SONY results for FY2012 (ended March 31, 2013)

SONY announced annual financial results today, and BBC interviewed me twice to comment on the results (read comments here on the BBC website).

After 4 years of net losses, it is comforting to see SONY report profits again. However, lets look in detail where the profits come from.

SONY reports YEN 230.1 Billion (US$ 2.4 Billion) in operating profits, and YEN 43.0 Billion (US$ 0.46 Billion) in net profits.

Where do these profits come from? SONY sold the US headquarters building, sold a HQ building in Tokyo-Osaki, sold a chemicals division, and sold the investment in the mobile social games company DeNA, sold part of the investment in the (fascinating) cloud-based medical IT company M3 and restated the value of the remaining investment. All these transactions resulted in combined operating profits of US$ 2.6 Billion = almost equal to the reported operating profits. So it seems to me that the return to profits was achieved by asset sales and revaluations – not by selling revolutionary new products.
Read below for more details.

What are the reasons for SONY’s problems? In a nutshell, value moved from hardware manufacturing to software and platforms. SONY was in theory well positioned about 10 years ago to create a SONY platform, such as APPLE has created. However, SONY (a) missed that boat and (b) SONY-DNA and Japanese Government policy were and partly still are focused on “mono zukuri” – hardware manufacturing, which in itself is a good thing – as long there is even more passion for software and software platforms, and as long as market share guarantees pricing power and economy of scale as for Samsung.

SONY: propped up by life-insurance sales, real estate and asset sales
SONY: profits from life-insurance sales, real estate and asset sales dominated in FY2012

SONY’s profits come mainly from SONY-Finance (selling life insurance and credit card services), from asset sales and revaluations of investment holdings.

The figure above shows operating profits/loss for SONY’s different divisions. Not that SONY changed the way its divided up into divisions in FY2012.

We can see above that for FY2012 (ending March 31, 2013), the biggest part of profits comes from the real estate and share holding sales. Regular business profits are mainly from SONY-Finance, which is a domestic Japanese company selling life-insurances, credit card services and online banking. The mobile phone division and the home electronics and TV division are heavily in the red, and shockingly the game division is essentially a non-profit business (the games division profits are the thin line between “Devices” and “other” in the Figure above) – while at the same time there is a global boom in mobile (smartphone) games. Its equally depressing, that SONY’s smartphone division is also recording massive losses.

To add insult to injury, a recent study on how consumers value brands in Japan by NIKKEI ranked APPLE as No. 1 both for 2012 and 2013, while SONY was ranked No 20 in 2012, and No. 22 in 2013, two places below the mayonnaise brand “KEWPIE” in terms of brand power in the BtoC category for Japan.

Looks like SONY has a tough road ahead…

More details in our report on Japan’s electronics industry

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