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Sony Corp (NYSE:SNE) has completed the cash sale of its chemical products subsidiary Sony Chemical & Information Device Corp to the Development Bank of Japan for $737 million. At the same time Sony is looking to invest $642 million in a 10% stake in its struggling rival Olympus Corp. The new acquisition comes as Sony plans to expand into medical equipment and acquire imaging technology which is becoming an increasingly important selling point for smart phones.

For the quarter ending 30th June, Sony posted a net loss of $317 million, rising from previous quarter's net loss of $200 million posted in year-ago quarter. For its year ending 31st March 2012, one of the leading optical device manufacturers recorded a massive net loss of $5.8 billion, rising up from the $3 billion loss for year ending March, 2011 and its fourth consecutive annual loss.

It's no surprise therefore that S&P has recently downgraded Sony's long term debt rating, again, by one notch to BBB, just two steps away from junk. The downgrade would mean that Sony will find it difficult to finance any acquisitions, although its recent chemicals sale should ensure that it bags the Olympus deal. The latter is already struggling with cash due to the financial statement scandal and hidden investment losses, which makes this deal only make sense from a technology transfer perspective.

Olympus with its Debt to Assets ratio of 97% is rapidly approaching a potential cash crunch as this year,cash levels have fallen to $2.5 billion from $2.7 billion a year ago. Sony, on the other hand, is still relatively cash-rich, having nearly $17 billion on hand; though down from $18.4 billion a year ago, and a debt ratio of just 9%.

Sony got itself into a mess because of one primary factor: Price. It has traditionally been able to leverage its brand and get premium pricing for its electronics from computers to audio equipment and TVs. And it was still manufacturing its products in Japan as compared to its peers, such as Apple (NASDAQ:AAPL), who like to do most of their manufacturing in China and other countries where cheap skilled labor is readily available. But Apple is the only company that can still reliably sell a computer north of the $1000 price point, and Sony is competing with the likes of Lenovo and Samsung, whose brand image is rising rapidly, especially in their home countries, and in the U.S. and Europe as well. Sony's brand image has been whittled away over time.

Sony's CEO indicated that the current fiscal year is going to be challenging, and the business might end up losing $1 billion from TV operations. TV sales have been flat at best, which has weighed heavily on everyone in the supply chain, especially LCD glass producers like Corning (NYSE:GLW), which continues to struggle with reduced LCD orders. Investors should expect the ninth consecutive yearly loss from this business unit.

In its efforts to reduce the losses, Sony has sold its stake in LCD operations with Sharp and Samsung. It is now working with Panasonic (PC) to develop OLED television sets. Contrary to industry trends, Panasonic was able to post a profit of $165 million for the quarter ending June 2012 after it posted a huge quarterly net loss of $5.6 billion. They completed a strategic shift from low-margin television sets to solar panels and rechargeable & Information Device Corp to the Development Bank of Japan for $737 million. At the same time, Sony is looking to invest $642 million in a 10% stake in its struggling rival Olympus Corp. The new acquisition comes as Sony plans to expand into medical equipment and acquire imaging technology, which is becoming an increasingly important selling point for smart phones.

In its efforts to reduce the losses, Sony has sold its stake in LCD operations with Sharp and Samsung. It is now working with Panasonic to develop OLED television sets. Contrary to industry trends, Panasonic was able to post a profit of $165 million for the quarter ending June 2012 after it posted a huge quarterly net loss of $5.6 billion. They completed a strategic shift from low-margin television sets to solar panels and rechargeable batteries.

S&P in their ratings downgrade saw no significant changes for Sony as likely until at least the end of its fiscal year in March 2013. Currently, Sony is at its lowest levels since 1987. Console sales have been dropping, and its latest generation Playstation is not likely until Q4 of 2013 at the earliest, even though Nintendo's Wii-U is now available.

Its current share price of around $12 is less than half its book value price of $24.50. Its net tangible asset share price is $11.50, which gives an estimate of its shares hitting rock bottom. There is some risk associated with Sony's stock, but considering its current price, a takeover bid, or even Sony itself using its cash reserves, can push its price upwards that can generate great rewards for medium term investors. At this point, Sony is pure speculation on their ability to reduce COGS and create brilliant technology around their smartphones and Playstation brand.e batteries..

Source: Sony Sees Some Light In Shuffling Assets