Sony to pull back from Chinese mobile market

[cirr]

October 31, 2014 9:50 am

Sony to pull back from Chinese mobile market

Kana Inagaki in Tokyo


Sony is to pull back significantly from the Chinese mobile market and appoint a new executive to head its mobile division as the company steps up efforts to fix its struggling smartphone business.

The Japanese entertainment and electronics group reported a Y136bn ($1.2bn) loss for the three months ended September 3, up from Y19.6bn a year earlier after it said in September that it would book a charge of about Y180bn ($1.65bn) to write down the value of its mobile unit.

Pummelled by the influx of cheaper handsets from Chinese rivals such as Xiaomi, chief executive Kazuo Hirai recently conceded that Sony’s smartphone strategy was not working and announced a 15 per cent cut in its mobile division workforce. On Thursday, the company appointed Hiroki Totoki to head the division in a bid to speed up its revival.

“We are at a phase where we need to rebuild our shaky earnings. We are planning a significant reduction in China,” said Kenichiro Yoshida, chief financial officer. While denying a complete exit, Sony will no longer develop and sell handset models specific to the country, he said.

Weaker-than-expected sales in the world’s biggest smartphone market prompted Sony to lower its smartphone sales target to 41m units from 43m units – its second downgrade in six months. That came a day after rival Samsung Electronics also confirmed its weakest quarterly earnings for three years, due to a collapse in handset profits.

Some market analysts said it was not effective to simply slim down the business in China without making proper investments to capture future growth.

“It’s either go on the offensive now or quit altogether. You have to avoid getting stuck in between,” said Hisashi Kuroda, portfolio manager at Meiji Yasuda Asset Management.

Sony is expected to provide details about its mobile strategy at an investor briefing on November 25.

Despite grim results in the mobile segment, Sony’s overall quarterly revenue increased to Y1.9tn from Y1.77tn a year earlier, buoyed by brisk sales of its PlayStation 4 console. Sony said it sold 21m units of the PS4 since its launch in November last year.

Mr Yoshida also pointed to signs that Sony’s restructuring – including the sale of its personal computer business and the spin-off of its television unit – is starting to bear fruit.

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Stripping out one-off factors Sony’s electronics business was in the black for the fiscal first half. Its television division was also profitable for two straight quarters for the first time in a decade. To reduce its exposure to soft-performing markets in Latin America, Sony lowered its full-year sales forecast for liquid crystal display televisions to 14.5m units from 15.5 units.

“The biggest problem is that investors can’t feel confident that the profitability will last. They’re in this state now because they didn’t invest strategically to enhance their competitiveness in past restructurings,” Mr Kuroda said.

Sony said it still expects a net loss of Y230bn for the year through March.

Rival Sharp trimmed its annual revenue forecast to Y2.9tn, hurt by the lingering impact from the sales tax increase in April.

Panasonic meanwhile raised its net profit forecast by 25 per cent to Y175bn citing brisk sales in its solar business. The company has staged a strong turnround since pulling back from consumer electronics businesses and shifting its focus to housing and auto parts.

 

[Aepsilons]

@Hu Songshan , @Chak Bamu ,

Perhaps we can merge this to the Japan Economy Thread?

 

[cirr]

Has Samsung Lost Its Grip to Chinese Smartphones?

Makers of Low-Price Cellphones Force South Korean Firm to Scale Back Ambitions

Samsung reported its net profit fell 49% in the third quarter. WSJ’s Ramy Inocencio speaks to Min-Jeong Lee in Seoul about why its share price jumped 4.5%.

By JONATHAN CHENG and MIN-JEONG LEE

Oct. 30, 2014 1:12 p.m. ET

SEOUL—The rapid deterioration of Samsung Electronics Co. ’s mobile-phone business raises the question: Will Chinese companies soon rule the smartphone market?

The world’s biggest smartphone maker by sales said Thursday that its third-quarter net profit dropped 49% as less-expensive handsets, chiefly from China, ate away at its business. A trio of market-tracking firms confirmed that the South Korean technology company is losing ground even faster than many analysts had predicted.

Although Chinese handset makers have been pushing into smartphones for several years, the pace of their rise—and Samsung’s decline—over the last half-year has been stunning.

Since the beginning of this year, global smartphone shipments have ballooned for Chinese smartphone makers including Xiaomi Inc., Lenovo Group Ltd. and Huawei Technologies Co. Handsets from Chinese companies now account for 38% of the global market, more than Samsung and Apple Inc. combined, according to research firm Strategy Analytics. Xiaomi jumped to third place in the global market, behind Samsung and Apple, with 5.6% in the third quarter. It had 3.9% in the first quarter.

Samsung’s smartphone market share tumbled to 25% in the third quarter from 31% in the first, Strategy Analytics said. The tech company’s mobile-phone profit margin dropped to 7% from 20%. Samsung blamed that decline in part on increased marketing costs to clear a glut of unsold smartphones that piled up in China and elsewhere.

Apple’s iPhone had 12% of the market in the third quarter, down from 15% in the first.

Samsung isn’t the only South Korean company struggling as low-cost Chinese rivals catch up. The Korea Institute for Industrial Economics and Trade forecast recently that Chinese manufacturers will likely catch up with or surpass their Korean rivals within five years in areas including ships, petrochemicals, steel and textiles. In mid- to low-price smartphones, the government research group predicted that China would outstrip Korea within two years.

To be sure, gaining market share doesn’t guarantee profit growth and can erode earnings for everyone. It isn’t clear how much of a profit closely held Xiaomi or Huawei make on smartphones, if any.

But Samsung says it is determined to fight back. Samsung executives said Thursday that they would seek to compete more directly with rivals in mid- and low-price phones, where Xiaomi, Huawei and Lenovo sell smartphones for about $300. An equivalent model from Samsung can cost twice as much.

Kim Hyun-joon, a senior vice president in Samsung’s mobile-communications business, said the company would tweak the design and user interface of its lower-end devices to set itself apart from its rivals.

Samsung also will seek to produce devices more economically. “The key is efficiency, to increase the number of components shared across mid- to low-end models, so that we can further leverage economies of scale,” Mr. Kim said.

Samsung also is expected to shuffle executives, as the company typically does toward year-end, in its mobile division.

“Helped in part by management changes, we expect Samsung to work aggressively to retake business lost to Xiaomi and others in China,” Jefferies analyst Sundeep Bajikar wrote in a note to clients.

Following poor earnings earlier this year, hundreds of senior managers in Samsung’s mobile division took a 25% cut in their first-half bonuses, people familiar with the matter said. Executives and senior managers are bracing for more cost cuts, a person familiar with the situation said recently.

Even with Samsung’s new strategy for dealing with its low-cost rivals, the company suggested the best days for its smartphone business may be behind it. Samsung’s third-quarter profit margin of 7% for its mobile business was the lowest since the beginning of 2009. It followed 10 straight quarters in which the division’s margin exceeded 15%. Mr. Kim said the mobile division’s new goal is simply to maintain a double-digit margin.

Samsung still is going strong in semiconductors, a steady source of profit since before its smartphone successes of the past several years. The chip and components business contributed 57% of the company’s third-quarter profit—a contrast to just six months ago, when the mobile division represented 76% of Samsung’s earnings.

Samsung’s memory-chip business is riding strong demand, and the company is hoping that sales of processors will accelerate with the opening of a high-tech factory that is on schedule to start mass production by year-end.

Investors appear optimistic. Samsung’s shares rose 4.5% Thursday in Seoul, their biggest one-day gain in more than a year. Even so, that left the stock down 14% for the year, sliding sharply since early June.

 

[Soryu]

Look like so many threads were created to point out how did Chinese brands dominated China mobile market and rise on the World ...

 

[terranMarine]

The Koreans are feeling the heat

 

[angeldude13]

Koreans sell downgrade version of there flagship phone in India.
Indian people should avoid Samsung cellphones IMO.

 

[Raphael]

China's mobile market is perhaps the most competitive in the world. All the big companies are present and clamoring to get a slice of the pie, and then you have many small domestic companies that may not have much international cachet, but can put up an extremely fierce fight on their home turf. Those who can't provide sharp advantages in price or quality will find themselves squeezed out of the market like a tube of toothpaste.

 

[Aepsilons]

I actually welcome the rise of China's mobile market. In fact, I wish it increases 10 fold. Japan and China are symbiotic in this process than more that you know.



http://online.wsj.com/articles/chinese-smartphones-lift-japans-electronics-business-1413827482