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Thursday, October 12, 2006

Sony Debt Downgrade, Microsoft Cheers (SNE)(MSFT)

Adding insult to injury, Fitch cut Sony's debt yesterday. The ratings agency expects things to get worse at the Japanese consumer electronics giant. The key to the downgrade is that Fitch expects Sony to lose money in the video game market for the next three to five years. Yes, that's years.

Fitch must not be in love with the prospects for the new PlayStation 3. If it turns out to be a huge success, Sony might improve its fortunes. But, analysts do not seem to be thinking in that direction.

Microsoft, with its deep pockets and maniacal focus on winning in key markets at almost any cost, must view the troubles at Sony with joy. The Xbox platform is the major competitor for the PS3. Xbox lost $1.26 billion in Microsoft's last fiscal year (June 30). With the launch of the Xbox 360, the new and improved version, and Microsoft's willingness to win at almost any cost, Sony may not have seen its last downgrade.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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