by Brad Moon | February 13, 2014 9:29 am
Its seems as though Sony (SNE) isn’t quite out of the woods yet.
CEO Kazuo Hirai’s company seemed to be finding its groove — at least when it came to designing products that people might actually want — but word is the company is expecting to book a $1 billion loss for 2013. Despite some spectacular new Bravia 4K TVs, the television division will also mark a decade without turning a profit. That hurts and the situation has left Hirai scrambling for ways to save money.
Taking a page from IBM’s (IBM) playbook back in 2004 — the company sold its popular ThinkPad PC business to Lenovo (LNVGY) — it will be selling its Sony Vaio PC division to Japan Industrial Partners, laying off 5,000 associated employees.
Given the dismal shape the PC industry has been in, it probably makes sense for Sony to get rid of this division, but it’s a sad day for many PC fans. The Sony Vaio has a reputation for innovation and Sony’s PC design aesthetic has influenced other premium laptop makers, including Apple (AAPL). Sony even helped build Apple’s first notebook success and predecessor to the MacBook Pro, the PowerBook 100.
See my recent review of the Sony Vaio Fit 15A for an example of how Sony had been working hard to stay on top in the PC business.
The question has to be asked: With the Sony Vaio (and its U.S. e-reader presence) on the chopping block, what else might go? I suppose anything is possible, but here are five lines I’m betting Sony won’t get rid of any time soon.
While no one lines up to buy the latest Sony Vaio, there were lineups for the Playstation 4, the company’s next-generation video game console. The company ended up selling more than one million PS4s in the first 24 hours of availability and sales have remained strong. Better yet, unlike the PS3 experience, Sony is already close to breaking even on Playstation 4 hardware.
That bodes well for future profitability of the gaming platform.
When you add in the value of the Playstation 4 in generating games sales (which Sony gets a cut of), the investment in the Playstation Now game streaming network, the PS4’s role in bolstering the Playstation Vita handheld game system and the foothold in the living room the video game console represents for Sony, I can’t see any reason for Sony to get rid of the Playstation 4.
Sony is not a stupid company and it has seen the writing on the wall that mobile is the future. It bought out Ericsson’s (ERIC) share of the struggling Sony-Ericsson mobile phone joint venture in 2011 and went it alone with smartphones.
Sony’s Android-powered Xperia smartphones face an uphill battle in a market dominated by cheaper products and increased competition from Chinese companies entering the market. The company shipped just 38 million Xperia smartphones in 2013 (a 3.8% global market share).
But it won accolades at this year’s Consumer Electronics Show for its Xperia Z1 compact smartphone.
Xperia smartphones are well-designed, they offer premium features (some are even waterproof), and they do well in Sony’s home market of Japan where the company is No. 2 in sales (after the iPhone). If the company can step up its presence in the U.S. — where it’s difficult to find an Xperia smartphone in carrier showrooms — mobile sales could help less profitable divisions avoid the fate of the Sony Vaio.
Just because Sony killed its PC division doesn’t mean abandoning the computing market altogether. It’s continuing to offer the Xperia line of tablets.
While the Xperia tablets haven’t enjoyed great sales numbers — the company has a less than 1% global market share, which makes even Microsoft‘s (MSFT) Surface efforts look good in comparison — the devices are high-quality. I’ve had several on loan from Sony at different times and the Xperia Tablet Z is one of my favorite Android tablets, incorporating key Sony technologies like the Bravia mobile video engine for an awesome display.
Sony isn’t going to ditch that Xperia tablet line, especially now that the Sony Vaio PC is history. To retain any connection with consumers (and possibly business) in the mobile computing segment, the Xperia tablets need to stay.
But, like the Xperia smartphones, they’re in dire need of a marketing boost, especially in the U.S.
But wait. Isn’t the camera industry in even worse trouble than the PC industry? If you’re going to kill the Sony Vaio PC, why wouldn’t you ditch the cameras too?
There are several reasons.
First, Sony has figured out that higher-end cameras are the only reason to buy a standalone camera instead of using the one in your smartphone. The company is going head-to-head with long-time industry leaders like Nikon, and it’s on fire. Its Alpha line is winning favor among prosumers, while its pricey RX1-R premium compact model has set new standards for what a pocketable camera can do.
Outside of the cameras themselves, Sony’s Xmor image sensor technology and Carl Zeiss lens are used for the cameras in its Xperia smartphones, and Sony has built a nice business supplying camera components to other smartphone makers. For example, you’ll actually find a Sony image sensor inside the iPhone 5s.
The company also recently released standalone camera zoom lenses that fit onto popular smartphones to replace their built-in camera with more powerful optics.
Camera sales may be sliding in general, but the camera division is still expected to represent $12.7 billion in business for Sony this year (almost as much as Xperia smartphones and tablets combined). This is one area where Sony’s products seem to be in the ascendancy.
So don’t expect the camera division to share the fate of the Sony Vaio PCs any time soon.
I’m going to go out on a limb and say that Sony won’t get rid of the most obvious problem in its line-up. However, if Kazuo Hirai can’t staunch the bleeding over the next year and those Bravia 4K TVs fail to sell, that could change.
Despite what a drag the TV business is on Sony’s bottom line and the obvious damage the business is doing to the company (10 straight years of losing money will do that), Sony is standing by it — at least for now.
Aside from the fact that finding a buyer for the TV business in a brutally competitive market would be difficult, those Bravia TVs are a point of pride for Sony. They represent much of its identity as a consumer electronics giant. Sony has always been seen as a premium brand in the living room and storied names like Trinitron, Wega and Bravia have often topped videophile wish lists.
Sony is still a major presence (No. 3 in worldwide TV marketshare), and it has released some very well received Bravia 4K TVs. If it could finally get out of the red, the sheer number of sets it sells could make TVs a profitable line once again.
Kazuo Hirai does seem to be hedging his bets on this one, though. While it’s keeping the TV business, Sony is creating a subsidiary for it — a sign that it might be willing to eventually spin it off later.
But if the company continues to struggle in 2014, no matter how big a part of Sony those Bravia TVs might be, there are going to be increased calls to have the Bravia join the Sony Vaio as just a memory in 2015.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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