Sony Corp. (NYSE: SNE) has set a profit forecast of 500 billion yen for its 2017 fiscal year, which ends on March 31, 2018. Operating income was 26 billion in the most recent fiscal year. The increase is 20-fold, which is not believable, based on Sony’s performance in recent years.
Source: courtesy of Sony Corp.
The improvement is founded on more reorganization, a path Sony has taken since well before current CEO, Kazuo Hirai, wrestled the top job from Sir Howard Stinger in early 2012. Stringer had gone a long way to ruin Sony, as its lead in consumer electronics slipped to Apple Inc. (NASDAQ: AAPL) and Samsung. Hirai described his plan:
1. Growth drivers: Sony is positioning Devices, Game & Network Services, Pictures, and Music as the segments that will drive its profit growth over the next three years. It will implement growth measures and engage in aggressive capital investment in these areas with the aim of achieving both sales growth and profit expansion.
In Devices, Sony aims to further bolster its competitive edge in the area of CMOS image sensors by investing to increase production capacity and enhance R&D. In Games & Network Services, the Company will strive to further expand the installed user base of the PlayStation® platform and PlayStation®Network (“PSN”). In Pictures, Sony will focus on expanding the audience for its Media Networks business by growing ratings and increasing its channel offering, strengthening its Television Production business, and improving margins in its Motion Picture business. In Music, the Company will increase its focus on growth areas such as the streaming music market.
2. Stable profit generators: As businesses capable of contributing stable profit, Sony will prioritize the generation of steady profit and positive cash flow for Imaging Products & Solutions and Video & Sound. While Sony does not anticipate overall market growth in these areas, the Company will target certain areas within each market that are unlikely to experience commoditization by continuing to offer new, high value-added products such as its advanced mirrorless single-lens reflex cameras and high-resolution audio products. By capitalizing on its existing technological expertise in these areas rather than engaging in large-scale investments, and by optimizing fixed costs and enhancing inventory control, Sony will aim to maximize profits and return on investment.
3. Areas focusing on volatility management: The TV and Mobile Communications businesses operate in markets characterized by high volatility and challenging competitive landscapes. In view of this business environment, Sony will place the highest priority on curtailing risk and securing profits in its operation of these businesses. Since both markets are experiencing intense cost competition and commoditization, Sony will strive to further increase the added value of its products by leveraging its in-house technologies and component devices. By carefully selecting the territories and product areas it targets, Sony will seek to limit its capital investment and establish a business structure capable of securing stable profits. The Company will also continue to explore potential alliances with other companies in these areas, in response to changes in the business landscape.
Breaking these down, Sony faces competition from Microsoft Corp.’s (NASDAQ: MSFT) Xbox franchise and the move of gaming to platforms such as tablets and smartphones. Sony Pictures and TV will continue to face pressure from other major studios. The advance in content returns is based on whether entertainment executives can produce media that will draw users better than that created by rivals. Based on the volatility of these sectors, it is impossible to predict results. Sony’s camera business continues to be eroded by improving cameras on smartphones. Potential alliances may or may not happen.
Sony, once again, has set a forecast that is impossible to prove. In the meantime, all it has proven recently is that management continues to bungle.
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