Sony Reports Significant Q3 Losses; Names New CEO

SonyAccording to a financial announcement released by Sony Corporation recently, the company has seen a 17.4% decrease in revenue from last year, which translates to a loss of ¥383.3 billion (roughly $5.036 billion). In the gaming department, they lost approximately ¥31.36 billion (approx. $411.74 million), which is a net loss of 9.7%.

The report gives the following reasoning for the generally steep decline:

Consolidated sales decreased significantly year-on-year primarily due to the impact of the floods in Thailand, deterioration in market conditions in developed countries, and unfavorable foreign exchange rates.

Consolidated operating loss was recorded compared to income in the same quarter of the previous fiscal year, primarily due to a significant deterioration in equity in net income (loss) of affiliated companies, in addition to the above-mentioned factors.

The deterioration in equity in net income (loss) of affiliated companies was primarily due to an impairment loss on the shares of S-LCD, which were sold in January 2012, and the recording of a valuation allowance on deferred tax assets at Sony Ericsson.

Sony also reported that it  is “undertaking structural transformation initiatives to enhance profitability through implementation of various cost reduction programs as well as adoption of horizontal platforms.”

According to the report, during the quarter that ended on December 31, 2011, the average rates of the yen were 76.4 yen against the U.S. dollar and 102.8 yen against the euro, which were 6.9% and 7.7% higher respectively than the previous fiscal year’s third quarter. It also noted a ¥322.1 billion (approx. $4.2 billion) loss in consumer products and services sales and operating revenue, a 24.4% year-on-year decrease. The company also lost ¥79.3 billion (approx. $1.04 billion) in professional, device and solutions sales, and operating revenue, which is a 20.7% decrease. Sony suffered similar losses in other areas, with notable exceptions like pictures and financial services. The company stated that the decreases were primarily due to lower LCD television sales in the Japanese, European, and North American markets, as well as the floods in Thailand. They also explained that last year, LCD television sales abnormally increased due to a temporary subsidy from the Japanese government after the Japan Earthquake of March 2011.

Sony has recalculated their outlook for the fiscal year ending March 31, 2012. Consolidated operating results are expected to be approximately ¥20 billion below the November forecast due to unfavorable foreign exchange rates. Operating results in the CPS segment are expected to be approximately ¥90 billion below the November forecast due to lower-than-expected sales in digital imaging products, including digital cameras and PCs, due to the floods. Due to increased competition in the mobile phone markets, operating results from Sony Ericsson are expected to be approximately ¥5 billion below the November forecast. Sony has also said they expect to fully consolidate Sony Ericsson in February 2012.

Additionally, Sony has announced Kazuo Hirai will be the next President and CEO, chosen by a unanimous vote by the board. Hirai has a four-step plan which basically consists of focusing more on gaming and digital imaging, working with Sony’s television department to focus on Crystal LED and OLED technologies, getting rid of products that aren’t adding value to the company, and moving into the medical field. Current CEO Howard Stringer will become chairman of the board on April 1, Sony said in a statement.

Analysis: I’m not really surprised Sony lost money this time around, though their reasons for the losses make sense. When a large market has a natural disaster happen to them, things like cameras and video games aren’t usually at the top of the residents’ lists of things to buy. Additionally, it’s completely possible that last Q3, there was misleading inflation due to the Japanese government’s subsidies following the earthquake last year. The thing that hasn’t been noted, though, is that this isn’t Sony’s first quarter of losses. According to the NY Times article linked above, this is their fourth consecutive year of losses. Their shares are now only 25% the worth they were four years ago. It’s about time they acted on that information.

What’s notable about this, though, is that Sony has actually cut its forecast for PS3 sales and that the Vita was not mentioned at all in the report. We know it hasn’t sold as well as they’d planned, so it probably should’ve been mentioned. Perhaps this is due to poor marketing; it seems not that many people really understand what the Vita is capable of, and all the talk of hidden costs really hurt the console’s image early on. Add in all the issues Sony has had in the past months with negative PR thanks to hackings—which were handled poorly to boot—and the support of SOPA, and I can see why there’s been a decrease in Sony sales, at least when it comes to the video game side of the company.

Even more interesting, however, is that Kazuo Hirai is taking over as CEO. Restructuring a company—as we’ve seen with THQ—usually points to an acknowledgment that there’s a problem. Hirai’s ideas sound good on paper, but we’ll have to see how well the company is able to implement these changes. It’s definitely a good idea to drop stuff that isn’t going to make Sony money anymore and to focus on the things that really do draw customers, which in their case is digital imaging and games. I’m not really sure how well they’ll do in the medical field, but if the company is willing to take that sort of a risk, more power to them. I do wish they’d drop television, though, at least in America; if people want to buy a high quality TV, they’re more likely to buy an American brand because it tends to be cheaper. Maybe with a more focused approach, the company can break free from these consistent losses and retain some of their former glory.


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