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Sony hangs up electronics badge

Posted: 15 May 2013 ?? ?Print Version ?Bookmark and Share

Keywords:electronics? smartphone?

What appears to be an economic recovery in Japan-reflected in Sony's first annual net profit in five years announced Thursday-could be little more than a blip. It's hardly time to pop the champagne and toast Sony's CEO.

Sony's apparent turnaround has a lot to do with the company's aggressive efforts to offload its assets, and less with its key electronics business such as TVs and smartphones, for which Japan's iconic CE brand has been known for decades. Both TV and smartphones remain in the red.

Meanwhile, as with all other Japanese companies, a weaker yen has contributed to Sony's latest financial results.

Sony posted a net profit of $948.5 million in the January-March quarter, compared with a loss of $3.20 billion in the same period a year earlier. Revenue rose 8.3% to $21.72 billion, while it swung to an operating profit of $1.84 billion in the quarter.

Propped up by life-insurance sales, real estate and asset sales

As for the company's preliminary consolidated financial results in the fiscal year ended March 31, 2013, Sony is reporting $2.4 billion in operating profits, and $458 million in net profits.

In analysing where exactly Sony's profits came from, Gerhard Fasol, founder of EuroTechnology, broke it down as follows.

"Sony sold the US headquarters building, sold a headquarter building in Tokyo-Osaki, sold a chemicals division, and sold the investment in the mobile social games company DeNA, sold part of the investment in the (fascinating) cloud-based medical IT company M3 and restated the value of the remaining investment," he explained. "All these transactions resulted in combined operating profits of $2.6 billion, almost equal to the reported operating profits."

In sum, "it seems to me that the return to profits was achieved by asset sales and revaluationsnot by selling revolutionary new products," he added.

Propped up by life-insurance sales, real estate and asset sales

Unit: operating income (billion ). Source: Eurotechnology.

If you take a look at the chart above provided by EuroTechnology that shows operating profits/loss for Sony's different divisions, one fact becomes suddenly clear.

Quick fix for mobile?

Sony is no longer an electronics company. It generates most of its profits from its financial services company (Sony-Finance), which sells life insurances and credit cards in Japan, and entertainment businesses (Sony Pictures, Sony Music). The company's TV and mobile phone businesses are clearly dragging Sony's bottom line.

More troubling is that no quick-fix solutions seem available to turn its electronics businesses profitable. Touching on that subject, Sony's chief financial officer, Masaru Kato, was quoted at a news conference, "The market environment and competitive landscape remains severe in the electronics business."

Worldwide smartphone vendors market share, 2013 Q1

Worldwide smartphone vendors market share, 2013 Q1. Source: IDC.

Despite the much-anticipated, new PlayStation 4 consoles' scheduled launch later this year, Sony is expecting videogame profits to be flat in this fiscal year.

Mobile phones are another key area Sony's chief Kazuo Hirai is counting on the company's recovery. Again, beyond the additional restructuring measures in its business, Sony's prospects for any meaningful gain in share in the U.S. and China markets remain murky.

Strategy Analytics noted that Sony captured less than 1 per cent of the U.S. market in 2012.

IDC ranked Sony fourth globally on the smartphone market in the fourth quarter of last year with a 4.5 per cent share. But in the first quarter this year, Sony fell off the top five entirely.

- Junko Yoshida
??EE Times

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