In regards to the cyber attack on Sony Corporation (SNE), President Barack Obama recently ordered a series of economic sanctions on North Korea and issued an Executive Order (“E.O.”) regarding the same.
The U.S. government denied three North Korean organizations – Reconnaissance General Bureau, Korea Mining Development Trading Corporation and Korea Tangun Trading Corporation – the access to its financial system. This apart, the U.S. also sanctioned 10 individuals related to the North Korean government and the Workers’ Party of Korea.
Per the E.O., the U.S. government will now increase the financial restrictions on North Korea while restraining the sanctioned individuals from involvement in any financial transactions related to the U.S.
Why the Sanction?
This move came after the U.S. Federal Bureau of Investigation report revealed the involvement of Pyongyang, the capital of North Korea, in the company’s cyber attacks. The U.S. Government stated that North Korea’s disparaging and oppressive initiatives have resulted in a significant financial loss for the U.S. economy. Furthermore, the government condemned the threats to suppress the right to freedom of speech.
Korea’s Rebuff
According to a report from the Associated Press, North-Korea has denied its involvement in the aforementioned cyber security breach and has also criticized the U.S. for its hostile behavior toward it. Reportedly, North Korea has called the cyber attack, ‘a righteous deed’.
The Back Story
On Nov 24, the internal data reservoir of Sony’s American subsidiary, Sony Pictures Entertainment, was hacked and valuable data related to upcoming movies and employees pay were stolen. As per the media reports, the hacking was a schemed retaliation against the release of the company’s latest movie, ‘The Interview’, as it portrayed the fictional assassination of the dictator of North Korea – Kim Jong Un (read more: Is North Korea to Blame for Sony's Cyber Security Breach?).
Following a warning was issued by the group of hackers called "Guardians of Peace", who had earlier taken responsibility for the Sony cyber attack, Sony scrapped the New York premier and subsequent release of the movie (read more: Sony Scraps "The Interview" Release on Hackers' Threat).
However, ‘The Interview’ was released online and it became the top-grossing online movie release. Encouraged by the viewers response, Sony decided to extend the distribution network for this controversial comedy film (read more: Sony's 'The Interview' Now Available to 55M Pay TV Viewers).
Sony has reportedly spent over $80 million for the production and marketing of this movie. According to media reports, if the planned theatrical release of the movie had not been hindered, Sony could have racked around $120 million from the U.S. itself, as estimated by box office analysts. Though the online release has paid well for the company, generating over $15 million in the opening weekend, a break-even is still a long way.
Our Take
Such a strong step by the U.S. government, in counter-reaction to a cyber security breach on any U.S.- based company, marks the first of its kind. The cyber attack has proven to be a pricey affair for Sony and for the U.S. economy as well. However, it remains to be seen whether such sanctions will be successful in curbing any future threats.
Sony currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the electronic equipment industry include Universal Electronics Inc. (UEIC), Skullcandy, Inc. (SKUL) and Harman International Industries, Incorporated (HAR). While Universal Electronics and Skullcandy sport a Zacks Rank #1 (Strong Buy), Harman International Industries carries a Zacks Rank #2 (Buy).
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