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Sony Shows Bright Prospects
Posted by: Muhammad Bazil (IP Logged)
Date: April 22, 2013 10:01AM

Sony Corporation (SNE) is one of the most diversified companies with business segments ranging from electronics to entertainment. The main business segments of the company are: Consumer Product Service (CPS) and Professional Device Solution (PDS). The company has had a troubled past with weak financial performance; however, a number of factors are indicating a profitable future.

Sony and the Competition

The main factor responsible for the company’s weak performance is the fierce competition in the consumer electronics market. Sony is one of the major players in the smartphone market, and with competition from market leaders like Apple and Samsung, Sony finds it hard to make a considerable mark in the market. However, things have started to turn for the company recently. Sony has released a wide array of new smartphones and has started to stabilize its position in that market. Sony’s current flagship phone Xperia Z has received a positive response from critics and users. The company sold 8.7 million units of smartphones in the fourth quarter of 2012. For prospective periods, it aims to launch cheaper smartphones to target the entry-level market.

Apart from smartphones, Sony is a leading producer of gaming consoles. The newest version of the company’s well-renowned gaming console, PS4, is expected to be available for users in May. These gaming consoles are widely popular, and the release of PS4 is expected to give the company’s revenue a serious push.

The main competitors of the company are: Panasonic Corporation (PC) and Koninklijke Philips Electronics (PHG). Panasonic is also one of the major producers of consumer electronics; therefore it is a direct competitor of Sony. The financial performance of Panasonic has also been weak in the past. The profit margin of the company for the fourth quarter of 2012 was 2.89%. Philips is also a leading name in consumer electronics; the company operates in three main business segments: Healthcare, Consume Lifestyle and Lighting. The company directly competes with Sony due to its consumer lifestyle products. The financial performance of Philips is also weak; the profit margin of the company for the fourth quarter of 2012 was -2.19%.

Sony’s Financial Performance

The financial performance of Sony has been weak in the previous periods. However, it is gradually moving towards a profitable position. For the fourth quarter of 2012, the company’s revenue was JPY1.68 billion, this is higher than the revenue in the same quarter last year, which stood at JPY1.6 billion. The company reported "income after tax" of JPY3.5 million in the fourth quarter of 2012 after multiple quarters of loss. The income after tax in the same quarter last year was JPY134.8 million. The following chart represents the company’s financial performance over the past five quarters.

The chart reflects that the company’s revenue has increased noticeably in the fourth quarter. This is due to the launch of several new products in that period. It can also be observed that profitability has improved slightly in recent quarters.

Sony’s Market Performance

At the time of this edition, the share price is within the range of $16.84 and $17.1 while the 52-week range is between $9.57 and $20.21. The difference between the two extremes suggests the extent of change in share price over the past months. The following chart represents the trend of Sony’s share price over the past year.

The chart shows that Sony’s market performance follows a similar trend as the revenue of the company over the past quarters. Sony’s revenue declined in the initial quarters of 2012, and so did the share price. The share price of the company has followed a downward trend throughout 2012; however, the trend has reversed in 2013.

After analysis of relevant factors, investors should hold the shares in Sony Corporation. The company still has a weak financial performance and a highly volatile market performance. Even though there are signs of strong financial performance, it cannot be said with certainty that Sony will be profitable in the prospective periods.

Stocks Discussed: SNE, PHG, PC,
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