What's Important in the Financial World (4/10/2012) Sony Loses More Money, Northeast Refineries Shut

The Sony (NYSE: SNE) train wreck continues. The Japanese company has appointed a new CEO and will fire 10,000 workers. But annual earnings for the fiscal year are much worse than expected. Sony lost $6.4 billion in the period that ended March 30. A great deal of the loss was attributed to one-time tax issues, but management said little about operations that would lead investors to believe that a turnaround is near, or even possible. Just anointed CEO Kazuo Hirai made the case the Sony will earn a small profit next year. It is hard to say how. Sony’s TV screen business continues to be undermined by the commoditization of its products. Sony Ericsson remains a tiny factor in a smartphone industry dominated by Apple (NASDAQ: AAPL) and Samsung. Sony’s gaming system division, with the PS3 as its flagship, does relatively well. So does it studio from time to time, based on the hit-or-miss success of its films. Sony continues to have nothing to show as it tries to make the case that it can recover.

Facebook and Instagram

The fight over the questionable value of social networks, fueled by the upcoming IPO of Facebook, got a boost as Facebook made a billion dollar acquisition. The company it bought — Instagram — is a maker of a popular photo-sharing app for mobile phones. It seems a number of other products do the same thing. Apple’s iPhone is set up to accommodate similar features. But Facebook has been sharply criticized for its lack of a model to make money on mobile devices. Some experts believe this trouble argues against a $100 billion value for the company, which has 900 million users around the world. Other online firms, led by Google (NASDAQ: GOOG), make significant amounts of money with their smartphone applications. Even if Facebook wants to gain ground in the portable device business, $1 billion is a huge amount to spend for a firm that has 30 million users and next to no sales.

Honda in China

Honda (NYSE: HMC) is the latest multinational car company to pursue China’s vehicle market. Chinese drivers bought 18 million cars and light trucks last year, well ahead of the 12.5 million sold in the United States, now the second-largest market. But the growth of sales in China has disappeared, primarily due to the end of an incentive program set by the central government. Global manufacturers will have to content to compete for portions of a large, but no longer fast-growing pie. Honda says it will offer 10 new models in China by 2015. The Japanese company can be added to a dozen others, like Nissan and Ford (NYSE: F), that expect tremendous gains. Each will have to gain market share in a market dominated by General Motors (NYSE: GM), Volkswagen and increasingly aggressive local companies. Honda may want to double sales, but it has nothing other than projections that are nearly impossible to support.

Northeast Refineries

There is a relatively new reason to believe gasoline prices will rise, at least in part of the U.S. CNNMoney reports that almost 50% of the gas refinery capacity in the Northeast will be shuttered within a few months. This will be driven by the closing of a Sunoco (NYSE: SUN) facility. ConocoPhillips (NYSE: COP) turned of the lights at its refinery in the region late last year. U.S. drivers are already bedeviled by gas prices near $4 on average for a gallon of regular. Leaks in platforms in the North Sea, trouble with supply due to sanctions on Iran, unrest in Nigeria and a spread of government protests in the Middle East have pushed WTI crude above $100 and kept it there. There is some hope that, if the U.S. and its energy allies open their strategic oil reserves, crude prices may fall. There was an attempt at that in mid-2011, though, and the cost of oil only stayed down for three months. It is also an open issue of whether the Saudis will cut their production if oil reserves are tapped. The world’s largest oil producer has a number of reasons to keep prices high.

Douglas A. McIntyre