Earlier in the week, Sony reported their Q2 FY16 earnings report and per usual, their mobile division was a mixed bag. On one hand, they’re no longer losing hundreds of millions of dollars per quarter and yet on the other hand, smartphone shipments are down significantly. Part of the dramatic decline in sales is actually by design, as under Kaz Hirai, Sony smartly recognized that doing volume for the sake of volume while losing money hand over fist was a pointless strategy.

Along with their earnings report, Sony also cut 2016 shipment forecasts for a third time now, believing they’ll only sell 17 million units. As you can see from the chart above, they have a long way to go before they hit that number and I’m not entirely convinced they’ll be able to ship 7 million phones during the next quarter. But going back to the initial point, yes Sony Mobile is making a profit but it’s not much. In fact, for the quarter, mobile managed to bring in approximately $48 million in profits, which, in the grand scheme of a billion-dollar company, is next to nothing.

Perhaps this is a better way of looking at things – there is no money left to be made in the smartphone sector. Patrick Seitz writes for Investors:

 Apple iPhone grabs 104% of smartphone industry profit in Q3 

(Just a quick side bar, the mentioned Q3 and Sony’s Q2 are the same quarter. Not all companies begin their Q1 in January and hence the discrepancy between quarters but the time period here is the same.) Now you might ask yourself how Apple was able to get more than 100% of the industry profits, and it’s a fine point to wonder.

 BMO Capital Markets analyst Tim Long estimates that Apple accounted for 103.6% of smartphone industry operating profits in the third quarter. Its share is over 100% because other vendors lost money in the business, resulting in Apple having more smartphone profit than the industry netted overall 

Besides how insane that fact is, it brings us back to the topic. Just the other day, I wrote:

 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. 

And I still mostly stand by that, but I’m not sure Sony has what it takes to etch out that space for themselves and clearly the above indicator is telling us something. I’m not a believer in being in a sector for the sake of being there unless it’s either making you profit or has some strategic reason that will pay off in the future. You can argue that the above number is an outlier and that there is money to be made in mobile and you’d be partially correct, but even the year prior, Apple took in 90% of the industry’s profits.

So when you consider Apple’s continued dominance, Samsung’s thirst to be a player, and the advent of many Chinese smartphone vendors to more global markets, can we confidently believe that Sony has what it takes to compete and carve out a niche space? With the amount of work Sony has in front of it to get their mobile division to a competitive state and how quickly that money pool is drying up (or has already dried up), I’m not entirely sure where the Xperia lineup can go from here.

Sony’s next two quarters will be extremely telling with Q3 being during the ever important holiday shopping season and Q4 being once the rush is over. If Sony can actually sell 7 million phones and Q4 numbers are better than the previous years, you could argue that they’re starting to gain some form of traction. But if neither number pans out, perhaps the money spent on the division is better spent by being allocated to other parts of Sony.

Discuss:

Do you think Sony should continue to try and compete in the smartphone business, or are they better off exiting?