Sony Not Yet Out Of The Woods


Japan's Sony Corp has reported profit for the first time in five years for its 2012 financial year ended March 31 2013. The company has suffered against relative newcomers Samsung and Apple across its segments including TV sets, mobile devices and cameras. While the profit will be welcome news to investors, BMI believes Sony still has a difficult road ahead to regain lost ground.

While net income was recorded at JPY43bn (US$424.4mn) compared with the JPY456.7bn loss a year earlier, annual revenues grew by just 4.7%, and remain subdued in comparison to earlier years. Revenues for FY12 reached JPY6.8trn, still lower than the JPY7.2-7.7trn reported for FY08-FY10. Neverthel ess, for the struggling company the FY12 results are an improvement and vindication of some recent strategic moves.

Better But Still A Long Way To Go
Sony Revenues And Net Income (JPYbn) & Revenues By Segment (FY12)

Sony reduced its headcount in 2012 and sold assets such as office buildings in Tokyo and New York. These cost saving measures were further boosted by a weaker yen, which boosted the value of its sales abroad. Japan remains the company's largest single market, accounting for 32.4% of revenues, but overseas sales were supported by exchange rate differences. However, the biggest boost to revenues came from 89.8% growth in mobile products and communications, accounting for 17.2% of revenues, by far the company's largest unit. This division includes mobile handsets and PC sales, with the latter products offsetting some of the unit's growth. The significant growth however, was largely the result of the consolidation of Sony Mobile, which was previously a jointly-owned venture with Sweden's Ericsson.

It is the mobile devices segment that Sony is betting on for its growth in its FY13. The company aims to improve device shipments by 25% to reach 42mn over the year, compared with 33mn in FY12. The company states that its strong performance in mobile device sales in FY12 was partly the result of higher average selling prices (ASPs), a key target for handset manufacturers. BMI's assessment of mobile handset growth and mobile subscriber increases suggest this is a good move for Sony as replacement cycles for these devices tends to be shorter than for its larger ticket items such as PCs and TV sets.

BMI's views on Sony remain largely unchanged as the company faces ongoing challenges. While we believe the outlook for smartphones and mobile devices is strong, Sony's target of third place in the smartphone market behind Samsung and Apple will be fiercely challenged by Finland's Nokia and Taiwan's HTC, which are also seeking turnarounds ( see our online service April 10, 'Can HTC Make A Comeback?') as well as strong newcomers to the smartphone market China's ZTE and Huawei. Sony's larger problem is its TV business ( see 'Sony And Panasonic Could Continue To Struggle', May 15 2012) and lower expectations for PCs, digital and video cameras as well as gaming products. PC sales continue to fall globally as consumers switch to alternative devices and replacement cycles are longer due to ongoing economic woes in many developed markets. The company's position in the TV market is being usurped by Samsung and compatriot LG Electronics among others.

The long-term outlook for Sony is still murky, although the return to profit in FY12 is certainly a boost for the company. Restructuring and cutting costs seem to be starting to turn the company around, but it has a long way to go to get back to its previous position as a global consumer electronics market leader.

This article is tagged to:
Sector: Consumer Electronics
Geography: Japan, Japan, Japan, Japan