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Software industry

Sony's Acquisition Spree Fails to Address Profits in Decline

Strategic Insights

— 2 min read

Sony Corp Chief Executive Officer Howard Stringer has announced acquisitions worth $8.4 billion this year to bolster phones and content. However, these efforts may not be enough to turn around a company heading for a fourth consecutive loss. The acquisitions, which include the purchase of Ericsson's mobile-phone venture and a partnership with Michael Jackson's estate, are expected to add to Sony's revenue but may not overcome the lack of demand in the US and Europe for Bravia TVs. The company has lost $5.1 billion the past three years and predicts adding more this year amid competition with Apple and Samsung Electronics Inc.

Key Takeaways:

  • Sony's acquisition spree, worth $8.4 billion this year, may not be enough to address the company's declining profits, which have been plagued by a stronger yen, waning sales, and a Japan earthquake that crippled factories and Thailand flooding that cut production.
  • The company's TV business has lost $480 billion in the past seven years and is forecast to lose another $175 billion in the year ending in March, highlighting the need for Stringer to fix the TV business rather than pursuing acquisitions.
  • Sony has been valued at $18 billion, compared to competitors Apple and Samsung, which are valued at $364 billion and $137 billion, respectively.
  • The company has announced nine acquisitions this year, including the $4.5 billion purchase of patents owned by Nortel Networks Corp. and a $2.2 billion deal to buy EMI Music Publishing.
  • Stringer's efforts to bulk up profitable lines may not overcome the lack of demand in the US and Europe for Bravia TVs, which forced the Tokyo-based company to slash its sales forecast and predict an eighth straight year of losses in the business.
  • Sony Music, featuring Michael Jackson and other artists, was the second-biggest contributor of operating income after financial services during the fiscal year that ended in March.
  • The integration of hardware and software will help Sony take on rivals, including Apple, according to Stringer.
  • The company needs to do more to "blend" its assets with its hardware in order to compete with its bigger rivals, according to Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co.

Statistics:

  • Sony's acquisition spree this year is worth $8.4 billion, the largest since the company's sales forecast decline led to a predicted loss of $5 billion in the year ending in March.
  • The company has lost $5.1 billion the past three years.
  • Sony's TV business has lost $480 billion in the past seven years and is forecast to lose another $175 billion in the year ending in March.
  • The company has $16.9 billion of cash and equivalents at the end of September, compared to Samsung's $18.4 billion of cash and equivalents on September 30.
  • Sony's management has a sense of crisis about the TV business's losses, according to Executive Deputy President Kazuo Hirai.
  • TV makers also face a "generational culture shift surrounding video consumption," with teens living in an Internet-based video culture that doesn't depend on cable and satellite broadcasts.

Sources:

  • Bloomberg
  • Ichiyoshi Investment Management Co
  • Shinkin Asset Management Co
  • Mito Securities Co
  • Google Inc
  • Apple Inc
  • Samsung Electronics Inc
  • Ericsson AB
  • Michael Jackson's estate
  • EMI Group
  • Citigroup Inc
  • Nortel Networks Corp

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