September 17, 2014 / 7:16 AM / in 6 years

Sony heads for deeper loss as it shrinks struggling smartphone business

TOKYO (Reuters) - Sony Corp cut its earnings outlook for the sixth time on Chief Executive Kazuo Hirai’s watch on Tuesday as it announced a massive impairment change on its smartphone unit, which it has failed to grow despite a rapidly expanding market.

Sony Corp's President and Chief Executive Officer Kazuo Hirai speaks during its corporate strategy meeting at the company's headquarters in Tokyo May 22, 2014. REUTERS/Yuya Shino

Hirai said mobile would remain one of the three core divisions of its electronics business, even though its shrinking footprint and ballooning losses now threaten the prospects of that flagship business scoring a profit this year.

Sony, which once chased the third spot in the smartphone market behind giants Apple Inc and Samsung Electronics Inc has been forced to scale back its ambitions in the rapidly growing mobile market as with other consumer electronics.

On Tuesday Sony said it taking a 180 billion yen (1.03 billion pounds) impairment charge, writing down goodwill from its buyout of Ericsson when it made its mobile unit a wholly owned subsidiary.

The Japanese firm widened its net loss forecast to 230 billion yen for the year ending March 31 from a previous forecast of a 50 billion yen loss, and said it would forego paying a dividend for the first time since it listed in 1958.

“Whether they cut their forecast four, five or six times it doesn’t really matter. What’s more important for the market is whether this (restructuring) will put an end to their problems as they’ve said it will,” said Yasuo Sakuma, portfolio manager at Bayview Asset Management in Tokyo.

Analysts said the news was in line with expectations after Sony flagged a potential writedown on the mobile unit in July and pegged it as a piece of a crucial restructuring plan Hirai has promised to complete this year.

“I will be at the centre of making sure that restructuring will be completed this year and that we will turn a profit in the next financial year. A recovery is my responsibility,” said Hirai. “This is the first time we’ve not paid a dividend and we feel that responsibility as management very heavily.”

But the announcement emboldened some critics of Sony’s turnaround strategy and of Hirai, who took his post in 2012 promising to pull the firm’s troubled electronics division into the black by focusing on its mobile, gaming and imaging units.

“To be honest when you’re a listed company there’s a limit to what restructuring and stripping off business units can do. A private equity firm wouldn’t buy a company with these kinds of losses,” said an investment banker who covers the technology sector and has advised Sony in the past.

While the forecast revision could have been an embarrassment for new Chief Financial Officer Kenichiro Yoshida, who assumed his post in April promising the company would be more realistic about its outlook, analysts said it showed his plans were on track.

“This has shown that a sensible chief financial officer is able to control the expansionist aspirations of business heads, which, if unchecked, would lead to larger losses for Sony,” said Atul Goyal, analyst at Jefferies in Singapore.

On Tuesday Sony also said it expects an operating loss of 40 billion yen instead of a 140 billion yen profit flagged in July, but held its target of a 400 billion yen operating profit in the next business year.


Sony had fallen behind in the rapidly expanding smartphone market, lagging rivals such as Apple, Samsung and Chinese upstarts such as Xiaomi, due to its lack of relationships with carriers in the crucial U.S. and Chinese markets.

The company cut its profit outlook for its mobile business to zero in July and trimmed its sales forecast for smartphones to 43 million from 50 million, which would mark a 10 percent increase on the year.

“For now, rather than chasing market share or unit sales we will identify the market risks and emphasise profitability,” Hirai said, adding that Sony would focus on regions with stronger prospects.

Hirai also said Sony will cut around 1,000 of the 7,100 staff in its mobile unit during the current business year. The cost of reducing headcount will be outlined when Sony announces its results for the July to September quarter at the end of October.

That could push the unit into the red, below a current forecast of just breaking even and potentially threaten the prospects of its electronics division scoring a profit this year, a goal Hirai has said he would achieve at all costs.

Shares of Sony closed down 1.8 percent before the announcement on Wednesday, versus a 0.5 percent fall in the broader market.

Additional reporting by Teppei Kasai; Editing by Chang-Ran Kim and Matt Driskill

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