai has said his strategy for Sony, an emblem of both
Japan's post-war rebirth and its post-bubble demise, is aimed at
"putting a smile back on customers faces". Neither customers nor
investors appear to be smiling just yet.
"Sony and Sharp have the same problem: lost power to
innovate to Apple and the Koreans; high overheads; no new
products," said Donald van Deventer, the CEO of Kamakura
Corporation, a company that provides risk management research.
Kamakura estimates Sony's one-year probability of default
at 1.53 percent. "We generally consider anything above 1 percent
as somewhat risky," van Deventer said.
At the end of June its shareholder equity ratio, a key
indicator of its financial standing had dipped below 15 percent,
when a rate of 20 percent is considered the healthy minimum.
For comparison, Panasonic at the end of June boasted a ratio
of 29 percent.
Making Hirai's task harder, borrowing to help pay for Sony's
turnaround became more expensive on Sept. 25, when, citing
persistent weakness in consumer electronics, Standard & Poor's
cut its long-term debt rating to two rungs above junk. Rival
ratings agency Moody's is set to deliver its judgment on Sony by
November.
For now, Hirai is resorting to asset sales.
"We have sold off some of our assets as well to generate
cash and so it's just a matter of making sure we keep that
balance," the Sony boss said at the electronics show.
That book-balancing precipitated the sale its chemical
business, completed on Friday, to a state-owned Japanese bank
for 57 billion yen ($730.4 million). It may also include its New
York headquarters, the 37-storey Sony Tower.
Hirai at CEATEC summed up his job at the top so far as a
"whirlwind" of overseas trips to spread the message of Sony's
revival. But as uncertainty wafts over his company, Hirai knows
he will be judged on what he does rather than what he says.
"We obviously need to do a lot more and as I have always
said we need to show results as well," he said.
($1 = 78.0400 Japanese yen)
(Editing by Alex Richardson)
