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Today Sony made the surprise announcement that the firm's struggling Xperia Mobile division would be grouped with the Sony TV, audio, and camera product lines.
The move is indeed unexpected as many have been anticipating Sony (NYSE:SNE) to simply close, or possibly sell-off its worst-performing division. While their reasoning for the move isn't quite clear at the moment, one thing is certain: Sony will now be able to hide the performance (or lack thereof) of the division responsible for the Xperia line of smartphone products.
The re-grouping will create a new division called Electronics Products and Solutions and is scheduled to go live on April 1. Be advised this is no April Fool's joke.
Sony Xperia business has lost almost a billion dollars in the last year
Before we go any further, here's a sobering statistic that illustrates just how bad the situation is for Sony's mobile division.
The Xperia business has lost $940 million dollars over the trailing four quarters. In fact, Sony's strongest business unit, its Gaming division that enjoys the massive success of the PlayStation brand, actually made less money than Xperia lost! For fiscal Q2 2018, Xperia lost $480 million while Gaming profits increased by $317 million y-o-y. Gaming's improvement couldn't keep up with Xperia's losses and that's saying a lot.
Amir Anvazadeh is a strategist at Asymmetric Advisors PTE, and in a note, he advised, "By hiding the mobile-related losses, they would take the pressure off from shareholders to shut the division down."
However, Sony, for its part has stated they intend to continue to disclose specific performance results for its Xperia line and that the re-grouping is to capitalize on synergies between the product lines.
"Through more cooperation among our divisions, we can create new value by better utilizing the combined assets and personnel in our electronics area,” Sony spokesperson Takashi Iida said.
Xperia handsets have struggled to gain traction against the much more popular line of Galaxy S Android handsets from Samsung. Even LG has easily outpaced Sony in its efforts to capture smartphone market share and its not even clear if LG will be able to keep it up in the long term itself. Xperia handsets have been released with outdated styling and missing features, not to mention poor marketing and little consumer hype ahead of releases.
Sony plunges ahead despite plummeting sales and rising costs because... 5G
Things aren't expected to get any better, either. In Q3 2017 Sony sold 3.4 million Xperia phones. A year later in Q3 2018 the number was down to 2 million... globally. Manufacturers are getting hit with higher R&D costs thanks to the deployment of 5G technologies, and if sales volumes are dropping Sony is in for a very rough go of it.
Sony CFO Hiroki Totoki has previously justified the huge losses of the Xperia division. Last year Totoki gave a rather generic account of how 5G is simply the future of data connectivity and is somehow worth the current losses:
I would like to say a few things about the importance of 5G wireless technology in the context of our strategy for the smartphone business going forward. By enabling high-speed communication, low-latency and simultaneous connectivity, 5G, which is expected to be commercialized in the near future, is a technology which we view as having immense potential, since it can connect all portable devices to the cloud.
In order to fully utilize this leading-edge technology, we need to retain in-house our fundamental research capability and capability to create related applications. By continuing to work on 5G in our smartphone business, we are aiming to develop 5G technology as a competency that can be used across the Sony Group.
-Sony CFO Hiroki Totoki
During the firm's autumn earnings release, Sony claimed that Xperia might be profitable by 2021, at the earliest. Company spokesmen said that spending would be slashed by 50 percent, which is incredible considering the 5G ramp is upon us.
Surprisingly, Sony shares remained unchanged today closing at $42.79 per share. It may be that there is some positive sentiment surrounding the reorganization.
We expect to learn more this April the 26th as Sony posts its next earnings. As always, we will have same-day coverage of the event here at the Wccftech Finance column.
