MarketLine Blog

Sony Profitable Again after Five Years

Following a weaker yen (the dollar and euro have both appreciated almost 20% against the yen in recent months), the giant electronics, entertainment, and technology exporter has recorded a net profit of Y43bn ($435m), a remarkable turnaround from the Japanese firm’s Y475bn loss a year earlier.

Indeed, currency market trends, largely brought about by the consequences or perceived future consequences of the Bank of Japan’s monetary, fiscal, and regulatory easing (what has been deemed Abenomics, after the incumbent Premier’s pushing for the changes), have been necessary for the turnaround, the company’s prime markets being developed economies — dollars, euros, and pounds. However, the extent of the company’s past malaise, a malaise often contrasted to the success of the Korean Chaebols, especially Samsung, would have meant that depreciation in the yen alone would not have afforded the company a turnaround sufficient to take it out of the red. No, it was only in conjunction with wide scale global restructuring, in which Sony axed 10,000 jobs, or six per cent of its workforce, that the company was able to move back into profit, benefiting from a slimmer cost base and smaller size of operations.

It is also telling that the company’s TV operations division remained in the red, however. The division is testament to the seemingly outdated portfolio the company is now regularly charged with holding. Indeed, the division still seems to be struggling against the Korean and Taiwanese producers, that is, against making a belated entry into the era of digital flat-screens.

That the strong-branded company is moving back into profit betrays a much larger macroeconomic trend, as made clear by the Nikkei’s recent surge. Private investment looks set to be guaranteed in the world’s third-largest economy, as large exporting firms announce profits off the back of a weaker yen. However, as the details of Sony’s financials betray, Japanese exporters seemingly still suffer from a less than optimal allocation of assets, proving themselves paradigmatic for the Japanese economy at large: Sony’s margins are almost three times as high in its (relatively small) banking and insurance operations than in its capital-intensive, US-based film studio. Of course, neither of these operations seem to benefit much from the company’s (electronics-rooted) brand, and, perhaps, that is where the company should press any competitive advantage it has, investing whilst markets are supportive of inflationary policy and not after, and also whilst other parts of the globe watch the Japanese ‘experiment’ with great interest and not envy.

Find this interesting. You may also like our business case study Sony: Losing the battle in the television division or our company data on Sony

Leave a comment

*Required fields. We will not publish your email address