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Sony's Bad Luck

Posted by: Kenji Hall on June 27, 2008

Talk about bad timing. Sony’s announcement yesterday that it will turn around its loss-making TV and videogame businesses this fiscal year and work to give nearly all of its gadgets network connectivity got the thumbs-up from analysts. Goldman Sach’s Yuji Fujimori rated Sony’s stock a buy overnight while JP Morgan kept its overweight rating (the stock is expected to outperform the average total return of companies in the same sector in the next six to 12 months).

Too bad Wall Street had such a rotten day. The stock plunge in the U.S. rattled Japanese investors and sent stocks lower, with the benchmark Nikkei losing 2%. Sony fell 4.4%, perhaps because a pullback in the U.S. could hurt sales of the company’s PlayStation 3 videogame consoles, flat TVs and DVD players. Indeed, in his note to investors, JP Morgan analyst Yoshiharu Izumi wrote:

Risk factors for our price target include a sharp slowdown in U.S. and European consumer spending, strong yen appreciation, and substantially weaker-than-expected results for the PlayStation 3.

Hopefully, Sony won’t be discouraged by the panicky selling. Howard Stringer & Co. have been talking about interconnecting gadgets for years and now they appear to be determined to make it happen. As they should: Sony owns all that digital content—TV shows, movies, games—and should be trying to find an online distribution channel for it. Stringer says the entire company is using the same copyright protection technology (digital rights management, in industry lingo), called Marlin. Ultimately, this should make it easier for consumers to download a movie or TV show through a TV, gaming console or set-top box, and then transfer it to a laptop or portable media player to watch on the morning commute.

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