Azernews.Az

By Bloomberg

Sony Corp.’s falling bond risk as it shifts focus away from consumer electronics is diverging from that of Sharp Corp., which is once again missing earnings targets.

The cost to insure Sharp’s debt against non-payment jumped 150 basis points last week to 475 basis points, after the Nikkei newspaper and Kyodo News said it will report a loss this fiscal year. The Osaka-based company narrowly avoided collapse in 2012. Sony’s credit-default swaps declined to 105, according to data provider CMA. The average cost for Asian technology companies was 111.

Sony expects revenue from the PlayStation and network businesses to climb 24 percent over the next three years, while new Spider-Man movies and content based on video games drive sales growth of as much as 36 percent at its pictures units. Sharp said last week it may miss its annual earnings target, citing currency moves and competition in the flat panel business.

“When the company is in the midst of restructuring, flipping from a profit forecast to a loss is quite a blow,” said Mana Nakazora, the chief credit analyst for Japan at BNP Paribas SA. “That’s quite a disappointment and suddenly changes the perception that Sharp is ahead of Sony in reforming itself.”

Sharp was forecasting a net income of 30 billion yen ($255 million) in the year to March 31, its biggest profit in seven years. President Kozo Takahashi cut 167 billion yen in fixed costs and focused on smaller screens for Chinese smartphone brands to end losses last fiscal period.

Concentration Risk

Competition from those same handset makers prompted Sony to take a 180 billion-yen impairment charge on its Xperia business. The company is ending development of new models for China, the world’s biggest smartphone market, and focusing its marketing on retaining customers.

“When you narrow your business scope to just your core competencies like Sharp did, you expose yourself to risks of over-concentration,” said Yasuhiro Matsumoto, a senior manager in Tokyo at Abeam Consulting Ltd. “The market values the depth of Sony’s business line.”

A restructuring push by Sony Chief Financial Officer Kenichiro Yoshida has seen the company sell off its Vaio personal computer brand and put its TV manufacturing unit into a new structure. The maker of PlayStation consoles expects the game franchise, financial services division, image sensor business and film content to power earnings.

Japan’s Riskiest

Sharp’s default swaps jumped to 7,648 basis points more than Sony’s in October 2012 after the maker of Aquos televisions said there are uncertainties about it being an “assumed going concern.” Its surprise loss forecast in August of that year sparked ratings downgrades that made it difficult to raise money, pushing the manufacturer to the verge of default. Sharp is still Japan’s riskiest company, even after removing the reference to doubts about staying “a going concern” last year.

Sony spokesman George Boyd and Sharp spokeswoman Miyuki Nakayama both declined to comment on the bond risk moves.

The extra yield on Sharp’s 2.068 percent bonds due March 2019 soared 103 basis points last week to 361 more than sovereign debt, according to data compiled by Bloomberg. The spread on Sony’s notes due June 2019 with the same coupon was 73. A basis point is 0.01 percentage point.

Japan’s 10-year government bond yield dropped 1 1/2 basis points last week to 0.225 percent, the lowest in the world after Switzerland. The yen traded at 117.73 per dollar as of 9:15 a.m. in Tokyo today.

“Sharp is moving in the right direction, so financial institutions are unlikely to abandon them yet, but it’s clear that the efforts are falling short,” Nakazora of BNP Paribas said. “In Sony’s case, there are hopes that this will be their final round of restructuring.”