Sony this week reported a $1.5 billion loss for the fiscal year ending March 31, the company’s first loss since 1995. It had previously predicted a profit. Its outlook for the current fiscal year is also gloomy. It expects a loss of $1.26 billion on revenues that are down 7%. It would be the first consecutive years with losses in Sony’s history.
The loss at the electronics division, led by losses on TV sets, was 168.1 billion yen ($1.75 billion) and is expected to be 201.5 billion yen ($2.1 billion) this year. In the gaming console (PlayStation) division, Sony lost 58.5 billion yen ($611 million) and is expected to have another loss this year for the fourth consecutive year.
PlayStation 3s (PS3) and PlayStation Portables still trail Nintendo’s Wii in sales. This week Sony forecast it will sell 13 million PS3s this year, up from 10 million last year. Nintendo is expected to sell 26 million Wiis.
Profit at the film division – “Hancock” and “Quantum of Solace” – fell 49% in part because of lower home-entertainment sales, Sony said.
The causes of Sony’s poor performance are many: the economic recession, the increased value of the yen, poor product sales in the electronics division, increased competition and declining prices for CE gear coupled with Sony’s inability to cut costs at the same rate as price cuts.
To that we’d add the failure to incorporate the Internet as an essential embedded component in every product; poorly designed software, especially in the area of the human interface; and a product strategy that is looking inward for how it can use Sony technology rather than outward for where the Internet generation is going.
Sony CEO Howard Stringer said the company needs must-have products that are networked devices or electronic products that link to Web services such as Amazon.com is doing with its Kindle. It automatically accesses Sprint’s wireless broadband network to deliver books electronically.
Unfortunately for Sony, its e-book reader has flopped. Launched a year before Kindle, Sony’s product did not have the automatic Internet access that’s needed for prompt and timely delivery of books, magazines and newspapers.
Sony was also late to market with an online media service for its PlayStation 3 network and has been unsuccessful at launching an online music service. The coming launch of a new MP3 player appears to be a step in the right direction but it’s coming late compared to competitors. The Walkman X-Series, which Sony will start shipping in June, has built-in Wi-Fi and Internet applications like YouTube and Slacker.
Stringer recently shook up the management structure to bring in some new blood, but it’s still being pumped through old veins up and down the management ladder. It’s early on for the new team but no new strategy has been announced.
It will be difficult for Sony to stop the decline. It takes a long time and a lot of space to turn a large ship around. Its short-term prospects are grim. It expects LCD television sales to remain flat in the fiscal year at 15 million units and lose money until at least October when it starts breaking even. It expects its digital camera sales, in which it’s a market leader, to fall 10% to 20 million units.
Then there’s the matter of operating expenses in its product divisions.
The company has already closed 10 of 57 manufacturing sites and terminated 16,000 employees. More of both can be expected, particularly if consumers continue to buy at lower rates than they did before the bottom dropped out of the economy. Sony said it would accelerate cost-cutting and close more factories this year.
Sony said it will manufacture more outside of Japan in countries where costs are lower and use contract manufacturers to produce products.
Bloomberg.com this week reported that many financial analysts are saying that fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years. As long as the biggest part of the economy is constrained, any recovery from the worst recession in at least half a century is likely to be subdued. The observations were in a Bloomberg.com piece that explained the unexpected drop in buying by US consumers in April.
The world has changed dramatically. The Internet has changed every aspect of consumers’ lives. The economic recession is changing the ways companies do business. Companies such as Sony have to adapt to the new realities. Sony’s decline as a company is being accelerated by the economic decline.