Sony Stock Won’t Get Help From Smartphones

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According to a report in The Wall Street Journal, the new chief of mobile at Sony Corp (SNE), Hiroki Totoki, said that the goal of becoming the No. 3 player in the market was too exuberant. Yet he still believes that the company can turn the business around and get to strong profitability.

Sony Corp. (NYSE: SNE)However, even these revised hopes seem overly optimistic, which means Sony stock could be vulnerable.

So what’s the plan? Well, SNE is now focused on cost cutting, reducing the number of models and exiting markets like China. Interestingly enough, Totoki admits that this process could mean a 20% to 30% drop in sales. But the idea is to get back to profitability, even if it comes at the cost of market share.

Still, the new SNE way does seem depressing, especially for a company that has a long history of innovation. The new vision will likely make it tough to motivate the troops to battle fierce rivals like Apple (AAPL), Samsung (SSNLF) and Xiaomi. The approach is also unlikely to inspire Sony stock investors.

The fact is that the mobile market is extremely brutal, even when a company is laser-focused on prevailing. Just look at the stunning implosions at once dominant companies like Nokia (NOK) and BlackBerry (BBRY). Even the mighty Microsoft (MSFT).

Challenges for Sony Stock

For the most part, it looks like SNE has a fundamental misunderstanding of the mobile market. To be successful, Sony needs a powerful ecosystem of developers that create compelling apps, which helps to drive usage. It also needs tremendous manufacturing scale to get the price points to competitive levels, which is even more important nowadays because the growth markets are in lower-income areas like Asia, India and Africa.

Given all this, it seems like Sony smartphones could see even deeper falls in sales than the company’s own forecast. It’s inexplicable why consumers would want a so-so device when there are so many solid options available. Besides, even with lots of resources plowed into the business, the latest Sony smartphones have been mostly duds.

Granted, there are some bright spots in the overall business, which has actually helped to lift the Sony stock in 2014 (up about 26%). The PlayStation franchise continues to gain momentum, and Sony has also seen a boost from the Hollywood studio. The company’s core technologies may also find growth in areas like wearables.

But, then again, SNE is likely to be weighed down by the sluggish TV unit as well as the listlessness of the camera division.

In fact, activist hedge fund manager, Dan Loeb,  recently dumped his $1.1 billion stake in Sony stock. In his letter to shareholders, he indicated that management was resistant to making the wrenching changes to improve shareholder values, such as with the partial spin-off of the Hollywood unit.

Bottom Line on SNE Stock

All in all, Sony stock is a mixed bag right now. It’s really a jumble of disparate businesses, some declining and others growing. The financials have also been worsening as the company has nixed its dividend. For the year, SNE estimates that the net loss will be a hefty $2.1 billion — the sixth loss over the past seven years.

But going forward, the situation could get even worse, especially since the company’s approach is to starve its mobile buisness. If anything, it probably would have been better to just unload the division. But instead, it will remain yet another drag on performance for Sony stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling.  Follow him on Twitter at @ttaulli.  As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/sony-stock-smartphones/.

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