In Fiscal 2011, Sony Sinks While Samsung Soars

DD 2012 02 09 0212

DD-2012-02-09-0212Howard Stringer’s disastrous seven-year tenure as Sony’s CEO is nearly at an end, leaving it to successor Kazuo Hirai to rebuild – if he can – the castle Sir Howard leaves in ruins. Am I exaggerating? Sony will lose at least ¥220B in fiscal 2011, its fourth consecutive annual loss. As of fiscal 2011, the TV business will have lost money for eight straight years.

To be fair to Sony, the high value of the yen makes it very hard for Japanese consumer electronics companies to compete, and Panasonic and Sharp are predicting their worst losses on record, although Sony was losing money on its TV business while its Japanese competitors were still doing well. Hirai said he will be closing less competitive businesses. That will not include the television business, he said, but will it include outsourcing TV manufacturing to TCL or Hon Hai, which has already purchased Sony TV assembly plants in Mexico and Europe.

“We weren’t able to select areas where we want to concentrate, so we ended up keeping products that became commoditized,” Hirai said. “We want to make our focus clear soon.” Last week, Hirai said he intended to expand Sony’s presence in mobile devices and become involved in new areas such as medical. Since Sony’s current offerings in the mobile space have been eclipsed by those from Apple, Samsung, HTC and Motorola, it is easy to wonder what corrective action Hirai can come up with at this late date. Perhaps Toru Katsumoto (senior general manager of Sony’s Personal Imaging & Sound Business Group), who spearheaded the brilliant success of Sony’s Alpha camera business, can contribute.

Even though Sony is the author of many of its own misfortunes, it shares in a national problem. “Japan’s consumer-electronics makers are in a total breakdown,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo-based hedge fund. “They need to compete with ideas, not technology,” he told Bloomberg’s Mariko Yasu and Naoko Fujimura earlier this month. Panasonic will forecast a ¥780B loss, the worst since the company’s founding in 1918, and Sharp predicted a loss of ¥290, its worst in a century.

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Together, the Japanese CE leaders will lose about US$17B in fiscal 2011, significantly less than the US$22B Samsung will put into capital expenditures.

The dire nature of their predicament has not been lost on Sony and Panasonic, who have said they will increase their emphasis on medical devices, solar panels, and rechargeable batteries. At its large CES 2012 press briefing, Sharp seemingly talked as much about its solar cell manufacturing at Sakai as its LCD panel manufacturing.

In contrast, Samsung reported a 17 percent increase in Q4′11 net income. Overall in 2011, Samsung recorded sales of KRW 165 trillion (6.7 percent YoY growth), operating profit of KRW 16.2 trillion, and net profit of KRW 13.7 trillion. Profits slipped somewhat at the end of the year, but remained solidly in the black. LG, Samsung’s Korean competitor, was also in the black. “The Japanese consumer electronics makers shouldn’t compete with the Koreans in the same market,” Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, told Yasu and Fujimura. “The environment surrounding Japanese manufacturers is very harsh.”

kenwerner-0211“Samsung is a marvelous manufacturer,” said Edwin Merner, president of Atlantis Investment Research in Tokyo. “They can make good things at a very low price. Sony can’t do that.”

Of the Japanese leaders, Panasonic seems to be in the strongest position. Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo gave Panny a “buy” rating in a report issued earlier this week, saying “Panasonic continues to be among electronics makers with prospects of large profit increases next fiscal year.”

Ken Werner is a senior analyst and editor for Insight Media. Reach him at kwerner@insightmedia.info