Confirmed reports of Sony looking to dispense with its long-lived, once leading-edge but no longer successful and profitable battery business sounded like bad news not just for the conglomerate’s components and semiconductors departments.
Other flagging divisions, including mobile communications, aka smartphones, could be in danger, as Sony stops relying on perennially prosperous gaming, home entertainment and pictures branches to offset financial losses posted by Xperias quarter after quarter.
Only for the first time in years, the restructured, downsized, non-Z-focused mobile device portfolio managed to yield a profit between April and June 2016. Not a moment too soon, although Xperia phones are hardly completely out of the woods.
What a downsizing it has been. Sony is doing a third less mobile business this year than last — ¥185.9 billion in the last quarter versus ¥280.5 billion a year earlier — and it sold only 3.1 million smartphones in the past three months, down drastically from the previous mark of 7.2 million. 2016 has so far only seen the launch of the wildly overpriced Xperia X, as far as marquee Sony phones are concerned. The much more promising Xperia X Performance has been chronically delayed after its initial announcement at Mobile World Congress in February. At this point, Sony’s closer to the launch of its nextflagship phone, which is expected to debut at IFA in early September.
SONY WON’T EVER FORMALLY QUIT THE MOBILE MARKET, BUT IT’S QUIT ON MANY GEOGRAPHIES AND SEGMENTS
The question of whether Sony should or should not remain in the smartphone business is fast becoming obsolete. Its current size marks it as a minnow in a market where the leaders are pushing past the milestone of 100 million shipments per year — and in which 40 million iPhone sales in a quarter is seen as a worrying slump. Sony only expects to sell 19 million handsets for the whole of the fiscal 2016.
Sales are still down, by a massive 33.7 percent year-on-year even, while the $4 million (0.4 billion yen) gained of late can’t simply balance previous impairments of hundreds of millions of dollars. Case in point, the now abridged product family lost a whopping 22.9 billion yen in the April – June 2015 timeframe alone, a grand total of 61.4 billion yen ($544 million) in the fiscal year ended March 2016, as well as 217.6 billion yen the year before.
However, the flip side to a more focused approach towards the premium segment is that Sony Mobile delivered the highest unit ASPs (average selling prices) in the Android ecosystem during the fourth quarter of 2015. Sony’s Q4 2015 ASP of $422 was 78% higher than second-placed HTC ($237). Samsung was just behind HTC with an ASP of $225. Of course, Apple reigns supreme overall, with an ASP of $691.
This higher ASP performance from Sony also translated to profits per unit, with the company being the most profitable by unit when compared to all of the traditional Android smartphone OEMs. Sony had a profit per unit of $26, 13% higher than second-placed Samsung at $23. Apple is on another level though, with profit per unit of $184 during Q4 2015.
Interestingly, Sony is also apparently the only Android OEM that has managed to raise ASPs over the past year. So it looks like Sony’s strategy is starting to pay off, at least when looking at unit numbers. The focus on profitability and not scale is bearing fruit. However, as mentioned earlier, the continual fall in volumes must worry the company. After all, the operating leverage aspect means that Sony needs to sustain a certain level of volume just to cover its fixed cost base.
It will be interesting to see whether the Xperia X series and whatever Sony has up its sleeve for H2 will be enough to create the bounce in volumes later in the year.
Bottom line, this is a very small step in the right direction, which Sony needs to follow with a few extra big ones to keep Xperias afloat. Overall, the company just posted a rosy-sounding $205 million net income on sales of $15 billion, significantly down however year-over-year due primarily to the impact of recent Kumamoto earthquakes.