MarketLine Blog

Is time running out for Sony?


“We must be like the Russians defending Moscow against Napoleon, ready to scorch the earth to stay ahead of the invaders. We must be Sony United and fight like the Sony warriors we are.”

Exactly nine years ago to the month, Sir Howard Stringer then Sony’s first foreign CEO roused his comrades with these words, as he aimed to revive the fortunes of the Japanese electronics giant.

Nine years on and with the General now departed to pastures new, Sony fights on like a war weary battalion trying desperately to hold its ground against the a tidal wave of technological innovation.

Successes have been few and far between in recent times. The chink of light that came in the second quarter of 2014 when Sony announced a return to profit has been replaced with the familiar dark clouds. Expected annual net loss will be nearly five times as big as initially predicted at $2bn (Y230bn). This means that total losses for the past five years will come in at Y1 trillion; a huge sum in anyones book.

Losses are not a new feature at Sony but what is disconcerting for investors is that the news that there will be no dividend payment this year. Not since its inception in 1958 has Sony failed to pay a dividend.

Furthermore there had been hope that the Company’s fortunes could be revived after its move to streamline its product offering and focus on the more profitable areas of business.

After spinning out its television business and ridding itself of the loss making Vaio PC’s the hope had been to intensify focus on the gaming department ala; PlayStation and mobiles with the Xperia smartphone leading the way and accounting for one fifth of company sales.

The problem for Sony is that whilst the PlayStation continues to be a boon for the balance sheet, the mobiles market has not been such an easy road. The growing competition from mid and low range Chinese handsets has intensified whilst the flagship Xperia has found it tough going amongst the heavy hitters and up against the Apple iPhone and Samsungs Galaxy models.

An indication of the ferocious assault by the Chinese manufacturers is the fact that market leader Samsung has seen operating profit fall 24 per cent in the second quarter of this year, the third consecutive quarterly decline.

In response the once proud leader of the electronic goods battlefield continues to linger on. Further streamlining of product offering as well as shift in geographical focus and lowering of sales forecasts have been offered up as short term remedies. Some have already given up with rating agency Moody’s cutting Sony’s rating to junk as early as January of this year.

The facts remain that the Company still has a market capitalisation of $21bn and the share price has recovered in the past year although not to anywhere near the Nikkei market average. But what Sony desperately needs is a return back to being ‘the name’ in cutting edge technology.

At present and given its position in the hardware pecking order it may not be able to hold out against the on rushing hordes for too much longer.


Further readings:

Sony’s TV spin off: Now or never for the Japanese giant? (MarketLine Case Studies)

Sony: Losing the battle in the television division (MarketLine Case Studies)



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