The analyst community in both the US and Japan always expects to be disappointed by Sony, so when this week it surprised them pleasantly, albeit mildly, none of them thought that it was a giant finally awakening,
but to us at Faultline, we think it may well me. Have the subtle adjustments of Welshman CEO Howard Stringer, finally brought about change at the giant consumer electronics business?
The answer to what happens next quarter and whether or not there will be further surprises perhaps lies in the segment revenues breakdowns ‘ where did Sony do well?
While LG was supposed to sweep straight past Sony in TVs, and take the global number two spot, instead Sony put a further 23% of business on in its TV segment, at $3.3 billion for the quarter. And over at semiconductors, something that Sony is well known not to make much off, how did it create a 33% growth to over $1 billion in the quarter? The answer was not provided by Sony’s numbers but as we understand it the bulk shipments from semiconductor are CCDs and CMOS sensors for cameras, lasers for DVD players, silicon TV tuners, its FeLiCa mobile payment chips, and its LCD screens from the joint venture with Samsung and from a variety of Sony owned facilities. So this reflects Sony’s continued dominance of the camera, camera components DVD players and TV and its growing LCD capability.
The 30% rise in networked products and services is about games and PCs. Game revenues were up 28% on the quarter, something that was always going to happen as the PS3 overtakes the Xbox 360 and the game shipment levels for it become mature. PCs are up 32% to $1.9 billion, and really we’re not sure why. Sony Viao has always been a great brand, but usually it is overpriced so perhaps currency fluctuation has helped pricing.
Elsewhere Sony Pictures fell away, down 22% although its profit rose, and revenues at its peculiar financial services division fell, which has no relevance outside of Japan. By far the biggest swing here is the $3.3 billion revenues at the TV division. However we would expect a seasonal slump in TVs for its next quarter, so the shine may be temporarily rubbed off Sony next quarter ‘ but it doesn’t mean that the turn around cannot be sustained.
The other great problem for Sony are those currency fluctuations, since it reports in Yen and does so much of its revenue in the US and Europe. This quarter that has been positive, but next quarter anything might happen.
Sony revised its forecast for the next quarter saying revenues would be roughly the same, with significantly more in net income (about 50% more) than the $289 million it produced for this quarter.
To us the key is the way Sony has carved out non-performing businesses, and focused on areas where it either already leads or where it has a reasonable chance of being one of the global top three. It has taken it almost 7 years to turn around, and it is still in some tough, cutthroat markets, but this could be a genuine return to consumer electronics dominance of a sort. Last week it produced vastly improved figures for the separately reported Sony Ericsson handset business too.
The stock initially surged around 7% on the announcement of the figures, but already Sony’s market cap has fallen back to where it was, valued at a paltry 40% of its revenues on US markets.