Sony's Outlook Brightens

Posted by: Kenji Hall on October 30, 2009

Sony’s future is looking a bit brighter. The company said today that it now expects an operating loss of $655 million (60 billion yen) rather than $1.2 billion (110 billion yen).

This despite an operating loss of $356 million (32.6 billion yen) in the July-September quarter, from a profit of $120 million (11.05 billion yen) a year ago. Many analysts had expected Sony to post a bigger loss.

Still, Sony has a raft of problems to fix. Its mobile phone joint venture with Sweden’s Ericsson is struggling in the smartphone market. And while the profitability of its gaming and TV businesses are improving, they are expected to continue losing money for some time. Chairman and CEO Howard Stringer plans to discuss Sony’s latest strategic plans at a press event in November.

Here’s an excerpt of the Q&A part of today’s press conference with Sony’s CFO Nobuyuki Oneda:

Q: When do you expect games and TVs to stop losing money?
Oneda: We want them to be in the black as soon as possible—hopefully by next year. For TVs, it takes time to revamp the supply chain. We’ve made very detailed changes, and in just one year we’ve cut back and overhauled the entire operation. In November, we will explain what our business plans are for next year. We’ll talk about our 3D TV plans, too.

Q: How are the PS3 cost reduction efforts coming along?
Oneda: The PS3 now costs about 70% less than it did when it first came out (in November 2006). PS3 costs are now more than 10% higher than revenues from the console. By the end of the year, that difference will fall to one digit. And by next fiscal year, the PS3 should be making money.

Q: Can you offer any specifics about your strategy for the yearend holiday?
Oneda: We’re focusing on how much sooner we should launch our new TV models that we’d planned for spring. Unfortunately, Samsung is beating us in liquid-crystal display TVs that use a light-emitting-diode backlight. We miscalculated. If move up the launch of our new models, we think we can improve our profitability. And we’re continuing to cut costs.

Q: Samsung reported big profits today. What’s your take on their results?
Oneda: One of Samsung’s strengths is that they make their own LCD panels. The Samsung group uses the amortization on investment in assembly lines to their advantage. The Korean won also has fallen about 30% against the U.S. dollar. But basically I think our disadvantage is the inferiority of our products. We have to recognize that. You might say we lost the marketing war. Sony put LED backlights in LCD TVs before Samsung. But we put them mainly in high-end models. Samsung had them in their high-end and mass-market models. That was the strategic difference. We can definitely learn a lot from their TV operations and supply chain management. We need to raise our operations and products to their level by next spring. After that, we want to close the gap with 3D and device technology.

Q: How will you compete with Samsung?
Oneda: Our basic strategy is, we want to do the high-end TV models in house. The entry-level TVs will be outsourced to cut costs. We’re putting a lot of energy into selling TVs in emerging markets. As for whether we plan on owning panel-making plants, we’re still making LCD panels in our joint venture with Samsung. Besides that, we’re working with Sharp. And we’re buying LCDs from Taiwan. We’re trying as much as possible to reduce the cost of our panels.

—With Hiroko Tashiro

Reader Comments

LA-Life

October 30, 2009 1:13 PM

It may not be easy for Sony to catch up Samsung for awhile. Mentalities of two organizations are a lot different each other; Samsung's decision making procedure is much shorter & faster than that of Sony.
A good example is the company, S-LCD, which was coinvested & are still co-maintained by two of them. However, it has been saying that Japanese workers are pursuing perfectionism with longer hours whereas Korean counterparts are working faster in given accuracy.

ted

October 30, 2009 2:18 PM

With strong yen and weak won, Sony next move will be Samsung or LG buyout.

aj

October 30, 2009 2:34 PM

Oneda is good. I think these Japanese folks need to take control of Sony once again. Most new executives in Sony Americas are too short-sighted and are not thinking about the long term prospects. As Oneda rightly said about teh TV, high end processes/engineering/operations need to be in-house. Some of the senior executives in Americas just don't care about this mandate/necessity and hastly outsource everything from operations to IT and as a result risk losing the quality of some vital services.

@ Ted - No buyout

October 30, 2009 8:26 PM

Sony buying out Samsung or LG? That'll happen when pigs fly and when the fat lady sings.

Compare the market caps. Compare the cash balances. Compare where the companies stand. There's a higher likelihood of the reverse happening, but that would be a waste of Samsung's cash reserves. Samsung would profit more from refurbishing old LCD glass panel and LED bulb manufacturing lines and taking whatever is left of Sony's LCD market share.

Keep dreaming, Japanese nationalist troll. Oneda is one of few Japanese in the corporate who sees things for the way they are. Good thing it's him and not you running the company.

Bharath

October 31, 2009 5:38 AM

well done samsung..Catch up sony. I still believe Sony products are of high quality...

Peter C

October 31, 2009 5:48 AM

I agree a buyout of LG or Samsung is impossible and just plain ignorant to say it in the first place. I really think Sony can scavenge two things at best which is their high-end TVs and possibly gaming sector but I have my doubts. the rest is history... not sure how long sony ericsson will last and mp3 is being gutted. This bright outlook may only be short term.. long term? collapse?...hint: Motorola?

frank lee

November 2, 2009 2:59 AM

Buyout Samsung or LG would be an interesting idea to Sony regarding yen/won ratio. The timing is very good.

mjw149

November 2, 2009 10:46 AM

I think Sony internally is still too locked into their old silos. Where's the ebooks on their TVs? Where the motion control? Where's the PSP phone? The android phone? They're still losing on too many fronts to be comfortable. It appears that they can salvage videogames, for now. TVs are still shaky at best, and their prospects in ebooks and music players isn't good.

@Frank Lee

November 2, 2009 8:08 PM

Read my lips. Look at Sony's earnings in the past few years. Look at how much cash they have on reserves. Sony CANNOT and WILL NOT buy out Samsung or LG. There's a higher chance Samsung with its billions in cash reserves would be able to buy out Sony, but that isn't happening for obvious reasons. All you Japanese nationalist trolls need to stop dreaming.

Keep it real

November 2, 2009 8:11 PM

I seriously don't understand why everyone here thinks Sony can buy out Samsung. What year do people think this is, 1970? Sony is no longer the electronics giant it once was. Samsung has long since taken that spot and commands a leading position in several key industries where Sony used to dominate.

Sony doesn't have cash. I REPEAT. SONY. DOES. NOT. HAVE. THE. CASH. FOR. A. BUYOUT. It is losing money on its LCD TV lines, the PS3, and its saving grace is its blu-ray licensing royalties. Samsung earns more money simply from paying $8/blu-ray player to Sony and earning $20 in profit from the player.

Jesus Christ, all the Sony fanboys need to stay out of business.

Ted

November 3, 2009 8:36 AM

There are many ways to make a buyout.

Business101

November 3, 2009 3:22 PM

How does businessweek attract readers that think a less valued company such as Sony be able to purchase a more valued company such as Samsung. Also Samsung has about 100,000 more employees than Sony. Please take business 101.

mohan

November 4, 2009 1:47 AM

No doubt that Sony does not have any market share in smart phones it always concentrates on music ones . The Smartphones they have are too large and slow.

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