Sony (6758) Corp. President Kazuo Hirai is paying the price for trying to revive ailing TV and smartphone sales, with more than $2 billion of market value lost today, as his counterpart at Panasonic (6752) Corp. benefits from paring those units as it struggles to compete.
Sony stock headed for the biggest drop in five years after it unexpectedly lowered its full-year profit forecast by 40 percent on stalling television and digital camera demand and box office flops. Panasonic doubled its earnings projection after boosting battery sales, including a contract to supply Tesla Motors Inc., and tapping rising demand for solar panels.
The leaders of Japan’s two largest consumer-electronics companies took over last year amid record losses in TVs and failures to develop hit products to compete with Samsung Electronics Co. (005930) and Apple Inc. Hirai named Xperia smartphones as a pillar of his recovery plan, while Kazuhiro Tsuga started to exit plasma displays and cut handset operations.
“A year ago both of these companies needed radical change,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. “Sony stuck with TVs and they probably need to get out that business. Panasonic had its back to the wall and they had no choice but to change.”
Sony fell 12 percent to 1,650 yen as of the trading break in Tokyo, the biggest decline since October 2008. The stock was cut to hold from buy by Jefferies LLC analyst Atul Goyal. Panasonic rose 5.6 percent to 1,040 yen, the largest gain in three months.
Sony’s net income will probably total 30 billion yen ($305 million) in the year ending in March 2014, the Tokyo-based company said in a statement yesterday, cutting its August projection for 50 billion yen in profit. The company also posted a second-quarter loss.
Even with Japan’s weaker yen, five of Sony’s nine divisions posted operating losses in the second quarter. The company, which rejected investor Daniel Loeb’s push for a partial sale of its entertainment assets, is recovering from a series of movie flops that prompted criticism from the billionaire.
Sony’s film studio stumbled in the summer box-office season that runs from May to early September. Big-budget tentpoles “After Earth,” with Will Smith, and “White House Down,” with Channing Tatum and Jamie Foxx, failed to connect with audiences.
Recent releases “Captain Phillips” and “Cloudy With a Chance of Meatballs 2” have been well-received by audiences and critics. Last month, subscription-streaming service Netflix Inc. (NFLX:US) ordered a 13-episode series from Sony Pictures Television, by the creators of the drama “Damages.”
Sony cut the annual sales forecasts for camcorders, digital cameras, personal computers and TVs while increasing its projection for game consoles at it prepares to release the flagship PlayStation 4 this month. The smartphone sales forecast was unchanged at 42 million.
Sony’s net loss totaled 19.3 billion yen in the three months ended Sept. 30, wider than the 15.5 billion-yen loss booked a year earlier, the company said in a statement. That missed the 14.8 billion-yen average profit of five analyst estimates compiled by Bloomberg.
“The biggest concern is that even though they have the currency working for them they still can’t turn a profit,” said Yoshihiro Nakatani, a fund manager at Asahi Life Asset Management Co. “Outside of their financial business, things aren’t looking good.”
The company needs to cut costs and undertake “more aggressive reform” of its product portfolio and entertainment business, Fitch Ratings said in a statement today. Sony’s BB-credit rating, which is three levels below investment grade, may be downgraded, it said.
Sony is betting its Xperia Z1 handset, introduced in September, will propel it to third place in the global smartphone market, leaping from seventh and narrowing the gap with Samsung and Apple. The phone features a 20.7-megapixel camera and showcases Hirai’s strategy to boost internal collaboration to make stronger products.
Sony is introducing the PS4 in the U.S. on Nov. 15, a week before Microsoft Corp. releases its Xbox One. The Japanese company expects sales of the PS4, priced for U.S. consumers at $399, to reach 5 million units by March 31, compared with 3.55 million units sold in a similar period for the PS3.
In TVs, the company is promoting ultra-high-definition Bravia sets after regaining the No. 3 position in the market, according to DisplaySearch. The company expects to sell 14 million liquid-crystal-display TVs this year, down from an earlier prediction for 15 million.
“The TV market is mostly saturated while smartphones have eroded demand for digital cameras, camcorders and game players,” said Koki Shiraishi, an analyst at SMBC Nikko Securities Inc. in Tokyo.
Tsuga entered joint ventures and built on his predecessor’s push into renewable energy. Net income will probably total 100 billion yen in the year ending in March 2014, the Osaka-based company said in a statement yesterday. That compares with its July projection of 50 billion yen.
The electronics maker agreed in September to sell 80 percent of its health-care unit to KKR & Co. for about 165 billion yen. Panasonic needed expertise and money from outside to expand in the medical-equipment market, it said in a Sept. 27 statement.
The company also will supply 2 billion lithium-ion battery cells to Palo Alto, California-based Tesla in the four years through 2017, Osaka-based company Panasonic said in a statement yesterday.
The contract to supply Model S and Model X vehicles may add about $7 billion in sales and cement Panasonic’s position as the largest supplier of batteries for electric cars, said Ali Izadi-Najafabadi, a Bloomberg New Energy Finance analyst.
Panasonic also said yesterday it will buy 90 percent of Istanbul, Turkey-based Viko, whose products include wiring devices, for $460 million. Panasonic is aiming for 2 trillion yen in sales for its housing-related businesses by 2018.
“It’s wise now for Panasonic to keep its head down, to focus on reform while demands for its consumer goods remain sluggish,” said Masahiko Ishino, an analyst at Advanced Research Japan Co. in Tokyo.
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