Sony Struggles To Maintain Its Dominance
The world's most renowned television maker has come down with some hard times on their shoulders. Profits are falling, even though the company is making headway in many areas. But the company's profits in television manufacturing were the most shocking.
There are two factors at play here: one is the strengthening of the Yen currency and the other is falling television prices. The yen's price strengthening makes it harder for the company to produce profits in a country like the States, where its televisions are very popular. But the company also has to compete on price, something that Sony is not known well for doing.
The net income at Sony, was 72.3 billion yen (roughly $886 million) in the fourth quarter of 2010. The year before, in 2009, the company made 29.2 billion yen, which is significantly more — this means Sony is losing a lot of money somewhere.
Part of the issue is that Sony is investing heavily in its gaming and music divisions. But it still can't cover up the fact that 8.6 percent of Sony's profits fell year-over-year. In fact, it might be considered even worse. One of Sony's competitors, Samsung, managed a $3 billion profit during the same time.
Competition is also hurting Sony in the area where it counts most — the television market. Television manufacturers like Vizio, Panasonic, and more are taking away profits from Sony, as Sony focuses more towards the high-end market by producing more expensive displays.
But the company is quickly coming to understand that during these times consumers might lean more towards the value over the overall quality for television displays — and many companies are happy to oblige these customers by offering some of the cheapest displays I have ever seen in past years.
The company's LCD display business was struggling the most, primarily against LG, Samsung, and Panasonic, which are driving down prices. As a result, profits decreased even though sales increased.
This has caused Sony to significantly cut its forecast for television displays ales for the year to 23 million units, which is down from its previous forecast of 25 million units. However, the company still remains hopeful of its gaming division, which really helped save the company from catastrophe.
Also noteworthy is that the company's Hollywood venture — Sony Pictures — has also been struggling. It was down from the previous year, even though strong hits like "The Social Network," "This Is It," and more have hit the screens.
But the company has reiterated that the slump is due primarily from the strengthening of the yen:
Sony’s chief financial officer, Masaru Kato, stressed that the effects of the strong yen were masking what he called a strong recovery in the company’s main electronics business. Sony plunged to losses of over 200 billion yen after the financial crisis as global demand for Japanese electronics evaporated.
Regardless, Sony has to step its game up to remain competitive in this global market. It needs to drastically lower the costs for its television displays and realize that it will need to compete on price for many consumers who are not spending as much money as they once were.
Furthermore, Sony needs to keep innovating to bring huge sales for its other markets. The PS3, in particular, could become a huge proponent in Sony's success in the future. It is almost like Apple's iTunes marketplace — it is where, if Sony can get the PS3 into enough people's hands, Sony can take control of its own destiny and provide digital content.
The company also needs to produce displays for cheaper. Creating a display that featured a 500GB hard drive and is significantly more expensive and doesn't even feature 3D functionality isn't the way to go about doing that.
In the end, though, Sony has a long road ahead of itself. It is going to be a bumpy ride to get back on top of several industries it once ruled. The music industry has left them behind, the television display industry is being stolen from them by cheaper competitors, and the gaming market has been dominated by Nintendo and now Sony is competing for second place.
There is lots of work to do before Sony can regain its position at number one.
