Sony’s Reversal of Fortune Is Here to Stay

Long considered an afterthought in the ultra-competitive consumer electronics space, Sony Corp (ADR) (NYSE:SNE) has pulled off a remarkable comeback. Now, with Sony stock soaring, and the organization riding its recent earnings beat momentum, no one dares laugh. That stunned silence will likely continue as the years go by.

For long investors, it’s natural to assume that a steadily rising company will stay the course.

Both bias and pattern recognition comes into play. The best part about Sony stock is that while it benefits from such investor psychology, it has the goods to back up the hype. Some of the proposed or rumored product launches look promising. Moreover, competitive missteps are providing unexpected tailwinds for SNE.

That wasn’t always the case. Ever since Apple Inc. (NASDAQ:AAPL) launched its iPod music player (remember those?) Sony suffered an identity crisis.

In the 1980s and 1990s, the company found success through aggressive strategies that led to market share dominance. In the 2000s era, Steve Jobs introduced an entirely new platform. Sony had no legitimate response, and the Sony stock price proved it.

When I was working there, we had many corporate protocols, such as “Sony United” or “One Sony.” We changed the name of our flailing “Sony Style” stores to just “Sony.” I distinctly remember the logic behind the name change: Apple called their stores just Apple, so we will call our stores just Sony.

It was typical delusional Japanese groupthink married with equally delusional American optimism. Of course, “just Sony” cratered.

Thankfully, those days are long gone. CEO Kazuo Hirai is a no-nonsense leader who understands what works and what doesn’t. And for shareholders of SNE stock, the company has a lot going for it.

SNE Finally Playing to Its Strengths and Its Opponents’ Weaknesses

If Steve Jobs left Tim Cook with a book of ideas, all of his advice has been fully consumed by now. Sony is doing what it should’ve done a while ago — take advantage. While overnight success won’t happen, the Japanese firm’s willingness to throw power punches at Apple has invigorated Sony stock.

A great example is the rumored OLED screen integration for Sony’s future smartphone products. For years, Sony smartphones have been an afterthought, and that’s a generous statement. I wouldn’t be surprised if many of our readers didn’t even know that Sony had a phone. Clearly, half-hearted investments in this business did SNE stock no favors.

Now, they’re not going to fight conservatively. If they’re in, they’re in all the way. Gone are the yesteryear LED interfaces. The revitalized company will not only introduce OLED technology, but they’ll probably utilize curved or foldable screens. Since their engineers are revamping the smartphone design, OLED is likely one of many changes to be incorporated.

Also, Apple is making some uncharacteristic, “old Sony” mistakes. For instance, I switched to the iPhone X but largely because I was several model generations behind. I love the device, but when it came time to listen to some music … no headphone jack! Consequently, no AAPL for me; I’ll stick with SNE stock, thank you very much.

In all seriousness, I’m sure there’s some Cupertino excrement to explain this BS. This dumb decision reminds me of my Sony days when we used to force customers to buy our proprietary flash memory cards because our point-and-shoot cameras were not compatible with the traditional SD format. The first rule of consumer electronics is to never tick off your customers.

Apple, in its newfound intellectual regression, is the best promoter of Sony stock.

PlayStation Should Seal the Deal

What makes this organization so formidable now is that they’re strengthening their weaknesses and their moats. That’s evident with Sony’s sustained drive to improve its PlayStation 4 gaming console.

By any measure, the PlayStation 4 is a resounding success. But with Microsoft Corporation (NASDAQ:MSFT) responding with its Xbox One X, PS4 revenues will decline. Furthermore, SNE will be left with the inferior machine, at least on paper. To maintain momentum in Sony stock, you can expect the successor PS5 to come back roaring.

The exciting thing is that with the successor console, “new Sony” will learn from its prior mistakes. A huge one was introducing the PS4 without backward compatibility with PS3 games. That can’t and won’t happen again, in part because Microsoft capitalized on that “old Sony” blunder. Today, it’s SNE’s turn to advantage its competitors’ errors.

But as an investor, the biggest mistake is believing that Sony stock is purely a momentum play, and nothing more. This is far from the case. The recovery effort took longer than most people realized, but the important point is that it’s here. You can trust Hirai and Sony because this turnaround is the real deal.

As of this writing, Josh Enomoto is long SNE.

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC