Sony clings stubbornly to smartphone business

Sony is not one to boast and bluster during bleak times. Having posted a hefty lost, the company is hunkering down, hopeful for better profits and sunnier days ahead.

[In related news: No more mobile, PlayStation for Sony?]

During the company's Investor Relations Day in Tokyo on Nov. 25, Sony announced the company is reducing its TV and mobile phone product portfolio to cut costs while hanging its hat on a multi-billion dollar revenue increase expected from the surge of its PlayStation 4 and image sensor businesses over the next three years.

Most important, Sony said it will keep its smartphone business, neither letting it go nor shutting it down.

Sony's three-year outlook for its mobile business "isn't aiming for size or market share but better profits," Hiroki Totoki, Sony's newly appointed chief of its mobile division, told an investors' conference. "We must make the business profitable even if we face declines in sales by 20 per cent or 30 per cent."

It remains to be seen if the next three years will be a period of treading water for Sony's ongoing mobile business, or if it leads to a real transformation of its business.

During the conference, Sony "must return to profitability [within the next three years] so that it can prepare itself for the future," stressed Totoki.

The future Sony hopes to develop, described by Totoki during the Q&A session, is an era when "new products embedded with communication functions" will proliferate and dominate the market. He said, "In a larger context, the trend includes the Internet of Things, and Sony will be very much involved in it."

While Totoki didn't articulate his IoT vision, he alluded to the emergence of IoT as a new era during which a host of new products are popping up. Sony's mission is to complete restructuring of the company organisation so that "Sony will be strong enough to weather and withstand" the wild ride of IoT challenges.

Meanwhile, Sony's electronics business units will help Sony buy time so that its mobile business can get its act together. The company is depending on its video game and device divisions.

Under its new three-year plan, Sony hopes to increase video game sales by a quarter, to as much as $13.6 billion. The company said that will be helped by personalized TV, video, and music distribution services that should boost revenue per paying user.

At its devices division, which includes its CMOS image sensor business, Sony said sales could increase 70 per cent to as much as $12.8 billion. Sony's sensor sales are already very strong, with Apple using them in its iPhones. Chinese handset manufacturers are also adopting them.

According to Totoki, the mobile business division will finish details of its restructuring plan by the end of March 2015. The company will devote the following fiscal year to executing the transformation. Starting in fiscal 2017 (starting in April 2016), the mobile business division aims at a stable contribution to company revenue.

What went wrong?

Before laying out the three-year mobile business plan, Totoki reflected on what went wrong and how rapidly the smartphone market changed. He discussed how the company foresees the mobile industry transforming in the future, and more important, how Sony is planning to respond.

The biggest reason for the downfall of Sony's smartphone business is its failure to capture any meaningful share "among the mid to low-end products on such markets as Southeast Asia, China, and Europe," explained Totoki. What led to Sony Xperia smartphone's poor showing was a substantial decline in its sales of mid to low price-rage models.

Sony also miscalculated the geographical make-up of its mobile business. Sony's smartphone business grew largely on the back of the sales of its highly value-added smartphones in Japan.

Sony's smartphone market share in Japan in the fiscal year 2013 was 17.5 per cent—the largest of the world—followed by 8.8 per cent in Europe.

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