Sony Holds Corporate Meeting, Considers Loeb's Proposal

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Sony Corporation (NYSE:SNE) (TYO:6758) held a corporate strategy meeting on 22 May at which president Kazuo Hirai emphasized steady progress with measures aimed at achieving his mission of returning electronics operations to profit at the operating level. Mr Hirai showed no swerving from the policy of improving hardware product appeal as the driving force behind improving profitability for electronics. The company has retained its FY14 targets for the electronics business, with digital imaging, mobile, and game operations as core businesses, of sales of ¥6trn and an operating margin of 5% (versus companywide targets of ¥8.5trn and at least 5%, respectively).

Sony Holds Corporate Meeting, Considers Loeb's Proposal

Sony Corporation (NYSE:SNE) (TYO:6758) CEO Kaz Hirai confirmed in a 22 May press conference that Sony’s board will initiate discussions on Third Point’s suggested partial IPO of Sony Entertainment and, after discussion and only then, will Sony decide its stance. There was no timetable given for a decision. Sony’s board members include current and former representatives from Sony’s content business as well as board members with management or board experience at global technology and consulting companies. Analysts at Nomura ‘do not think it will be impossible to get a decision in favor’ of the Third Point request for a Sony Entertainment IPO.

Past year spent building new organization, developing spearhead products too Mr Hirai said that over the past year since he was appointed president, he has more or less completed the creation of a new structure designed to strengthen Sony’s core operations, which he himself viewed as the company’s biggest challenge. At the same time, the company has been working to develop the kind of products that only Sony Corporation (NYSE:SNE) (TYO:6758) can, such as the Xperia Z smartphone, the high-end RX1 compact camera, new Bravia models, and investments in CMOS censors. The company sees FY13 as the time to switch from defense to offense, and is also looking to complete 70% of its restructuring program.

Sony Corporation (SNE) Made No Change to Sales

Projecting slight decline in digital imaging sales for FY14, lowers operating margin estimate for game business Sony Corporation (NYSE:SNE) (TYO:6758) has made no change to the overall sales and operating profit targets for FY14 it announced a year ago. For the digital imaging segment, however, it has lowered its sales projection from ¥1.5trn to ¥1.3trn and changed its operating margin target from double digits to at least 10%. For the mobile segment, too, it has lowered its sales target from ¥1.8trn to ¥1.5trn after removing numerical targets for PCs, and set a new operating margin target of 4%. It has retained its game segment sales target of ¥1trn but lowered its operating margin projection from 8% to 2% to reflect mounting sales promotion costs and other expenses for the PS4. Sony is using conservative forex assumptions of USD/JPY of 90 and EUR/JPY of 120.

Sales continuing to fall short of guidance, can Sony put on the brakes?

Under Mr Hirai’s leadership, Sony Corporation (NYSE:SNE) (TYO:6758) has improved its product offerings, and the company’s plans for major profitability improvements in TVs and smartphones now look more achievable. Nevertheless, sales of major products (TVs, cameras, game systems, PCs, and semiconductors) have been consistently below company projections over the past year. The weaker yen should provide a major boost to sales in FY13, but  some get the impression that management’s shipment volume targets for TVs and PCs are overly bullish. Attention is on whether Sony can stop sales of these products falling below expectations on an underlying basis (that is, excluding the boost from the weaker yen).

Further Reading Dan Loeb: “Sony Reminds Me Of Yahoo”

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