Sony shares fall by up to 12% after warning of bigger loss

Sony shares plunged by up to 12% in Tokyo trading after it warned of a bigger than expected annual loss of $2.14bn (£1.3bn) because of its struggling mobile phone business.

It will also not pay a year-end dividend for the first time since becoming a publicly-listed company.

Sony's share price eventually closed 8.6% lower at 1,940 yen, erasing about $1.8bn in market value.

It had issued the profit warning after stock markets had closed on Wednesday.

This is the sixth downward revision to earnings guidance from Sony under chief executive Kazuo Hirai, who took charge in 2012.

The Japanese electronics giant also faces the risk of losing its only remaining investment grade credit rating.

Ratings agency Standard and Poor's (S&P) warned that Sony may be downgraded to 'junk' because of its poor financial performance. Sony is already rated junk by rival agencies Moody's and Fitch.

S&P said Sony's mobile business was likely to face "intensifying competitive pressure" and said its outlook on its current rating of 'BBB-' had been revised to negative.

"Even though the market continues to grow, Standard & Poor's views the smartphone business as risky, given intense competition with Chinese makers, strong pressure to cut prices and, as a result, thin margins in general," it said in a statement.

"To restore its smartphone business, Sony will shift strategy to focus more on profitability than scale, but we believe it will not be easy for Sony to maintain brand recognition and generate stable profitability in this competitive market."

Sony said its mobile business had been losing money as a result of rising competition from global rivals such as Apple and Samsung.

The company's high-end Xperia smartphones have not sold well in China and the US because of local competition and limited distribution.

The consumer electronics giant has been losing money for the past few years and has undertaken a major restructuring to try to stem the losses.

Under Kazuo Hirai's tenure as chief executive, Sony has sold off parts of the business deemed not central to the company's operations, including its personal computer business.

It also off-loaded its US office building in New York for more than $1bn, and the "Sony City Osaki" premises in Tokyo, which had been its headquarters for six decades.

In addition, Sony culled 5,000 jobs from its computer and hard-hit television unit, which Mr Hirai has so far refused to sell because it is considered a core business.