Sony Q4A – Patient reward

There is no sign of the hoped for recovery.

• Sony reported a bad set of results with forecasts for the coming year coming far below what consensus had been looking for.
• Revenues and net income for FY 14A were JPY1,870bn / LOSS JPY111bn which was in line with revised guidance given on May 1^st.
• However, hopes for a rapid recovery were shattered as forecasts for the coming year were well below estimates.
• Revenues, operating profit and net income for FY15E are expected at JPY7,800bn, JPY140bn and LOSS JPY50bn respectively.
• This compares very unfavourably to consensus at JPY7,698bn, JPY231.8bn and JPY26.5bn.
• Revenues have been forecasted some 1.3% ahead of forecasts but operating profit is 40% below what investors were hoping for.
• Net income is way off target.
• What has frustrated investors is the apparent lack of progress.
• 2015E guidance calls for more of the same with most of the margin improvements coming from the exit from PCs and lower asset impairment charges.
• Very little in terms of real improvements in the underlying businesses seem to be expected which I hope is just Sony being conservative.
• Sony is the only Japanese company with a chance of a future in consumer electronics as it has the assets to create a thriving ecosystem.
• To create this vision from a series of ivory towers that are only part of the same company in name requires a leader with character, will power and charisma.
• Unfortunately, these results were devoid of the kind of get-up-and-go that is required to turn this company around which leaves one wondering whether it will just lumber from one year to the next.
• I am certain that Hirai-san understands that all the divisions of this company need to work together to create devices and experiences that offer consumers an attractive way to live their Digital Lives.
• Sony’s coverage of Digital Life is weak but its strong position in gaming and media consumption put it ahead of many of the other contenders.
• Hence, through PlayStation, Smartphones, TVs and its media assets, Sony has the opportunity to create a thriving ecosystem which would allow it to put premium prices on its products once again.
• I remain convinced that this is the strategy that Sony is trying to pursue as Hirai-san understands the importance of the ecosystem unlike many leaders in the hardware industry.
• This kind of change does take a long time to deliver but the apparent lack of progress in the next 12 months is disappointing and frustrating for investors.
• The market likes to see at least some sign of what it is being asked to believe and with nothing in sight, confidence in the recovery is evaporating.
• The rewards are there to be had in the long-term but now investors are being asked to be patient as well as brave.