Like other export-focused Japanese manufacturers, Canon,
which makes 80 percent of its revenue overseas, has been hit by
a strong yen and a weak economy, on top of last year’s floods in
Thailand that closed a printer plant and ruptured supply lines.

Canon said Tuneji Uchida, 70, will resign as of March 29,
and be replaced by Fujio Mitarai, who served as president from
1995-2006 and has since held the post of chairman.

“Mitarai was at the centre of management, so I don’t think
there will be any sudden changes,” said Naoki Fujiwara, a fund
manager at Shinkin Asset Management, which manages about 500
billion yen ($6.5 billion) in assets.

“They do need to hand over to the next generation at some
stage, so we’re interested to see when that will happen.”

Canon forecast 2012 operating profit of 390 billion yen
($5.1 billion), up from last year’s 378.1 billion yen, but some
way below the average forecast of 470 billion yen from 20
analysts surveyed by Thomson Reuters I/B/E/S.

Profit in 2010 was 387.5 billion yen.

Chief Financial Officer Toshizo Tanaka told reporters on
Monday the company would work towards handing over to the next
generation over the next three years. For now, given the
uncertain economy, choosing a company veteran to replace Uchida,
who had asked to step down, was the best option, he said.

Mitarai stepped down as president when he was appointed head
of Japan’s biggest business lobby, Nippon Keidanren, but he
continued to play an active role and was named among the world’s
30 best CEOs by Barron’s magazine every year between 2008 and
2011.

A nephew of Takeshi Mitarai, among the first
executives to head the company, Mitarai joined in 1961 after
graduating from law school.

CAUTIOUS OUTLOOK

Canon posted a 14 percent increase in fourth-quarter
operating profit, to 94.6 billion yen, in line with consensus
estimates, after a fresh round of cost-cutting.

“They’re forecasting a rise in 2012 earnings, but given the
impact of exchange rates, they’re taking a harsh outlook on
profits,” said Mizuho Research Institute senior economist Koji
Takeuchi. “It’s not negative overall, but Canon’s indication of
a cautious view will not be lost on the market.”

Canon, which made its first camera in 1933 and now has its
IXUS and PowerShot cameras competing against Nikon and
Sony Corp, aims to sell 22 million compact cameras and
9.2 million interchangeable lens cameras this year, up from 18.7
million and 7.2 million, respectively, last year.

Nikon said in November it expected to sell 16 million
compact cameras in the year to end-March, and 4.7 million
digital SLR cameras.

Canon also competes with Xerox in printers.

Xerox lowered its 2012 outlook this month,
predicting its business would feel the impact from the European
debt crisis.

Canon shares have fallen about 18 percent since the start of
last year, slightly underperforming the benchmark Nikkei
average’s 14 percent decline. The stock closed down 1
percent at 3,435 yen on Monday ahead of the earnings.

Shares in Kyoto-based Nintendo Co Ltd tumbled nearly 8 percent to an 8-year low after it slashed its full-year guidance for the third time in 6 months, and analysts said the potential market for its products was shrinking rapidly.

The creator of the Super Mario franchise reported a sharp drop in quarterly earnings, as its sales of its games devices that have dominated the industry for years were hit by competing gadgets such as Apple Inc’s iPhone.

Iwata said he blamed the dismal results on a mixture of strategic errors and the difficult business environment created by the strong yen and European consumer gloom.

“Nintendo is facing its worst results since it entered the games business. What matters now is how Nintendo can make a profit from next year onwards, even under these harsh conditions,” he told an analysts’ meeting.

The maker of the Wii home console and DS handheld games is struggling to compete as sales of more versatile smartphones and tablets boom, and poor sales forced it to slash the price of its much anticipated 3DS handheld game device in August.

“The profitability of 3DS hardware was the biggest issue for earnings this financial year, but it looks like we’ll be able to resolve the problem we’ve been having with losses on the 3DS during the first half of the next financial year,” Iwata said.

“We should be able to generate a large profit by getting rid of losses on the 3DS hardware, if we can substantially lift sales of software.”

A Nintendo spokesman said the company expected to stop losing money on each 3DS sold, thanks to economies of scale and changes to the internal design of the device.

But Nintendo shares closed down 4.1 percent at 10,310 yen, after falling to 9,910 yen shortly after the market opened, their lowest since February 2004. It has lost nearly 60 percent of its value since the start of last year.

“The company’s core handheld business is under assault from smartphones, iPods and tablets, and we see competition for consumer wallet share continuing,” said analyst Michael Pachter of U.S.-based Wedbush Securities in a research note.

“The fact is that a significant share of Nintendo’s market is gone forever, and we don’t expect the company to come up with a practical strategy to stem the declines in sales we have forecast,” he added. “We do not expect the company’s fortunes to turn in FY 13.”

NEW HOME CONSOLE BY CHRISTMAS

Nintendo said on Thursday its third-quarter operating profit fell 61 percent to 40.9 billion yen ($529 million) and it forecast an operating loss of 45 billion yen for the financial year to March 31, far worse than analysts’ average forecast of a 4.2 billion yen loss.

Sales of its 3DS slumped shortly after launch in February, forcing the company to slash prices just six months later and take a loss on each device, something it had prided itself on avoiding in the past.

Even so, Nintendo cut its full-year 3DS sales forecast to 14 million from 16 million, while sales of its ageing Wii and the previous generation DS have fallen faster than expected.

It also faces stiff competition in the home console market from Sony Corp’s Move and Microsoft Corp’s Kinect, and some analysts say the console market may dry up over the next several years as cloud gaming takes off.

Nintendo will launch its Wii U console, a successor to the phenomenally successful Wii, in Japan, the United States, Australia and Europe at the year-end, after showing a final version at the E3 games show in June.

But Masayuki Otani, chief market analyst at Securities Japan, said the market was unlikely to have high hopes for the Wii U, although the slide in the share price may be reaching an end.

“The pace of the share price decline is easing and it may be near a floor, but it would be hard to predict a rapid recovery,” he said.

Iwata said a leap in 3DS sales after the launch of a raft of software late last year showed that dedicated handheld games gadgets still had a future.

“I believe we have disproved the extreme theory that there is no longer a demand for handheld devices,” he said.

($1 = 77.34)

(Additional reporting by Dominic Lau, James Topham, Reiji Murai, Daiki Iga; Editing by Edwina Gibbs, Michael Watson and Alex Richardson)

Shares in Kyoto-based Nintendo Co Ltd tumbled nearly 8 percent to an 8-year low after it slashed its full-year guidance for the third time in 6 months, and analysts said the potential market for its products was shrinking rapidly.

The creator of the Super Mario franchise reported a sharp drop in quarterly earnings, as its sales of its games devices that have dominated the industry for years were hit by competing gadgets such as Apple Inc’s iPhone.

Iwata said he blamed the dismal results on a mixture of strategic errors and the difficult business environment created by the strong yen and European consumer gloom.

“Nintendo is facing its worst results since it entered the games business. What matters now is how Nintendo can make a profit from next year onwards, even under these harsh conditions,” he told an analysts’ meeting.

The maker of the Wii home console and DS handheld games is struggling to compete as sales of more versatile smartphones and tablets boom, and poor sales forced it to slash the price of its much anticipated 3DS handheld game device in August.

“The profitability of 3DS hardware was the biggest issue for earnings this financial year, but it looks like we’ll be able to resolve the problem we’ve been having with losses on the 3DS during the first half of the next financial year,” Iwata said.

“We should be able to generate a large profit by getting rid of losses on the 3DS hardware, if we can substantially lift sales of software.”

A Nintendo spokesman said the company expected to stop losing money on each 3DS sold, thanks to economies of scale and changes to the internal design of the device.

But Nintendo shares closed down 4.1 percent at 10,310 yen, after falling to 9,910 yen shortly after the market opened, their lowest since February 2004. It has lost nearly 60 percent of its value since the start of last year.

“The company’s core handheld business is under assault from smartphones, iPods and tablets, and we see competition for consumer wallet share continuing,” said analyst Michael Pachter of U.S.-based Wedbush Securities in a research note.

“The fact is that a significant share of Nintendo’s market is gone forever, and we don’t expect the company to come up with a practical strategy to stem the declines in sales we have forecast,” he added. “We do not expect the company’s fortunes to turn in FY 13.”

NEW HOME CONSOLE BY CHRISTMAS

Nintendo said on Thursday its third-quarter operating profit fell 61 percent to 40.9 billion yen ($529 million) and it forecast an operating loss of 45 billion yen for the financial year to March 31, far worse than analysts’ average forecast of a 4.2 billion yen loss.

Sales of its 3DS slumped shortly after launch in February, forcing the company to slash prices just six months later and take a loss on each device, something it had prided itself on avoiding in the past.

Even so, Nintendo cut its full-year 3DS sales forecast to 14 million from 16 million, while sales of its ageing Wii and the previous generation DS have fallen faster than expected.

It also faces stiff competition in the home console market from Sony Corp’s Move and Microsoft Corp’s Kinect, and some analysts say the console market may dry up over the next several years as cloud gaming takes off.

Nintendo will launch its Wii U console, a successor to the phenomenally successful Wii, in Japan, the United States, Australia and Europe at the year-end, after showing a final version at the E3 games show in June.

But Masayuki Otani, chief market analyst at Securities Japan, said the market was unlikely to have high hopes for the Wii U, although the slide in the share price may be reaching an end.

“The pace of the share price decline is easing and it may be near a floor, but it would be hard to predict a rapid recovery,” he said.

Iwata said a leap in 3DS sales after the launch of a raft of software late last year showed that dedicated handheld games gadgets still had a future.

“I believe we have disproved the extreme theory that there is no longer a demand for handheld devices,” he said.

(Additional reporting by Dominic Lau, James Topham, Reiji Murai, Daiki Iga; Editing by Edwina Gibbs, Michael Watson and Alex Richardson)

The two have yet to hammer out details on an equity tie-up, in which Elpida will eventually seek to include Taiwanese chipmaker Nanya Technology Corp’s (2408.TW: Quote, Profile, Research, Stock Buzz) parent, Formosa Plastics Group, the Nikkei said.

The Nikkei said Elpida presented a broad outline of a recovery plan centered around a partnership with Micron and Nanya during a meeting on Wednesday with lenders.

Elpida’s lenders have given President Yukio Sakamoto until next month to come up with a turnaround plan as the company confronts an uncertain outlook, sources familiar with the situation said.

They had originally demanded a plan be presented by January, although the company’s negotiations with potential partners have hit snags, the sources said.

“Clearly, the issue facing Elpida is that they need to tide over the near-term refinancing pressures. There will also be an eventual need to fund R&D and further capital spending,” said Macquarie Securities analyst Damian Thong.

“Elpida has technology, but it doesn’t have a lot of money. Any source of funding that relieves the situation should be seen as a positive for them as a company.”

A source close to the company has said Elpida was determined to remain independent, with any discussion on equity ties targeting a non-majority stake while it looks at cooperation on technology.

RECOVERY PLAN

Elpida said in a statement that it would not comment on rumors and speculation. Micron also said it would not comment on speculation.

Elpida’s shares slipped nearly 3 percent to 363 yen on Thursday, breaking a seven-day rally after a series of recent media reports boosted expectations for a rescue via an equity tie.

That rally helped to lift Elpida’s shares from an all-time low of 297 yen early this month to an intraday peak on Wednesday of 378 yen, a gain of more than one-fourth.

Elpida, Japan’s last remaining player in the market for dynamic random access memory (DRAM) chips used in personal computers, faces a debt repayment crunch in late March and early April, when 92 billion yen ($1.2 billion) in loan repayments and bond redemptions will come due.

The DRAM market has been hit by slumping prices in a weak economy and as consumers switch to tablets that use flash memory instead of DRAM chips.

Elpida, Micron and Taiwanese producers are also struggling to compete with well-funded South Korean rivals Samsung Electronics Co (005930.KS: Quote, Profile, Research, Stock Buzz) and Hynix Semiconductor Inc (000660.KS: Quote, Profile, Research, Stock Buzz), the two largest players in the DRAM sector.

Micron has already begun conducting due diligence and has selected Goldman Sachs Japan Co as its financial adviser for these negotiations. Elpida has signed up Mitsubishi UFJ Morgan Stanley Securities Co, the Nikkei said.

Micron, which also makes NAND flash memory but reported a worse-than-expected net loss in its latest quarter, has a 10-year agreement with Nanya until 2018 to co-develop new DRAM chip technology. The two also run contract DRAM maker Inotera Memory via a joint venture. ($1 = 78.2250 Japanese yen)

(Additional reporting by Taiga Uranaka in Tokyo, Noel Randewich in San Francisco and Ashutosh Pandey in Bangalore; Writing by Edmund Klamann; Editing by Jean Yoon)

The full-year operating loss will be the first since the
company started announcing earnings in their current form in
1981. The company blamed yen strength and weaker-than-expected
sales.

The creator of the Super Mario franchise dominated the video
games industry for years with its DS handheld players and Wii
home consoles, but is now struggling to keep up with more
versatile gadgets like Apple’s smartphones and tablets.

It cut its annual forecast for its ageing Wii console to 10
million devices from 12 million, and for the 3DS handheld games
device to 14 million from 16 million.

“We had higher expectations for the year-end season, but
failed to meet them,” President Satoru Iwata told reporters in
Osaka.

Poor sales forced Nintendo to slash the price of its
much-anticipated 3DS handheld games device in August, only six
months after its launch.

The move halted its record of making profits on games
hardware as well as software, a business model that took
operating income to a high of 555 billion yen in 2008/09.

Nintendo also faces harsher competition in the home console
market from Sony Corp’s Move and Microsoft Corp’s
Kinect

PROFIT FALLS

Profit slumped to 40.9 billion yen for the traditionally
strong October-December period, compared with a consensus
estimate of a 52 billion yen profit, based on a survey of three
analysts by Thomson Reuters I/B/E/S.

Shares in Nintendo have halved to below 11,000 yen since the
beginning of the financial year in April, hit by the 3DS flop
and market disappointment with the Wii U next-generation home
console, unveiled at the E3 games show in June and set to go on
sale in the second half of this year. At their peak, in late
2007, the shares traded at 73,200 yen.

Last week, its shares fell to 10,020 yen, their lowest since
April 2004, before either the DS or Wii were launched.

The two have yet to hammer out details on an equity tie-up,
in which Elpida will eventually seek to include Taiwanese
chipmaker Nanya Technology Corp’s parent, Formosa
Plastics Group, the Nikkei said.

The Nikkei said Elpida presented a broad outline
of a recovery plan centred around a partnership with Micron and
Nanya during a meeting on Wednesday with lenders.

Elpida’s lenders have given President Yukio Sakamoto until
next month to come up with a turnaround plan as the company
confronts an uncertain outlook, sources familiar with the
situation said.

They had originally demanded a plan be presented by January,
although the company’s negotiations with potential partners have
hit snags, the sources said.

“Clearly, the issue facing Elpida is that they need to tide
over the near-term refinancing pressures. There will also be an
eventual need to fund R&D and further capital spending,” said
Macquarie Securities analyst Damian Thong.

“Elpida has technology, but it doesn’t have a lot of
money. Any source of funding that relieves the situation should
be seen as a positive for them as a company.”

A source close to the company has said Elpida was determined
to remain independent, with any discussion on equity ties
targeting a non-majority stake while it looks at cooperation on
technology.

RECOVERY PLAN

Elpida said in a statement that it would not comment on
rumours and speculation. Micron also said it would not comment
on speculation.

Elpida’s shares slipped nearly 3 percent to 363 yen on
Thursday, breaking a seven-day rally after a series of recent
media reports boosted expectations for a rescue via an equity
tie.

That rally helped to lift Elpida’s shares from an all-time
low of 297 yen early this month to an intraday peak on Wednesday
of 378 yen, a gain of more than one-fourth.

Elpida, Japan’s last remaining player in the market for
dynamic random access memory (DRAM) chips used in personal
computers, faces a debt repayment crunch in late March and early
April, when 92 billion yen ($1.2 billion) in loan repayments and
bond redemptions will come due.

The DRAM market has been hit by slumping prices in a weak
economy and as consumers switch to tablets that use flash memory
instead of DRAM chips.

Elpida, Micron and Taiwanese producers are also struggling
to compete with well-funded South Korean rivals Samsung
Electronics Co and Hynix Semiconductor Inc
, the two largest players in the DRAM sector.

Micron has already begun conducting due diligence and has
selected Goldman Sachs Japan Co as its financial adviser for
these negotiations. Elpida has signed up Mitsubishi UFJ Morgan
Stanley Securities Co, the Nikkei said.

Micron, which also makes NAND flash memory but reported a
worse-than-expected net loss in its latest quarter, has a
10-year agreement with Nanya until 2018 to co-develop new DRAM
chip technology. The two also run contract DRAM maker Inotera
Memory via a joint venture.

Both companies saw their debt ratings downgraded by Moody’s Investor Services last week, as their TV divisions continue to bleed red ink despite restructuring efforts.

Sony, which reports on February 2, is expected to barely break even for the normally lucrative October-December quarter. Operating profit is seen shriveling 94 percent to 8.8 billion yen ($114.3 million), based on an average estimate from 6 analysts polled by Thomson Reuters I/B/E/S.

That would be its worst third-quarter performance since the 2008 financial crisis. By contrast, Samsung Electronics posted a record quarterly profit this month on growing smartphone sales.

During the quarter, Europe’s debt crisis battered consumer confidence there while U.S. holiday spending on traditional electronic goods such as TVs and cameras — which Japanese makers are more reliant on — fell, as TV prices slid and as consumers splurged more money on tablets.

Japan’s TV makers have fallen behind their South Korean counterparts, partly hobbled by unfavorable exchange rates and their failure to bite the bullet on necessary investments.

“They have not made the right massive investments in panel manufacturing at the right time. If you do this half-heartedly, it ties your hands and has the opposite of the desired effect,” said Nobuo Kurahashi, an analyst at Mizuho Investors Securities.

Sony said last month it had extricated itself from its liquid-crystal display panel-making venture with Samsung Electronics, allowing it to source cheaper panels from the open market to try to keep pace with declines in TV prices.

That was seen as a necessary step to return its ailing TV business to profit after what is expected to be its eighth straight annual loss in the year to March.

But TV prices continue to slide. A 40-inch flat panel TV cost an average 68,200 yen in Japan in December, down nearly 40 percent from a year earlier, according to research firm BCN.

The maker of everything from PlayStation games consoles to “The Smurfs” movie, Sony has touted its mobile phone business as a way of integrating its online content offerings across devices to better compete with Apple.

But Sony Ericsson posted an unexpected 247 million euro ($322.3 million) loss for the final quarter, underscoring the hurdles Sony faces in smartphones too.

For the full-year to end-March, the market consensus from 19 analysts is for Sony to post an operating profit of just 8 billion yen, below the company’s forecast of 20 billion yen.

Panasonic, which reports on February 3, is expected to see a 41 percent fall in quarterly operating profit to 56.2 billion yen, hurt by losses in its TV division, lower chip earnings and a weak performance from its Sanyo unit.

Analysts expect a full-year operating profit of 124 billion yen, less than the company’s forecast of 130 billion yen, and the firm may cut its guidance for the second time.

The company is already forecasting a 420 billion yen net loss for the year, its worst in a decade, as it hives off overlapping businesses after buying out subsidiaries including Sanyo and accelerates restructuring in its TV division.

The best performer among domestic TV players may well be Sharp Corp, whose move to focus on premium large screen televisions, capitalizing on its 10th generation LCD panel plant, may protect it from a slide in profit, some analysts say.

Games maker Nintendo Co Ltd, which kicks off the sector’s earnings announcements on January 26, is expected to see a 50 percent slide in quarterly profit after slashing the price of its 3DS handheld games gadget to boost sales.

Shares in Sony have fallen by almost half since the beginning of the financial year, while Panasonic has fallen about 40 percent, compared with a decline of 10 percent for the Nikkei.

($1 = 77.1200 Japanese yen) ($1 = 0.7665 euros)

(Editing by Edwina Gibbs)

Olympus may hold a news conference as early as this week on a possible tie-up with Sony, which would boost its existing 0.03 percent holding in the endoscope and camera maker to several percent, the magazine said.

Diamond also quoted an unnamed Sony executive as saying that the consumer electronics maker’s chief executive Howard Stringer had already given the green light for a deal.

Japan’s electronic firms are keen on Olympus high-margin endoscope business, although branching out to healthcare would be a new tack for Sony, which supplies image sensors to Olympus.

“Sony has been trying to integrate software, content and hardware to create an entertainment network. But Apple has a stranglehold on this market, so however hard it tries, it’s going to be a runner-up at best,” said Mizuho Investors Securities analyst Nobuo Kurahashi.

“On the other hand, healthcare is a growth market…if it is not too damaging to Sony’s balance sheet, it is certainly interesting,” he said.

Other potential equity partners include Fujifilm Holdings Corp which has said that it is willing to support Olympus if asked, while banking sources have said that Panasonic Corp is interested.

Media reports have also mentioned Canon Inc and Terumo Corp.

Asked about the Diamond report, Olympus spokeswoman Saori Yamazaki said no news conference had been scheduled and no decisions had been made on the matter.

“We are currently considering various management reform options but no specific decisions have been made on any issues,” she said.

Sony spokesman Shigenori Yoshida said the company had no comment.

Olympus’ shares surged by 8.2 percent to 1,297 yen, helped also by the Tokyo Stock Exchange’s decision on Friday to keep the stock listed.

The stock is still down nearly 50 percent since the company fired its British chief executive Michael Woodford on October 14, triggering a series of stunning revelations in a $1.7 billion accounting fraud.

Shares in Sony also rose about 4 percent to 1,422 yen, although Mizuho Investors’ Kurahashi said he did not believe they had been boosted by the report.

Diamond quoted an unnamed Sony executive as touting the potential strength of combining Olympus’ 70 percent share of the global market for diagnostic endoscopes with Sony’s advanced technology in image sensors.

But it also cited an Olympus executive as questioning whether a capital infusion from another company was necessary given strong cash flow from the endoscope business.

Olympus President Shuichi Takayama has emphasized that the company needs to bolster its equity ratio after it was depleted by the scandal.

Negotiations over an equity deal have nevertheless been hobbled by a leadership vacuum at Olympus, where the scandal-tainted management has said it will not resign until an extraordinary shareholders’ meeting in the latter half of April.

Takayama has also said that a decision on any major moves such as an equity tie-up would have to wait until the installation of new management.

Separately, a group of shareholders are preparing a lawsuit against Olympus seeking more than 200 million yen ($2.6 million)in damages over the slide in its share price, a source familiar with the matter said on Monday.

($1 = 77.1200 Japanese yen)

(Additional reporting by Nobuhiro Kubo, Yoko Kubota and Tim Kelly; Editing by Edwina Gibbs)

Olympus may hold a news conference as early as this week on
a possible tie-up with Sony, which would boost its existing 0.03
percent holding in the endoscope and camera maker to several
percent, the magazine said.

Diamond also quoted an unnamed Sony executive as saying that
the consumer electronics maker’s chief executive Howard Stringer
had already given the green light for a deal.

Japan’s electronic firms are keen on Olympus high-margin
endoscope business, although branching out to healthcare would
be a new tack for Sony, which supplies image sensors to Olympus.

“Sony has been been trying to integrate software, content
and hardware to create an entertainment network. But Apple has a
stranglehold on this market, so however hard it tries, it’s
going to be a runner-up at best,” said Mizuho Investors
Securities analyst Nobuo Kurahashi.

“On the other hand, healthcare is a growth market…if it is
not too damaging to Sony’s balance sheet, it is certainly
interesting,” he said.

Other potential equity partners include Fujifilm Holdings
Corp which has said that it is willing to support
Olympus if asked, while banking sources have said that Panasonic
Corp is interested.

Media reports have also mentioned Canon Inc and
Terumo Corp.

Asked about the Diamond report, Olympus
spokeswoman Saori Yamazaki said no news conference had been
scheduled and no decisions had been made on the matter.

“We are currently considering various management reform
options but no specific decisions have been made on any issues,”
she said.

Sony spokesman Shigenori Yoshida said the company had no
comment.

Olympus’ shares surged by 8.2 percent to 1,297 yen, helped
also by the Tokyo Stock Exchange’s decision on Friday to keep
the stock listed.

The stock is still down nearly 50 percent since the company
fired its British chief executive Michael Woodford on Oct. 14,
triggering a series of stunning revelations in a $1.7 billion
accounting fraud.

Shares in Sony also rose about 4 percent to 1,422 yen,
although Mizuho Investors’ Kurahashi said he did not believe
they had been boosted by the report.

Diamond quoted an unnamed Sony executive as touting the
potential strength of combining Olympus’ 70 percent share of the
global market for diagnostic endoscopes with Sony’s advanced
technology in image sensors.

But it also cited an Olympus executive as questioning
whether a capital infusion from another company was necessary
given strong cash flow from the endoscope business.

Olympus President Shuichi Takayama has emphasised that the
company needs to bolster its equity ratio after it was depleted
by the scandal.

Negotiations over an equity deal have nevertheless been
hobbled by a leadership vacuum at Olympus, where the
scandal-tainted management has said it will not resign until an
extraordinary shareholders’ meeting in the latter half of April.

Takayama has also said that a decision on any major moves
such as an equity tie-up would have to wait until the
installation of new management.

Separately, a group of shareholders are preparing a lawsuit
against Olympus seeking more than 200 million yen ($2.6
million)in damages over the slide in its share price, a source
familiar with the matter said on Monday.

Sony will find it hard to meet its target of pulling its TV division back into profit in the next two years amid harsh competition and the strong yen, despite pulling out of an LCD panel joint venture with Samsung Electronics, Moody’s said.

It said Panasonic’s financial profile had deteriorated since it bought out its two major consolidated subsidiaries, Sanyo Electric and Panasonic Electric Works, last April.

Sony’s rating was cut to Baa1 from A3 and Panasonic’s to A2 from A1, with the outlook negative for both.

Sony has said it expects to make a loss of 175 billion yen ($2.27 billion) on TVs in the year to March but aims to halve that loss next year and make a profit on them in the year after that, after nine straight years in the red.

Sony Ericsson, the company’s phone joint venture, also posted an unexpected loss this week, casting a shadow over Sony’s plan to take full control of the business next month in a bid to better compete with Apple Inc and Samsung.

Unless a significant improvement in Sony’s financial profile seems likely in the year starting on April 1 its ratings could be reviewed for action in a relatively short time, Moody’s said.

Panasonic’s net debt rose to about 550 billion yen in the year ended last March 31 from about 100 billion yen the previous year, Moody’s said.

It said Panasonic was unlikely to restore its financial profile soon due to losses on TVs, lower earnings from semiconductors and weak earnings at Sanyo.

Both Panasonic and Sony are expected to post a slump in earnings for the October-December quarter, due to the strong yen, poor consumer sentiment in Europe and the effects on their operations of flooding in Thailand.

Sony will report on February 2 and Panasonic on February 3. Shares in Sony have fallen about 49 percent since the beginning of the financial year in April, while Panasonic has lost about 38 percent.

Panasonic is also widely expected to fall short of its full-year operating profit target of 130 billion yen for the year to March. Sony slashed its forecast by 90 percent to 20 billion yen in November for the same period.

($1 = 77.0700 Japanese yen)

(Additional reporting by Nobuhiro Kubo and James Topham; Editing by Michael Watson)