Sony (SNE) is the latest iconic electronics maker to shock investors, today announcing it expects to post a loss of $1.1 billion for its fiscal year ending March 31. Sony Chief Executive Kazuo Hirai admitted he had failed to turn around the company’s money losing TV business, which could be spun off, following the sale of Sony’s money losing PC business.
As I discuss with Yahoo Finance editor in chief Aaron Task, Sony was also the latest in a long line of phone makers to see problems in that segment. Sony cut its forecast for sales of its Xperia smartphone line to 40 million from 42 million.
That follows Apple’s disappointing iPhone sales, Samsung’s disappointing sales of Galaxy phones and problems at HTC and LG as well.
Worldwide, smartphones are still selling briskly. IDC says sales increased 38% last year. But almost all of the growth is at the low end of the market, cheap phones selling for under $300, most running Google’s Android software.
For the high-end, as we discussed back in July, the market seems to be reaching “peak smartphone.”
That’s the point at which sales growth fades away as fewer and fewer consumers are left to buy their very first smartphone and the market depends on less frequent upgraders. To be sure, even with modest growth, the high end will remain a vast and profitable segment, just not one seeing 40% yearly sales increases.
Samsung has already tried to go down market, with a resulting hit to profits. Apple and Sony have largely resisted. The question is whether any of the top tier makers can do so profitably.
For Apple, the question may be irrelevant. Analysts urged Apple to go down market in PCs for years. But Apple stuck to its swish niche at the high end and now captures a huge proportion of the profits in the entire PC market. It could do the same in phones and find growth with new product categories like wearables or TVs.
Sony was already in nearly every product category from movies and music to Hollywood and high tech. And it’s proven almost impossible for Sony to cut its costs to compete with upstarts from China in any of the electronics segments.The Playstation is the only exception, since there are no Chinese knock offs with lower priced game consoles. But it’s not a big enough segment enough to support the whole company.
After Sony lost out in the video format wars of the 1980s, the company acquired all manner of media, from music to movies, to ensure it could feed any new electronics device it came up with. The irony now may be that those ancillary acquisitions could form the core of the company’s future.
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