According to a Reuters report, Sony Corporation SNE is transferring its smartphone production facility from China to Thailand to improve its profitability amid waning sales. The strategic move is the latest in a string of concerted efforts to attain a leaner organizational structure to augment growth.
Over the past few quarters, Sony has reported dwindling sales from its smartphone business. Mobile Communications (“MC”) sales in third-quarter fiscal 2018 declined 36.9% to ¥137.2 billion due to decrease in smartphone unit sales mainly in Japan, Europe and Latin America. The segment’s operating loss was ¥15.5 billion against income of ¥15.8 billion in the prior-year quarter.
Sony faces intense rivalry in the smartphone division from low-price manufacturers as well as premium handsets like that of Apple Inc. AAPL iPhone and Motorola Solutions, Inc. MSI. The smartphone market witnesses stiff price wars, continuous product innovations and changing customer preferences, which is putting immense pressure on Sony to come up with better products to retain competitiveness.
In order to buck the trend of decreasing sales, Sony has now decided to come up with intensely price-competitive products by shifting its production facility to low cost Thailand. The company aims to turn the smartphone business profitable from April 2020.
Also, Sony has orchestrated a slew of changes in its internal administration and reshuffled its operating segments. The company believes that converting its business units into distinct subsidiaries will enhance its organizational independence as each independent unit sets high targets in an effort to accomplish the company’s mid-term targets. Sony believes that these steps will allow it to generate sustainable profit, accelerate decision-making processes and reinforce business competitiveness, which augurs well for future growth.
Sony has further undertaken a number of measures in its Branded Product Business, which includes MC, Imaging Product & Solutions and Home Entertainment & Sound segments, to ensure stronger growth. A number of measures, including cost-cutting initiatives, lower exposure in low-profit geographic regions and reduction in advertising & promotion expenses, are expected to benefit this business in the long run. Going forward, Sony plans to concentrate mainly on the premium segment of the branded products market to maximize its growth potential. Also, the company has launched a few products, which will likely supplement sales in the long run. Within the HE&S segment, it is presently focusing on high value-added models such as 4K TVs, to improve the product mix.
The stock has outperformed the industry with an average loss of 11.5% compared with a decline of 14.6% for the latter.
Sony currently has a Zacks Rank #3 (Hold). A better-ranked stock in the industry is LiveXLive Media, Inc. LIVX, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
LiveXLive Media topped estimates in the preceding two quarters.
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