REFILE-ANALYSIS-Is Sony buying time - or problems?

Tim Kelly

(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


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.


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


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.


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


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)