The Mobile Losses and What it Means for Sony Corp.

Last week Sony revealed that the mobile division has been not been selling smartphones in the volumes that it expected and inadvertently revealed that they bet on the wrong strategy. The corporation as a whole is looking at a net loss of $2.1 billion for the financial year ending 2014 (end March ’15).

More than a few of us are surprised. The rising popularity of Xperia devices and their spread to other markets gave an impression that Xperias were gaining broad market approval.

Unfortunately, the mobile division has made some poor choices and even worse, it threatens the stability of the overall corporation, being an important third of Sony’s main income.

How did this happen and where is Sony Corp. heading?

How bad is the mobile division exactly?

Yearly smartphone unit sales decreased from 50m to 43m
15% decrease in staff size (rumoured, which is about 1,000 jobs)

And the broader corporation?

A higher loss than anticipated for the year 2014, from ¥50 to ¥230 billion ($2.15 billion)
The corporation will not pay a dividend to shareholders for the first time since it began in 1958

What did the CEO (Kaz Hirai) say about this?

I am deeply sorry for shareholders and I, as a president, am taking this situation very seriously. I’d like to take responsibility by finishing implementing structural reform efforts in this fiscal year and returning the company to profitability in the next fiscal year.

Exactly as my colleague mentioned, it saddens me too to note these facts. But this leaves significant concerns for the direction of Sony Corp.

Once more, the mid-range smartphone plan is objectionable. Back in early August, it seemed like Sony’s mid-range smartphone strategy was not working. Exactly what is mid-range anymore and how many such models does Sony actually have? It seems almost as if they only sell premium devices, save for one or two exceptions like the Xperia E1 and the M2.

It’s very difficult (for this author) to see how the company can survive another year with little changed. Something has to change. Surely the markets won’t put up such a sudden crash; it’s almost 5 times the loss predicted just a few months ago. At the end of July this year, information circulated suggesting that Sony would no longer feature in the Japanese government’s 400 ‘investment-worthy’ companies. At that time this quote seemed apt:

Brian J. Bushee, professor of accounting at Wharton School of Business notes of investor relations:

A lot of bets investors are making are on the management, not on the financials.

The problem is, with the most recent news of a 5-time higher loss predicted, it’s difficult to see who is going to bet on the management. Sony doesn’t have the financials or perhaps the right management.

A year ago, a top investor in Sony at that time, Daniel Loeb, made the case for a break-up of Sony. His comments were fired back at him in a much-publicised retort by Hollywood hunk (did I just say that? Yes I did) George Clooney who said that such people know little about the real business and have no genuine interest in its success. Perhaps Clooney is right on that score. But, the case for a breakup is looking stronger, and there are no calls for it – yet.

What’s going to happen in the next year?