One of the key factors in Sony’s Q2 2016 revenue taking an 86% dip is lower than expected Xperia smartphone sales. Having already cut smartphone sales forecasts twice in 2016, Sony is once again lowering their guidance by 11% for the year and expect to only ship 17 million units. Looking at the numbers, things don’t look all that rosy for Sony’s mobile ambitions though sales were up by 400k compared to the previous quarter. However, looking at the numbers against the same in 2015, which was never spectacular to begin with, it’s hard to walk away with a bright view on the division.

In Q3 2015, Sony managed to ship 6.7 million smartphones while this year, a meager 3.5 million Xperia units made it into the wild. To make matters worse, Sony finished 2015 with nearly 30 million units sold which was already down dramatically compared to the year prior but with their new sales forecast of 17 million units for the year, this will be their worst year since 2010 when their mobile efforts came in house and their partnership with Ericsson was cut off. As it stands, Sony has sold 10 million smartphones for the year.

In order to hit their guidance, Sony has to sell another 7 million phones this quarter, in the ever important holiday shopping season. As the data shows though, that’s not as easy as it sounds. I’m not arguing here that Sony shouldn’t have cut off their ties with Ericsson but rather that clearly as the graphs show, Sony is unable to garner any kind of forward momentum.

Going back to the numbers, Sony Mobile posted a 39.6% decrease in sales, down to ¥168.8 compared to ¥279.2 in the previous year. Despite the dip, Sony Mobile remains profitable at ¥5 billion, or roughly $48 million. Again, at least it’s a profit but these aren’t any real numbers that are worth writing home about.

One advantage that Sony has had over its competitors is a much higher ASP. This has been one of their key strengths that’s allowed their mobile division to once again become profitable when compared to rivals HTC and LG. Still, there comes a point where if Sony doesn’t deliver enough volume, even if each smartphone sold is impossibly 100% profitable, overhead costs alone will begin to sink the division.

Another way to look at it is if we do some rough math and say that on average, an Xperia phone costs $500 and it’s magically 100% profitable, if sales dip to 10 million units sold, that leaves the division at $5 billion in sales which isn’t that much when you look at Xperia as a global product. Now take R&D, marketing, personal, manufacturing, and other various costs that go into running a smartphone division and you begin to get a bleaker look at their mobile operations.

If Sony is able to do something about their slumping smartphone sales which I think has more to do about how they handle the brand and less to do with the actual products they’re selling, then I think the division could have a brighter future ahead. Make no mistake, Sony will never become a challenger to Apple and Samsung, but that doesn’t mean it can’t be healthy, much like how BMW has their M division and Fiat Chrysler owns Ferrari. Neither car produced under those divisions do huge volumes but they’re prestigious, industry leading, and profitable.

For Sony Mobile, this is the best possible outcome when you consider the competition from Apple, Samsung, Chinese rivals, and maturing markets. Otherwise, the division will slowly fade into oblivion and will be another write off the company must face in a few years time when they shutter it. From Sony:

Q2 FY2016 (year-on-year)

 Sales: 39.6% decrease (FX Impact: -5%)

• (–) Significant decrease in smartphone unit sales
• (–) Reduction in mid-range smartphone unit sales
• (–) Reduction in smartphone unit sales in unprofitable regions where
• downsizing measures were implemented during FY15
• (+) Improvement in product mix of smartphones as a result of a concentration on high value-added models

OI: 24.3 bln yen profitability improvement (FX Impact: +5.4 bln yen)

• (+) Cost reductions mainly resulting from the benefit of restructuring initiatives
• (+) Improvement in product mix as a result of a concentration on high value-added models
• (+)  Positive impact of foreign exchange rates
• (+)  Decrease in restructuring charges
• (–) Decrease in sales