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James Bond Can’t Fix Sony as Japan Electronics Scrape Lows: Tech

Photographer: Chris Ratcliffe/Bloomberg

A Sony Corp. Xperia smartphone at the 2012 Mobile World Congress. Sony, Sharp and Panasonic are eliminating more than 29,000 jobs, closing plants and selling assets to restore profit after failing to come up with hit products to challenge Apple Inc. and Samsung’s mobile devices. Close

A Sony Corp. Xperia smartphone at the 2012 Mobile World Congress. Sony, Sharp and... Read More

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Photographer: Chris Ratcliffe/Bloomberg

A Sony Corp. Xperia smartphone at the 2012 Mobile World Congress. Sony, Sharp and Panasonic are eliminating more than 29,000 jobs, closing plants and selling assets to restore profit after failing to come up with hit products to challenge Apple Inc. and Samsung’s mobile devices.

Even James Bond and Spider-Man can’t rescue Sony Corp. (6758), the beleaguered Japanese electronics maker.

In “Skyfall,” actor Daniel Craig’s 007 uses Sony’s Xperia T smartphone, while Andrew Garfield’s title character in “The Amazing Spider-Man” wields an Xperia X10 Mini Pro. The two movies, released by Sony this year, have grossed more than $1.7 billion combined, compared with the company’s $10 billion in total losses during the past four fiscal years.

Such blockbuster promotion notwithstanding, Sony says sales of its Bravia TVs, Cyber-shot cameras, PlayStation game consoles and Handycam video recorders may drop this fiscal year. Hammered by declining TV demand, Sony, Panasonic Corp. (6752) and Sharp Corp. fell to 30-year lows in Tokyo trading this year after record fiscal-year losses totaling 1.6 trillion yen ($19 billion).

“It doesn’t look like a big product that can change the landscape for the Japanese electronics makers is arriving anytime soon,” said Masahiro Ono, an analyst at Morgan Stanley MUFG Securities Co. in Tokyo. “Their tasks will remain the same as this year: cutting costs and promoting reform.”

Once symbols of Japan’s global dominance in consumer electronics, Sony, Panasonic and Sharp were among the nation’s worst-performing companies in 2012. Overtaken in market share by overseas rivals including South Korea’s Samsung Electronics Co. (005930), the trio lost $15 billion in combined market capitalization this year amid declining sales and a strong yen.

Cutting Jobs

A comeback in 2013 may depend on whether the Japanese companies can take strong measures including shedding some businesses, said Kota Ezawa, an analyst at Citigroup Inc. in Tokyo. Sony, Sharp and Panasonic are eliminating more than 29,000 jobs, closing plants and selling assets to restore profit after failing to come up with hit products to challenge Apple Inc. and Samsung’s mobile devices.

“Sony and Panasonic still have the chance to keep their pride,” Ezawa said. “They may have a sense of urgency that they need to change, but their business strategies aren’t showing that.”

Sony, which invented the Walkman music player in 1979 and introduced the first CD player, has posted four straight full- year net losses. The Tokyo-based company is headed for a ninth year of losses from TVs after losing market share to Samsung, the world’s largest maker of TVs and smartphones.

‘Material Doubt’

Sony, targeting a 20 billion-yen profit this fiscal year, fell to a 32-year low of 789 yen in Tokyo trading on Dec. 5 and has dropped 33 percent this year, the sixth-worst performer in Japan’s benchmark Nikkei 225 Stock Average, which has gained 19 percent.

Shares of Panasonic, which posted a 772 billion-yen net loss last fiscal year, have dropped 22 percent. The company is projecting a 765 billion-yen loss in the year ending March 31.

Sharp, which posted a 376 billion-yen net loss last fiscal year, said Nov. 1 this year’s loss may widen to 450 billion yen and added there was “material doubt” about the company’s ability to survive.

Japan’s largest maker of liquid-crystal-display panels pledged its Osaka headquarters as collateral to secure support from lenders after its credit rating was cut to junk. Sharp hemorrhaged 103 billion yen in cash from operations in the fiscal first half and had 511 billion yen in debt due within a year as of Sept. 30, according to data compiled by Bloomberg.

Qualcomm, Foxconn

Sharp reached an agreement this month to sell as much as 9.9 billion yen of shares to San Diego-based Qualcomm Inc. (QCOM) as the Japanese company works to restore its balance sheet. It has set a March deadline for concluding negotiations for a possible investment from Taiwan’s Foxconn Technology Group.

At Sony, Chief Executive Officer Kazuo Hirai is counting on boosting sales of Xperia phones and turning around the TV-making unit. In April, he identified mobile devices as a key priority.

After spending 1.05 billion euros ($1.3 billion) to buy out its mobile-phone venture with Ericsson AB, Sony plans to boost smartphone sales 51 percent to 34 million units in the year ending March 31. Smartphones will probably surpass personal computers to become the top consumer-electronics segment by revenue in 2012 and may jump 35 percent to $348 billion in 2013, Citigroup said in a Dec. 3 report.

New Smartphones

Sony, which sold 8.8 million smartphones in the quarter ended Sept. 30, is speeding up development of new models and working to integrate its technology from other areas into the mobile-phone business, said Yu Tominaga, a spokesman. He declined to discuss new products planned in 2013. The company maintained its full-year target of 34 million in sales even while cutting estimates for compact cameras, PCs, TVs and handheld game players.

“Everyone agrees that smartphones are an important business for Sony next year,” Citigroup’s Ezawa said. “It’s hard to tell whether the company can deliver a product that will surprise anyone.”

This year, the company introduced more than 20 new smartphone models, Tominaga said.

Xperia phones were outsold more than 6-1 by Samsung’s smartphones in the quarter ended Sept. 30. Samsung, the Suwon, South Korea-based maker of Galaxy phones and tablets, led smartphone shipments in the period with 56.9 million, Boston- based Strategy Analytics said in October. Apple was second with 26.9 million.

IPhone, Galaxy

“The iPhone and Galaxy’s dominance probably won’t change, and there may be a limit to what Sony can do,” Morgan Stanley MUFG’s Ono said. “It’s hard to believe the smartphone business will contribute much to Sony’s profit.”

Sony is eliminating about 15 percent of the unit’s workforce and moving its headquarters to Tokyo from Lund, Sweden. Still, the unit’s operating loss will probably be 37.7 billion yen this fiscal year and 17.2 billion yen the next, according to the average of three analyst estimates compiled by Bloomberg News.

“Sony is losing money at its mobile-phone unit, and that may make it difficult to cut prices,” Ezawa said.

Sony plans to make its mobile-phone business profitable in the year beginning April 1, Shiro Kambe, a spokesman, said Aug. 2, without specifying how much the unit loses.

Hirai also said he plans to turn around the TV unit next fiscal year. Goldman Sachs Group Inc.’s Takashi Watanabe and JPMorgan Chase & Co.’s Yoshiharu Izumi project Hirai won’t meet that goal.

TV Losses

Losses from the unit may widen to 81.4 billion yen next fiscal year from 69.7 billion yen in the year ending in March 2013, Watanabe said in a Dec. 3 report. The TV operation has lost 692.3 billion yen in the past eight fiscal years.

The $100 billion TV market may shrink in 2013 for a third straight year, Citigroup’s Ezawa estimates.

“The only promising segments are smartphones and white goods,” Morgan Stanley MUFG’s Ono said. “Those aren’t enough to drive profit at Japanese consumer-electronics companies.”

Unlike Sony, Panasonic is shrinking its phone business. The Osaka-based company plans to end smartphone operations in Europe by March 31 and close domestic mobile-phone plants in June, President Kazuhiro Tsuga said Oct. 31.

The maker of Viera TVs plans to boost appliance sales outside Japan, strengthen its business making home energy- management systems, and offer more business-use products and services, Tsuga said.

Closing TVs

Japan’s electronics giants will have to consider closing their TV-making operations by the end of 2014, Ono said.

“It’s too late for them to try to catch up with Samsung,” he said.

Tsuga is set to announce a plan to revive Panasonic, hit by a total of 1.1 trillion yen in charges to reform TV, solar-panel semiconductor, lithium-ion battery and mobile-phone operations. The company may pull out of businesses with operating margins of less than 5 percent by March 2016, Tsuga said in October.

The company said it will generate 110 billion yen in cash from selling assets by March 31.

For Panasonic to revive, it needs to close plasma panel factories, shut smartphone and semiconductor operations and end domestic production of devices including lithium-ion batteries, Goldman’s Watanabe said in a report last month. Such reforms may require about 369 billion yen in restructuring expenses, he estimated.

Sony’s TVs, PCs, compact cameras and game consoles may decline as they are increasingly replaced by smartphones and tablet computers, Christian Dinwoodie, an analyst at CLSA Asia- Pacific Markets, said in a Dec. 10 report, cutting the rating on the stock to underperform from buy.

The fiscal year beginning April 1 “is full of risks for many of Sony’s hardware businesses,” Dinwoodie said. “We think things might get worse before they get better.”

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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