Wednesday, 20 May 2009

6 things troubling Sony

Sony Corp forecast a second straight year of losses as the global recession batters demand for consumer electronics. The back-to-back annual losses will be Sony's first since its listing in 1958, underscoring deepening troubles for a company that has fallen behind Apple Inc's iPod in portable music, Nintendo Co in videogames, and is losing money on flat TVs.

The net loss at the world’s second-largest maker of consumer electronics may widen to 120 billion yen ($1.26 billion) in the 12 months ending March 31, from a 98.9 billion yen deficit a year earlier, Tokyo-based Sony said today.

Here's looking into what is troubling the Japanese electronic giant.

No no. 1 product
Some analysts said Sony, which is feeling the pain in every corner of its operations ranging from semiconductors to movies to insurance, desperately needed a killer product to get back on track and position itself for any recovery.

"Their outlook gave me the impression that their business is heading for a gradual recovery. But it would all depend on whether they will be able to start making popular products because right now they have no 'No. 1' product," said Fujio Ando, senior managing director at Chibagin Asset Management.

"I see Sony's branding power weakening," he added.

Lack of clear direction
“The problem with Sony is it doesn’t know what it wants to be: Is it a game company, a consumer-electronics maker, a financial-services provider? There’s no direction,” said Hideyuki Ookoshi, who helps oversee $365 million at Chiba-Gin Asset Management in Tokyo.

He however, believes that the company was hit fairly early by the downturn and has moved quicker than some competitors to restructure, but it remains to be seen if those moves will pay off.

Competition from smaller rivals
Kurahashi said Sony's focus on portable devices with network capability wasn't yielding results, while rivals such as Sanyo Electric Co appear to be securing a brighter future by latching on to solar panels and organic displays.

Signs of a recovery are underway for some of these smaller companies. Sanyo, the world's top maker of rechargeable batteries set to be acquired by bigger rival Panasonic, recently predicted its operating profit to triple to 25 billion yen this financial year after it tumbled 89 percent a year earlier.

Sanyo will invest up to 30 billion yen to build a lithiumion battery plant in Japan and increase its production capacity for those batteries six-fold, the Nikkei business daily reported earlier.

Nobuo Kurahashi, analyst at Mizuho Investors Securities, said Sony would need more than an improvement in the TV business. "Cost-cutting and wringing profits out of the TV division are important, but that will only take you so far," he said. "What I really want to know is how Sony is going to compete after the economy recovers."

Falling mobile phone and gaming sales
Sales at Sony's cellphone joint venture with Ericsson tumbled. The global digital camera and mobile phone market is set to contract this year as the recession dampens replacement demand, capping Sony's earnings recovery despite aggressive cost cuts.

Sony forecasted that it will sell 13 million PS3 machines, compared with the 26 million Wii consoles that Nintendo is projecting.

Sony’s Chief Financial Officer Nobuyuki Oneda said that Sony Ericsson, which reported a 370 million euro pretax loss in the first quarter, would need to raise funds in some ways this financial year, whether it be bank loans or an injection from parent companies.

Rising Yen
Japanese companies such as Sony, Panasonic Corp and Sharp Corp have suffered an additional blow as the yen's strength made their products less price competitive overseas.

Sony said it will shut three more domestic and two overseas factories this year. This brings the total of its planned plant closure to eight as it had already announced plans to stop production at three factories.

The company said today it would cease production at three plants in Japan used for mobile phones and optical pick-ups at the end of this year. It will also stop making LCD TVs and electronic cables at two plants in Indonesia and in the US.

A Sony spokesman said the number of workers affected by the decision was included in the 16,000 job cuts.

Widening loses
CFO Oneda said that the company expects losses at its electronics operations to widen and its games division to stay unprofitable this financial year. He said that the company’s TV operations would likely lose money for a sixth straight year, however, Sony aims to bring it to the breakeven level in the second half.

In the games division, Sony posted a loss of 58.5 billion yen. The business will probably incur a fourth straight deficit, as sales of the PS3 and PlayStation Portable machines continue to trail the popularity of Nintendo’s products, according to the analyst survey.

Profit at the film division, which produced “Hancock” and “Quantum of Solace,” fell 49 percent last year, partly because of lower home-entertainment sales, Sony said. The unit may post similar earnings this year, according to the analysts.