Sony Q2 – Big Black Shiner

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One black eye does not make a knock-out.

  • Sony is paying the price for its ambition with an awful set of results.
  • Sony reported Q2 13 results that were far worse than expectations and also cut its full year profit (March 14) forecast by 40%.
  • Q2 13 revenues and net income were JPY 1,775bn / LOSS JPY19.6bn compared to forecasts of JPY 1,779bn / JPY 12.2bn.
  • This was particularly worrying as the Yen was a major tailwind in the last quarter.
  • Without it revenues would have fallen by 9%.
  • Operating margins fell from 1% in Q2 12 to just 0.3% in Q3 13.
  • The biggest culprit was Sony Pictures Entertainment which has struggled with a number of recent flops as well as Sony’s insistence on holding onto its TV, camera and PC businesses.
  • As a result, forecasts were slashed and full year net profit (March 14) is now expected to be JPY30bn compared to previous forecasts of JPY50bn.
  • Consensus was expecting JPY45.6bn in net profit.
  • This will add a lot of weight behind activist shareholder calls for the company to be broken-up and if enough fervour can be whipped up, it just might happen.
  • Kazuo Hirai’s vision is to turn Sony from a lumbering conglomerate into an integrated ecosystem play with both hardware and software.
  • This is the right vision but it is incredibly difficult to execute and it will take a long time in the best instance.
  • This quarter, he has been undermined by bad luck at the movies and weak demand for PCs, TVs and cameras.
  • The real question is how long does he have to realise that vision or will impatient shareholders sell the company out from underneath him?
  • With its assets from electronics to media, Sony is the only Japanese company that has a chance being relevant in the digital ecosystem world.
  • Sony must break down the silos it has cherished for 40 years and make all of its assets pull together.
  • To give Hirai-san credit, he gets it.
  • His executives have both horizontal and vertical responsibility which forces the disparate parts of the crumbling empire to work together.
  • If any Japanese company is going to emerge from the wreckage that is Japanese electronics, it will be Sony.
  • Everyone is praising Panasonic this morning for its improvements, but this is a company that is cost cutting its way into obscurity.
  • Panasonic is finished in the technology sector and while it may be profitable it will never see greatness again.
  • This will give some short-term share price performance but in the longer run the company will drift sideways.
  • Sony on the other hand has the potential to perform well for many years to come because there is so much that could be done with its assets.
  • I want to love Sony because it is now trying to fix all the things that I have hated about it for years.
  • Hirai’s strategy is absolutely bang-on, but just like Microsoft, I don’t yet know whether he can execute it.

 

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