Bloomberg News

Sony Mobile-Phone Business Can Be Profit Driver, Hirai Says

January 17, 2013

Sony Corp. (6758), whose Xperia smartphones are outsold more than 6-1 by Samsung Electronics Co. models, can turn its handset business into a profit driver by focusing more on high-end devices, Chief Executive Officer Kazuo Hirai said.

“That’s why we are in this business, and that’s why we invested heavily in the business,” Hirai, 52, told reporters in Tokyo today. “I believe we still have a lot of room to grow.”

Sony, struggling to end a streak of four straight full-year losses, plans to make its mobile-phone business profitable in the year beginning April 1, it said in August. Water-resistant phones were among the new products released at the Consumer Electronics Show in Las Vegas this month as Sony tries to woo customers from Samsung, the world’s largest mobile-phone maker, and Apple Inc. (AAPL:US), the maker of the iPhone.

“It’s going to be hard for Sony to catch up,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “Still, the market is expected to continue growing, and that will probably enable Sony to boost sales.”

The Tokyo-based Walkman inventor, which is targeting a 20 billion-yen ($226 million) profit this fiscal year, lost 31 percent of its market value in 2012 amid continued losses at its TV-making unit, a strong yen and a slow global economy.

The company rose 5.7 percent to close at 1,024 yen in Tokyo trading today, the highest since Sept. 19. It’s dropped 21 percent in the past 12 months.

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Sony is cutting 10,000 jobs and trying to turn around its unprofitable TV-making business after posting a record 457 billion-yen net loss in the year ended March 31. The company bought out its mobile-phone venture with Sweden’s Ericsson AB (ERICB) for 1.05 billion euros ($1.4 billion) in February and is eliminating about 15 percent of the unit’s workforce and moving its headquarters to Tokyo from Sweden.

“We basically are out of the feature-phone business and in the Android-based smartphone business,” Hirai said, referring to the Google Inc. (GOOG:US) operating system. “We are more in toward the high end of the market as opposed to trying to get into the commoditized portion.”

The operating loss at Sony’s mobile-phone unit may total 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 in December.

Sony plans to boost smartphone sales 51 percent to 34 million units in the year ending March 31. The company sold 8.8 million in the quarter ended Sept. 30. In comparison, Suwon, South Korea-based Samsung (005930) sold 56.9 million and Apple 26.9 million, Boston-based Strategy Analytics said in October.

Market Share

The company’s ambition in smartphones may be stymied by competition from Nokia Oyj, Research in Motion Ltd., HTC Corp. and other phone-makers that are also trying to break Apple and Samsung’s grip on the market, said Amir Anvarzadeh, a Singapore- based manager for Asia equity sales at BGC Partners Inc.

“Hirai’s plan to move the unit into profits seems to be a pipe-dream,” he said. “Competition in high-end smartphones is only going to get tougher.”

Market share for mobile phones is “volatile,” and Sony has made inroads in some areas, Hirai said. The company is second in some markets, he said, without elaboration.

The company is strengthening product development for smartphones and could earn high margins from the business segment, said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo.

‘Show Results’

“Sony just needs to show results,” he said.

Sony’s credit rating was cut three levels to BB-, a non- investment grade, by Fitch Ratings in November. Slumping demand for TVs and weakened economic conditions at home and overseas will leave the electronics maker struggling to regain technological leadership, Fitch said at the time.

The electronics maker, which has failed to come up with hit products to challenge Samsung and Apple, plans to draw on its skills in video games, cameras and audio players in developing smartphones and tablet computers, Kunimasa Suzuki, head of mobile products, said in September.

“We need to have products that wow people, move people emotionally,” Hirai said today.

Weaker Yen

Hirai said it’s too early to assess the impact of the recent weakening of the yen against the U.S. dollar and euro. A stronger euro helps Sony’s business while yen-dollar fluctuations are neutral to the company, he said.

The CEO said in April he plans to revive Sony’s electronics businesses by concentrating on the “core businesses” of mobile devices, games and digital imaging.

Sony raised 150 billion yen by selling five-year convertible bonds in November, its first offering of similar securities since 2003. The proceeds of the bonds, with a conversion price of 957 yen, will be used to fund acquisitions and expand imaging-sensor facilities, according to the company.

The company remains open to new alliances, Hirai said. In September, it agreed to invest 50 billion yen for an 11.46 percent stake in Olympus Corp. (7733), the world’s biggest maker of endoscopes. The companies plan to start a joint venture later this year to develop, make and sell new endoscopes and other medical devices.

Sony acquired Gaikai Inc., a California-based company with expertise in transmitting data between cloud servers and users, in August for about $380 million as it prepares to expand cloud- based entertainment services.

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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