Sony Blaming TV Division for Dwindling Profits?

The maker of Bravia TVs is feeling the pinch from market and natural forces lately. The Japanese electronics giant just announced its second-quarter earnings and surprised investors that it’s in the midst of a fourth straight year of losses. Sony blames dwindling profit margins for TVs and the strong Yen for its loss. But recent flooding in Thailand hasn’t helped either, forcing work stoppages at some Sony factories. News of Sony's pain came at an unfortunate time as it just announced to investors that it's buying-out Swedish communications partner Ericsson's stake in the Sony-Ericsson line of handheld devices. The Ericsson buy-out will cost Sony $1.5 Billion but gives Sony the opportunity to use Ericsson patents to stuff phones into its own network-connected devices. While investors expected reduced profit forecasts for the year, they didn’t anticipate the massive losses Sony has announced.

Sony’s net loss for the second-quarter was ¥27 billion ($346 million) while the previous quarter looked little better with a loss of ¥15.5 billion ($200 million). Sony says its TV business alone will be responsible for a loss of $2.2 billion this fiscal year.

Michael Yoshikami, chief executive of YCMNET Advisors says that Sony isn’t as competitive on price as it needs to be stating: "I don't think they are really a brand at this point that can really command a premium price." It’s a sentiment echoed throughout Sony TV support forums across the web.

Back when Sony was dominant in the TV business we understood that paying extra for a Trinitron generally meant better picture quality and a longer lifespan for the set in our living room. Today the competition is just too diverse and too good with pencil thin profit margins. While there’s nothing wrong with Sony Bravia line today, paying extra for the Sony brand has clearly lost its appeal to consumers.

Sony promised to bring an end to its TV division losses and bring it back to profitability by 2014. Analysts like Shigeo Sugawara, senior investment manager at Sompo Japan Nipponkoa Asset Management says of the promised resurgence in Sony’s TV business:

"We were focused on what would happen to Sony's TV division, but I don't see any drastic restructuring steps; in fact I can't even see any signs they've begun to cut,"

Sony is optimistic that its game business is on target to sell 15-million PlayStation 3 units and 6-million PlayStation Portable devices this fiscal year. But the positive outlook for PlayStation 3 sales comes at a cost of deep price cuts over the summer which also cut into profits.

Sony is ramping up for the launch of its new PlayStation Vita handheld game system due out in December in Japan but not until February in the North America and Europe. Vita will have advanced graphics processing, a touch screen and multiple stick controls as well as a rear touchpad.

Meanwhile, Sony's main rival in handheld gaming has its own share of financial pain. Nintendo was forced to drop prices less than six months into the launch of its brand new 3DS handheld gamer which has cut into profitability for the company.

While difficult times in the consumer electronics industry aren’t unique to Sony, the company seems to be making mobile communications a large part of its recovery plan. Perhaps buying out Ericsson is an effort to get back to its roots in the portable device market.

When Sony first launched the Walkman it was the undisputed king of portable entertainment that had kids everywhere plugging in headphones and carrying around their personal stereophonic jam-session. At the time Walkman was an inspiration to Apple, the little-known computer company that is today the one Sony must square-off to regain leadership status in mobile.

Meanwhile, between Apple TV and iPad the company out of Cupertino California is taking a toll out of Sony’s share of the set-top-box market. These are tough times for Sony and the company needs to deliver on something truly revolutionary with those mobile-phone patents it bought from Ericsson to recapture its former glory.