What Did that Announcement Mean? We Explain What's Happening to Sony's TV Business

Sony just announced major plans regarding its PC and TV businesses. With the VAIO PC brand, we know that it is being sold to Japan Industrial Partners, a company that specialises in recovering companies in peril.

On the other hand, the TV business move has many of us wondering. During the past few months, many terms have been thrown around like subsidiary, restructuring, streamlining. The official announcement was no more clear with full of management-speak, so what is actually happening?

In short, the TV business will be made into a separate company that will be still be fully owned by Sony, but there is a lot more to it than that. Read on for a closer look at what Sony wishes to achieve by doing this.

Let’s take a closer look at what Sony said in their official news release here.

What did Sony say, what are they doing, and what does it mean?

What Sony Announced

Sony Corporation today announced significant new measures to address reform of its PC and TV businesses aimed at boosting profits in the electronics section of the company.

Sony declared that, despite the aim to bring the TV business to profit this fiscal year, it would not be achieved:

However, Sony now anticipates its target of returning the TV and PC businesses to profitability will not be achieved within the fiscal year ending March 31, 2014 (“FY13”).

Though they did reveal their next plan to bring profit back to the TV business, saying that it can supply profit from the start of the 2014 financial year, which ends in March 2015:

…with the aim of establishing a structure capable of delivering stable profit beginning in the fiscal year ending March 31, 2015 (“FY14”)

What’s Changing with the TV Business

They will detach the TV business from the core of Sony Corporation, though keeping it as a fully owned Sony company:

In addition, to help transform this business into a more efficient and dynamic organization, optimized in size and structure for the current competitive business environment and fully accountable for its operations, Sony has decided to split out the TV business and operate it as a wholly owned subsidiary. The targeted timeframe for this transition is July 2014. By implementing these measures, Sony is aiming to further enhance its TV business’ profit structure and return the business to profitability during FY14.

Staff reductions were also announced, though this figure is to be shared between the sale of the PC business and the new reforms with their TV business:

…Sony is anticipating headcount reduction of approximately 5,000 (1,500 in Japan, 3,500 overseas) by the end of FY14.

Also, the company declared 4K a priority focus for the TV division:

…we will further strengthen our 4K product lineup in order to reinforce our leading position in the 4K market and focus on increasing the proportion of sales from our high-end models, including 2K models. In emerging markets, Sony will aim to harness market expansion by developing and launching models that are tailored to specific local needs.

What Does This Mean? Why do it?

CEO Kaz Hirai commented on the results afterward:

…while we now anticipate our target of returning the TV business to profitability will not be achieved in the fiscal 2013 largely due to unexpected factors, such as the slowdown in emerging markets and declining currency rates, the reforms we have made within the TV business over the past 2 years are putting the business on a path to turnaround.

So, some emerging markets that Sony hoped would deliver stronger sales did not, as their economies slowed down. Plus, currency rates did not move in the company’s favour.

What they didn’t discuss but business analysts know is that the profit to be made in the TV business is not what it used to be. Competition is very tough and the fact is that Sony’s TV part of the corporation has struggled to make profit for almost ten years now.

One research company that advises investors and other people in finance, Seeking Alpha, gives their take on the practical effects of pushing the TV division out of the center of Sony’s operations:

Sony’s TV business will continue to be a part of Sony, as it will become a subsidiary of the company, but it will enjoy a separate management team in order to become more agile and make faster decisions in the face of rapidly changing market conditions.

There is the news in a nutshell.