Few bright spots in a dark day for Sony
There were few glimmers of hope for Sony yesterday, after it revealed that first quarter net profit had plummeted by 47.4 per cent to ¥34.98bn (£207m).
Nearly every area of the Japanese giant’s business, from music sales to electronics, posted worse than expected performances.
Although sales volumes in electronics were up, reduced margins and an increasingly competitive market meant that operating income dropped by 57.2 per cent to ¥44.4bn. The company is also being battered by a weak dollar; Sony estimates that every one yen increase against the US currency ends up cutting its operating profit by ¥4bn.
Mobile Phone Woes
But it was the performance of Sony’s joint mobile phone venture with Ericsson that will trouble its chief executive Sir Howard Stringer the most. The 2,000 job cuts he announced to reduce costs at the business will not be enough to remedy the fact that it made virtually no profit due to waning market share and lower retail prices.
Nor will there be any respite soon for the mobile business. It has unashamedly chased high end, smartphone customers in recent years, but this market is now fiercely competitive. Not only does Sony have to deal with established threats from the likes of BlackBerry maker RIM, but also with new dangers such as Apple’s iPhone.
The real way to make money from mobile phones is by pushing low-end devices into emerging markets, but Sony Erricson has little to offer in this space.
The story of Sony’s rise and fall is becoming repetitive. Its seminal Walkman used to dominate the personal audio market, before being wiped out by the iPod. Similarly, it was once the king of the video game console, when its PlayStation 2 reigned supreme, before Nintendo launched the
staggeringly successful Wii.
A Pyrrhic Success
It was Sony’s games console business that offered the only bright spot yesterday. It surprised analysts by announcing that sales of its PlayStation3 had doubled to 1.56m, leading its games division to post a rare profit of ¥5.4bn. But it was a pyrrhic success. Sony’s costly machine only appeals to die-hard gamers, while Nintendo’s cheaper, less-sophisticated Wii is well on track to replace the PlayStation 2 as the best-selling console of all time.
Pretty soon, Sony will have to surrender yet another crown.