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Sony, the ailing Japanese consumer electronics company, said it would not pay a dividend this year for the first time since listing in 1958, after warning that its expected annual net loss will be nearly five times larger than initially predicted.
The setback came after weaker than expected smartphone sales in the first quarter forced Sony to review its mobile phone strategy. That led to a massive impairment charge of about Y180bn ($1.7bn), as well as plans to cut 15 per cent of the unit’s 7,100-strong workforce and reduce its handset line-up.
Although it generates the most sales for Sony, its mobile communications segment is struggling to cope with fierce competition from Chinese mid- and low-end handsets. That has eaten into Sony’s profitability, just three years after it took over its joint venture with Ericsson. Its flagship Xperia phones have also failed to catch on in the US, faced with rivals such as Apple and Samsung.
“[The impairment ] is quite a shocking amount,” said Pelham Smithers, who runs an eponymous boutique research firm with a Japan focus. “The market has sensibly assumed this is a precursor to them spinning off the mobile business which is what foreign investors have been wanting them to do.”
Such a move by chief executive Kazuo Hirai would bring Sony much closer to becoming the predominantly software focused company that investors believe would be more profitable than it is at present.
However, Sony has identified smartphones as one of the pillars of the company, along with gaming and film. The mobile segment is the single biggest business segment for Sony, generating nearly a fifth of its total revenue.
The beleaguered maker of the PlayStation 4 had in July said it expected to post a loss of Y50bn for the year ending in March 2015. It has now raised that to Y230bn ($2.14bn).
Wednesday’s grim forecast came just as there had been some signs Sony’s restructuring measures might be starting to bear fruit. Over the past year, the company has spun off its television unit into a subsidiary and sold its PC business.
Timeline on Sony woes
For a look back at some of the Japanese group’s difficult moments, starting with the ‘Shokku’, or shock, in 1999
See below
In July, it surprised the market by returning to profit for the second quarter, buoyed by its strong PlayStation game business.
But the latest forecast for the troubled gadgets maker known for the Walkman and Trinitron televisions would mean cumulative losses of more than Y1tn over the past five years.
Sony blamed the “competitive environment” of the mobile business and said a strategy review was needed to reduce “risk and volatility”. Chief executive Kazuo Hirai said Sony would reduce its workforce in mobiles, shift its geographical focus and scale back the line-up of its mid- to lower-range offerings as Chinese handset makers gain ground in the market.
More video
Still, Mr Hirai said Sony needs to remain in the mobile phone business to capture future growth in wearable devices and other post-smartphone gadgets.
The uneven nature of Sony’s restructuring has been underscored by its regular profit warnings. It issued three warnings in the six months to May, and a loss for the current year will be its sixth in seven years.
In spite of a robust first quarter, Sony in July cut its annual sales target to 43m units from a forecast in May of 50m units. Even then, investors worried that Sony was being too bullish on its smartphone outlook.
Over the past five years Sony’s shares have lost 23.8 per cent of their value, while the Nikkei 225 benchmark stock average has gained 58.3 per cent. Its shares have been recovering over the past year on the back of a rise in the broader market, but are still underperforming.
Sony fell 1.8 per cent in Tokyo on Wednesday ahead of the warning, underperforming a flat broader market.
Damian Thong, analyst at Macquarie, said the review of Sony’s mobile strategy was no surprise, although the size of the impairment charge was bigger than expected.
“Mr Hirai will still need to address the question of what it will do about the business going forward,” Mr Thong said, adding that Sony needed to make sure its mobile segment won’t be a distraction as it expands its PlayStation business.
Sony, the ailing Japanese consumer electronics company, said it would not pay a dividend this year for the first time since listing in 1958, after warning that its expected annual net loss will be nearly five times larger than initially predicted.
The setback came after weaker than expected smartphone sales in the first quarter forced Sony to review its mobile phone strategy. That led to a massive impairment charge of about Y180bn ($1.7bn), as well as plans to cut 15 per cent of the unit’s 7,100-strong workforce and reduce its handset line-up.
Although it generates the most sales for Sony, its mobile communications segment is struggling to cope with fierce competition from Chinese mid- and low-end handsets. That has eaten into Sony’s profitability, just three years after it took over its joint venture with Ericsson. Its flagship Xperia phones have also failed to catch on in the US, faced with rivals such as Apple and Samsung.
“[The impairment ] is quite a shocking amount,” said Pelham Smithers, who runs an eponymous boutique research firm with a Japan focus. “The market has sensibly assumed this is a precursor to them spinning off the mobile business which is what foreign investors have been wanting them to do.”
Such a move by chief executive Kazuo Hirai would bring Sony much closer to becoming the predominantly software focused company that investors believe would be more profitable than it is at present.
However, Sony has identified smartphones as one of the pillars of the company, along with gaming and film. The mobile segment is the single biggest business segment for Sony, generating nearly a fifth of its total revenue.
The beleaguered maker of the PlayStation 4 had in July said it expected to post a loss of Y50bn for the year ending in March 2015. It has now raised that to Y230bn ($2.14bn).
Wednesday’s grim forecast came just as there had been some signs Sony’s restructuring measures might be starting to bear fruit. Over the past year, the company has spun off its television unit into a subsidiary and sold its PC business.
Timeline on Sony woes
For a look back at some of the Japanese group’s difficult moments, starting with the ‘Shokku’, or shock, in 1999
See below
In July, it surprised the market by returning to profit for the second quarter, buoyed by its strong PlayStation game business.
But the latest forecast for the troubled gadgets maker known for the Walkman and Trinitron televisions would mean cumulative losses of more than Y1tn over the past five years.
Sony blamed the “competitive environment” of the mobile business and said a strategy review was needed to reduce “risk and volatility”. Chief executive Kazuo Hirai said Sony would reduce its workforce in mobiles, shift its geographical focus and scale back the line-up of its mid- to lower-range offerings as Chinese handset makers gain ground in the market.
More video
Still, Mr Hirai said Sony needs to remain in the mobile phone business to capture future growth in wearable devices and other post-smartphone gadgets.
The uneven nature of Sony’s restructuring has been underscored by its regular profit warnings. It issued three warnings in the six months to May, and a loss for the current year will be its sixth in seven years.
In spite of a robust first quarter, Sony in July cut its annual sales target to 43m units from a forecast in May of 50m units. Even then, investors worried that Sony was being too bullish on its smartphone outlook.
Over the past five years Sony’s shares have lost 23.8 per cent of their value, while the Nikkei 225 benchmark stock average has gained 58.3 per cent. Its shares have been recovering over the past year on the back of a rise in the broader market, but are still underperforming.
Sony fell 1.8 per cent in Tokyo on Wednesday ahead of the warning, underperforming a flat broader market.
Damian Thong, analyst at Macquarie, said the review of Sony’s mobile strategy was no surprise, although the size of the impairment charge was bigger than expected.
“Mr Hirai will still need to address the question of what it will do about the business going forward,” Mr Thong said, adding that Sony needed to make sure its mobile segment won’t be a distraction as it expands its PlayStation business.
