The fall-out among the traditional handset makers continues. With the once-mighty Nokia and Motorola under new ownership, Sony is also being squeezed between the power of Apple and Samsung, and the rise of Chinese firms supplying low cost, high value devices. The Japanese firm is reviewing its smartphone strategy yet again, as it braces itself to take a massive charge of ¥180bn ($1.7bn) in its mobile communications unit, contributing to a likely fiscal year loss of ¥230bn ($2.1bn). And the outlook is so tough that rumors are swirling that it will exit handsets altogether.
Sony issued a warning about the probable losses for the fiscal year to March 2015, and said it would not issue a dividend, for the first time since it went public in 1958.
Clearly, a rethink in the mobile division is needed. When Sony took full control of its handset business, buying out Ericsson from their joint venture, it seemed that a new dawn could be near, with the consumer electronics giant gaining a free hand to integrate the smartphones with its other key brands, such as PlayStation, to build a full content and communications platform spanning TVs, PCs, tablets, home appliances and phones.
When he took the helm, CEO Kazuo Hirai put mobile and content at the heart of his turnaround strategy, seeking to offset the dire problems in the TV sector. However, despite some strong launches, the results have been less impressive than Sony needs, and the mobile strategy has often seemed confused.
Sony has tended to make strong statements of direction – sticking to premium devices to preserve margins; focusing on a few strong countries (excluding the US) rather than spreading itself too thinly around the world – but then not followed through. It still has a broader portfolio and geographic reach than its profit targets and public statements would indicate, and has been forced to reverse some tactics, notably the decision to defocus on the US. In a rare piece of good news, Sony signed distribution deals for its latest Xperia Z3 flagship with Sprint (as well as its parent Softbank), and with T-Mobile USA, a significant inroad into a US market which has always been unwelcoming to the firm’s handsets.
Now the company is saying, once again, that it will reduce the number of models in its line-up, particularly in the midmarket where there is such intense pressure from Chinese and Indian suppliers. It will also slash headcount again – by about 15% in the mobile business, according to Reuters – reversing previous plans to increase the size of this division in order to boost its position as chief growth driver within Sony.
Sony will now move away from a plan that was “focused principally on achieving significant sales growth”, and instead prioritize profitability – something we have heard several times before, even in the days of Sony Ericsson, which managed to steer clear of the first wave of ultra-low cost handsets, a trend that helped catapult Motorola into the second league. Sony’s strategy has been modified to “address the significant change in the market and competitive environment of the mobile business”, it said in statements, with the new priorities being “to reduce risk and volatility, and to deliver more stable profits”. It will focus its efforts on high end products with clear differentiation and the potential to deliver higher margins, and will continue to identify key target geographies for marketing and distribution effort, rather than seeking to be a global brand in handsets, for now at least.
There were clear signs that all was not well with the mobile-centric plan in Sony’s first fiscal quarter (to June 2014), when it reported shipments of 9.4m smartphones, down from 9.6m a year earlier despite some high profile Xperia launches, and an operating loss in the unit.
On a group level, the company is forecasting a loss of ¥230bn for the year to March 31 2015, compared with its earlier guidance of a ¥50bn loss, reflecting the additional charge. Its sales forecast remains unchanged, at ¥7.8 trillion.
Such awful figures, of course, give rise to speculation that Sony will exit smartphones altogether. However, with so much activity shifting from the PC and TV to the handset, that would really be an admission of defeat in the consumer electronics business which is still Sony’s cornerstone. It has exited PCs and ereaders, but the lack of a handset would be a far more drastic step. The company certainly needs to address issues such as component shortages urgently, as it sees its scale, and therefore its power over its supply chain, slipping away (its smartphone market share is estimated at about 2%). But a complete departure, given the problems with other businesses such as TVs, would leave it with no clear way to integrate its various products and brands. Sony needs to harness its content better and make its smartphones and tablets into central hubs for all its other electronic offerings, creating a unified platform across all screens, home gadgets and gaming systems. This is a tall order and is also being attempted by Samsung, Apple and Google – from a better starting point. Sony may fail, but if it doesn’t reinvent its smartphone strategy one more time, it will lose the chance to keep its venerable brand relevant in the new-look consumer electronics world.