Sony’s sad decline...

What do you think of when you see a Sony logo?  If you are as old as me you will probably recall their famous cathode ray television – the superbly reliable Sony Trinitron.  Whatever your age it will almost certainly determine your Sony associations.  Chances are “Sony” will make you think of a wide range of products, possibly an analogue or digital Sony Walkman; or a Sony MiniDisc; a Sony Cybershot camera; or maybe a Sony PlayStation; or even a Sony Vaio laptop.  In the developed world it is very difficult to visit people’s homes and find somebody who hasn’t experienced or owned a Sony electronic product at some time in their lives.  I found this statement to be true in the UK because back in 2008 I was involved in a major market research project for Sony when they created a European website.  At that time, when I was visiting numerous homes in various areas, I couldn’t find anybody who didn’t remember owning, buying, or being given a Sony product.  But that is all going to change as Sony is now in the business of contracting and shedding its electronic products.  In six out of the last seven years the company has lost money and some of their major investors  think that it is time to break the company apart.  When this year’s financial results were disclosed, one analyst was quoted as saying: "Last year there was some hope, and now we're seeing a capitulation of that hope."  It is a depressing story: currently Sony presents a bleak picture compared with the extraordinary growth described in Akio Morita’s book about the company called Made in Japan published in 1987. Just 14 years ago, as the chart above shows, Sony's share price was nine times higher than it is today.  That was the time of “peak Sony.”  Its present market valuation reflects the sad decline of the once dominant global electronics giant.  In fact, once upon a time, Sony was considered a serious competitor to Apple, but these days that comparison is no longer valid.  Just like Apple, Sony grew from what seemed like, back then, an endless series of innovative electronic devices.  Yet today you are far more likely to buy a Samsung electronics product than a Sony one.  Sony’s real growth originated from exploiting Bell Lab’s invention of the transistor, in ground-breaking products like transistor radios and the world’s first video cassette system, launched in 1955.  Sony also created the world's first portable music player in 1979 that used a compact cassette format, the ubiquitous Sony Walkman.  Miniaturisation was important in all of Sony’s electronic devices as Akio Morita, one of Sony’s two founders, shrewdly realised very early on that the key to obtaining a premium price for Sony products was to be smaller than any competitors’ device.  Indeed the original Walkman was not that much bigger than the music cassette it housed.  Morita was the marketing/business genius who drove the development of Sony, much as Steve Jobs was the driving force behind Apple.  From the outset Morita’s ambition was to create a global Japanese brand and you can see this clearly in his choice of the company logo.  At the time of its creation it was highly unusual to use Latin letters rather than the normal Japanese kanji script.  Mitsui, who was then Sony’s banker, pushed for the name to be “Sony Electronic Industries” as this style of name was popular for Japanese companies, but nevertheless Morita insisted on using just the word Sony as he was determined the company wouldn’t be limited by being associated only with electronics. The diversification that Morita doggedly sought is now helping to save Sony – today the company earns more from “financial services” than from any of its other business activities.  I’ve taken the data for the 2013 Operating income chart on the right hand side of the chart above from Sony’s recently announced financial results.  Although, instead of displaying the information as Sony does in its accounts, I’ve ranked its business segments in terms of profit and loss for clarity.  At a glance you can see that nearly half of Sony’s business divisions are making losses, these include all the electronics manufacturing businesses like its Mobile Communications division; Games division; and Home Entertainment and Sound groups; as well as its Devices group.  Although these latest figures include some restructuring costs, regardless of what Sony’s public relations says, the losses still mount up.  For the last two years Sony’s CEO, Kazou Hirai, has promised that the electronics businesses would return to profit, yet this goal still remains elusive.  This year Sony’s net group loss was 128.4 billion yen, even worse than the original forecast loss of 110 billion yen.  In an attempt to stem these losses, Hirai is in the process of selling the Sony Vaio personal computer business to a Japanese private equity company.  True to the Japanese way of trying never to lose face, Sony’s CEO is still projecting an unrealistic image of the future.  He is optimistically forecasting a 28% increase in the sale of mobile products this year (2014).  And this is despite the fact that this projection completely fails to account for the increasing presence of Chinese brands like Lenovo, Huawei, ZTE, Xiaomi, and, especially, Coolpad which is now outselling Apple in China.  These Chinese brands are all intent on growing their sales significantly in markets outside China in the next few years and this must surely impact negatively on the sales of Sony smartphones.  Even Sony’s Games division’s popular Sony PlayStation, as a dedicated games console, may well have seen its best days as all but devoted gamers switch to playing games on their smartphones and tablets.  Some people are forecasting that Sony will eventually be forced to exit all their electronics manufacturing activities and become a company based around Music, Movies and Financial Services, either broken up into three different companies, or as three separate divisions within one company.  Unfortunately these options seem the most likely eventual scenario for Sony.  Financial Services produced more money for Sony last year than all the other still profitable parts of their enterprise added together.  In fact, using Sony as an example, you could now argue that it is more cost-effective to manipulate money than it is to make things.  This is a sorry reflection on the contemporary state of capitalism and commerce.  It’s also a sign of the modern lack of pioneering ideas for electronic products, (notwithstanding Sony’s proud history), as we enter the era of the “Internet of Things.”  So what exactly does the cash cow of Sony’s Financial Services do to generate those large profits that are helping to stem its losses?  The sobering answer is that the money comes primarily from selling life insurance in Japan.  True, Sony also owns a Japanese bank which makes some money from foreign exchange dealing, however only 10% of Sony Financial Division’s profit doesn’t come from selling life insurance policies to Japanese citizens.  This is a clear signal that at some point Sony will be forced to retreat from its position as a global electronics brand, returning to becoming a predominantly Japanese business entity.  On the one occasion that Sony did try and expand its life insurance sales outside Japan, it didn’t work out:  Despite choosing another Asian country, the Philippines, after a 13 year effort the business wasn’t successful.   Interestingly, selling life insurance was a favourite project of Akio Morita, although even he probably wouldn’t have believed it would be so profitable in Japan that it would end up supporting all the electronics businesses of the mighty global Sony brand.  In 30 years’ time, if Apple hits a similar economic decline, and the company hasn’t managed to successfully diversify into something like healthcare services or insurance, its demise will be much quicker than Sony’s.  So was Akio Morita cleverly farsighted in his desire to diversify away from electronics, or just plain lucky?  The official Sony story is that in the 1950s Morita went on his first sales trip to Chicago in the U.S. to sell Sony’s new transistor radios.  He was absolutely stunned by the immensity of Chicago’s skyscrapers, particularly the massive Prudential Building, and he enquired what the company did.  On being informed that it sold life insurance, he asked:  “Why would a life insurance company have such an enormous building…?” Apparently Akio Morita was quietly thoughtful for a few moments before he declared: “One day, we will also establish our own bank or financial institution and build a building like that.”  How very fortunate for Sony. June 2014  
Click here to download the PowerPoint chart: Click here to download the PowerPoint chart:
...with analysis & insight...
Archive: Free PowerPoint download Free PowerPoint download
Click image to enlarge
Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: Click here to download the PowerPoint chart:
Click to return to page
2014
View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles View All 2016 Articles
Click to return to page

Sony’s sad decline...

What do you think of when you see a Sony logo?  If you are as old as me you will probably recall their famous cathode ray television – the superbly reliable Sony Trinitron.  Whatever your age it will almost certainly determine your Sony associations.  Chances are “Sony” will make you think of a wide range of products, possibly an analogue or digital Sony Walkman; or a Sony MiniDisc; a Sony Cybershot camera; or maybe a Sony PlayStation; or even a Sony Vaio laptop.  In the developed world it is very difficult to visit people’s homes and find somebody who hasn’t experienced or owned a Sony electronic product at some time in their lives.  I found this statement to be true in the UK because back in 2008 I was involved in a major market research project for Sony when they created a European website.  At that time, when I was visiting numerous homes in various areas, I couldn’t find anybody who didn’t remember owning, buying, or being given a Sony product.  But that is all going to change as Sony is now in the business of contracting and shedding its electronic products.  In six out of the last seven years the company has lost money and some of their major investors  think that it is time to break the company apart.  When this year’s financial results were disclosed, one analyst was quoted as saying: "Last year there was some hope, and now we're seeing a capitulation of that hope."  It is a depressing story: currently Sony presents a bleak picture compared with the extraordinary growth described in Akio Morita’s book about the company called Made in Japan published in 1987. Just 14 years ago, as the chart above shows, Sony's share price was nine times higher than it is today.  That was the time of “peak Sony.”  Its present market valuation reflects the sad decline of the once dominant global electronics giant.  In fact, once upon a time, Sony was considered a serious competitor to Apple, but these days that comparison is no longer valid.  Just like Apple, Sony grew from what seemed like, back then, an endless series of innovative electronic devices.  Yet today you are far more likely to buy a Samsung electronics product than a Sony one.  Sony’s real growth originated from exploiting Bell Lab’s invention of the transistor, in ground- breaking products like transistor radios and the world’s first video cassette system, launched in 1955.  Sony also created the world's first portable music player in 1979 that used a compact cassette format, the ubiquitous Sony Walkman.  Miniaturisation was important in all of Sony’s electronic devices as Akio Morita, one of Sony’s two founders, shrewdly realised very early on that the key to obtaining a premium price for Sony products was to be smaller than any competitors’ device.  Indeed the original Walkman was not that much bigger than the music cassette it housed.  Morita was the marketing/business genius who drove the development of Sony, much as Steve Jobs was the driving force behind Apple.  From the outset Morita’s ambition was to create a global Japanese brand and you can see this clearly in his choice of the company logo.  At the time of its creation it was highly unusual to use Latin letters rather than the normal Japanese kanji script.  Mitsui, who was then Sony’s banker, pushed for the name to be “Sony Electronic Industries” as this style of name was popular for Japanese companies, but nevertheless Morita insisted on using just the word Sony as he was determined the company wouldn’t be limited by being associated only with electronics. The diversification that Morita doggedly sought is now helping to save Sony – today the company earns more from “financial services” than from any of its other business activities.  I’ve taken the data for the 2013 Operating income chart on the right hand side of the chart above from Sony’s recently announced financial results.  Although, instead of displaying the information as Sony does in its accounts, I’ve ranked its business segments in terms of profit and loss for clarity.  At a glance you can see that nearly half of Sony’s business divisions are making losses, these include all the electronics manufacturing businesses like its Mobile Communications division; Games division; and Home Entertainment and Sound groups; as well as its Devices group.  Although these latest figures include some restructuring costs, regardless of what Sony’s public relations says, the losses still mount up.  For the last two years Sony’s CEO, Kazou Hirai, has promised that the electronics businesses would return to profit, yet this goal still remains elusive.  This year Sony’s net group loss was 128.4 billion yen, even worse than the original forecast loss of 110 billion yen.  In an attempt to stem these losses, Hirai is in the process of selling the Sony Vaio personal computer business to a Japanese private equity company.  True to the Japanese way of trying never to lose face, Sony’s CEO is still projecting an unrealistic image of the future.  He is optimistically forecasting a 28% increase in the sale of mobile products this year (2014).  And this is despite the fact that this projection completely fails to account for the increasing presence of Chinese brands like Lenovo, Huawei, ZTE, Xiaomi, and, especially, Coolpad which is now outselling Apple in China.  These Chinese brands are all intent on growing their sales significantly in markets outside China in the next few years and this must surely impact negatively on the sales of Sony smartphones.  Even Sony’s Games division’s popular Sony PlayStation, as a dedicated games console, may well have seen its best days as all but devoted gamers switch to playing games on their smartphones and tablets.  Some people are forecasting that Sony will eventually be forced to exit all their electronics manufacturing activities and become a company based around Music, Movies and Financial Services, either broken up into three different companies, or as three separate divisions within one company.  Unfortunately these options seem the most likely eventual scenario for Sony.  Financial Services produced more money for Sony last year than all the other still profitable parts of their enterprise added together.  In fact, using Sony as an example, you could now argue that it is more cost- effective to manipulate money than it is to make things.  This is a sorry reflection on the contemporary state of capitalism and commerce.  It’s also a sign of the modern lack of pioneering ideas for electronic products, (notwithstanding Sony’s proud history), as we enter the era of the “Internet of Things.”  So what exactly does the cash cow of Sony’s Financial Services do to generate those large profits that are helping to stem its losses?  The sobering answer is that the money comes primarily from selling life insurance in Japan.  True, Sony also owns a Japanese bank which makes some money from foreign exchange dealing, however only 10% of Sony Financial Division’s profit doesn’t come from selling life insurance policies to Japanese citizens.  This is a clear signal that at some point Sony will be forced to retreat from its position as a global electronics brand, returning to becoming a predominantly Japanese business entity.  On the one occasion that Sony did try and expand its life insurance sales outside Japan, it didn’t work out:  Despite choosing another Asian country, the Philippines, after a 13 year effort the business wasn’t successful.   Interestingly, selling life insurance was a favourite project of Akio Morita, although even he probably wouldn’t have believed it would be so profitable in Japan that it would end up supporting all the electronics businesses of the mighty global Sony brand.  In 30 years’ time, if Apple hits a similar economic decline, and the company hasn’t managed to successfully diversify into something like healthcare services or insurance, its demise will be much quicker than Sony’s.  So was Akio Morita cleverly farsighted in his desire to diversify away from electronics, or just plain lucky?  The official Sony story is that in the 1950s Morita went on his first sales trip to Chicago in the U.S. to sell Sony’s new transistor radios.  He was absolutely stunned by the immensity of Chicago’s skyscrapers, particularly the massive Prudential Building, and he enquired what the company did.  On being informed that it sold life insurance, he asked:  “Why would a life insurance company have such an enormous building…?” Apparently Akio Morita was quietly thoughtful for a few moments before he declared: “One day, we will also establish our own bank or financial institution and build a building like that.”  How very fortunate for Sony. June 2014  
Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: