That’s Entertainment: Sony Bounces Back
After a year of almost non-stop disappointing news, Sony (SNE) Chief Executive Officer Howard Stringer may finally be able to peddle some real optimism in 2007. Confirmation by Stringer at the Consumer Electronics Show in Las Vegas that Sony had met an initial PlayStation 3 sales target and is on track to nail a 5% profit margin target by March, 2008, sent the company’s shares rocketing up 6.5% to 5,550 [$47] in Tokyo trading on Jan. 9.
Sony’s share price is still off about 10% since its 52-week high set back in April, 2006. The company’s image took a thrashing from a global recall of its possibly defective laptop batteries. And the launch of the PS3, one of the most critical in the company’s history, was anything but flawless [see BusinessWeek.com, 11/12/06, "PS3: The Sound and the Fury"].
Sony still faces considerable challenges, though the stock turned in its best one-day performance in a year and Goldman Sachs Tokyo-based analyst Yuji Fujimori issued a buy recommendation on Sony and raised his 12-month forecast for the company’s share price about 20% to $52.
Moving the Units Why the optimism? For one thing, parts shortages which forced Sony to delay its PS3 launch in Europe to March and created some uncertainty about meeting demand in Japan and the U.S. seem to have abated. Sony has shifted laser diodes from its Blu-ray DVD players to the PS3, which also uses that technology.
Sony shipped 1 million PS3 units to the U.S. last year and says it is still on track to deliver 6 million of the game players by March. At the same time, Sony’s previous generation game console, PlayStation 2, continues to rack up impressive gains and is expected to stay strong well into 2008, according to analysts [see BusinessWeek.com, 12/28/06, "PlayStation 2 Still Rocks"].
Meanwhile, Sony has received a boost from strong Christmas sales of its popular Bravia LCD line. Sony has regained leadership of the LCD TV business in the U.S. with a 31% share vs. 22% for Samsung at the end of 2006, according to Fujimori. “Strong Christmas sales, centering on LCD TVs, appear likely to revive the perception of Sony as a consumer electronics leader,” Fujimori wrote in a note to clients on Jan. 6.
“Streamlining Priorities” At the same time, Sony Pictures had a record 2006 and grossed about $3 billion worldwide in 2006, thanks to such hits as the religious drama The Da Vinci Code and James Bond thriller Casino Royale.
Still, the key to any sustainable recovery is a turnaround in Sony’s core consumer-electronics division, which delivers about two-thirds of sales. Goldman Sachs analyst Fujimori thinks that Stringer and Sony President Ryoji Chubachi may be entertaining ideas of more restructuring moves to streamline Sony and improve profitability. “Chubachi has been clear that while Sony has previously tried its hand at everything, it is now in the process of streamlining priorities and will remain in business where it is truly competitive,” Fujimori told clients.
That could mean reduced investments for PS3 semiconductors and a possible sale of 30% to 50% of the company’s Sony Financial Holdings life-insurance and credit-card division.