Sony Delivers $1.25 Billion Loss; PlayStation Business Loses $78 Million

Source: Sony.com

Sony's (NYSE: SNE  ) numbers for the past fiscal year are in, and they're not good. The company had previously tempered expectations, citing an exiting of the PC business as its reason for expecting a $1.27 billion loss. Actual losses came in at approximately $1.25 billion for the year. The company expects to post a $489 million loss in the current fiscal year and also announced that it will split off its mobile communications unit. Sony's movie business managed to turn a profit, but its financial services division was the company's best performer. Debate will continue to rage as to what should be done with the company's TV business.

Sony's gaming business performed well in the last year, but posted a $78 million operating loss due largely to costs associated with launching the PlayStation 4. The company's PlayStation business looks to be increasingly important in the next several years. What does the future look like for the company?

A lumbering giant attempts to change
Sony is in the midst of restructuring and attempting to deal with troubled parts of its business. The company is selling its Vaio PC brand and will also spin off its TV business. The new subsidiary will be operated by Sony, but these changes are being accompanied by major structural changes. The company plans to layoff 5,000 people before the fiscal year is out, part of a necessary effort to slim the company down and stop resource bleed. It's still a reduction of potentially worrying size, nonetheless.

The company expects to have incurred losses of approximately $1.69 billion from its PC business between the past fiscal year and the one ending March 31, 2015. Of the approximately $890 million in PC-related losses from the last year, approximately $566 million came from costs associated with getting out of the business. This high figure provides an indication of the types of expenses Sony might face in exiting the TV business.

Does Sony need to get out of TVs?
Sony is currently third in the TV market, behind Samsung and LG, but its high-end business model has been floundering as consumers opt for cheaper alternatives. The company bet heavily on 4K adoption, to the point that its expectations appear unreasonable. Sony's television sales increased 29.7% year-over-year, but still delivered an operating loss of approximately $250 million for the company. The company projects growth on the back of its LCD televisions, however its current shipment target of 16 million units for the current fiscal year seems high.

Source: Sony.com

Whether Sony should get out of televisions is trickier than it seems. It's obvious that the business is a loss generator for Sony and that more cost-efficient manufacturing from Korean and Chinese companies poses a major threat to future viability. That said, the trend of electronic device convergence makes a smart-TV presence a valuable asset. The functions of gaming, video, and music players are increasingly included in televisions, threatening to make dedicated devices irrelevant. In a hypothetical future in which Sony no longer generates significant revenue from PlayStation hardware or Blu-Ray players, having a smart-television presence makes sense.

How Strong is PlayStation?
The gaming business remains one of the bright spots at Sony. An operating loss of $78 million for the last fiscal year isn't worrying given the costs associated with launching and marketing the PlayStation 4, as well as the writing off of several PC software projects. The company sold approximately 14.6 million units of its home console PlayStation line. Sony's portable consoles sold just 4.1 million units in the previous year, a strong indication that the PS Vita will be the company's last dedicated handheld gaming device.

Source: PlayStation.com

Expectations for the current fiscal year see just 3.5 million handhelds sold, while Sony projects the home console line to move 17 million units thanks to strong PS4 sales. Network services revenue should also experience meaningful growth.

How is Nintendo doing?
Taking a look at another Japanese games maker, Nintendo (NASDAQOTH: NTDOY  ) recently posted disappointing results for the last fiscal year. Research and development, acquisitions, and underperforming hardware sales contributed to an operating loss of approximately $456 million and a net loss of approximately $228 million.

The company projects a return to profitability in the current fiscal year, forecasting an operating profit of approximately $393 billion. On the plus side, the company claims it is no longer losing money on sales of its Wii U hardware. On the other hand, this should be a big investment year for the company, and the 3DS looks like it will need help to reach its 12 million unit sales target.

Will Sony's turnaround be successful?
Sony President Kaz Hirai has his work cut out for him. While the company's financial services and gaming businesses look strong,  its TV ventures remains a troubling variable. The company also has an opportunity for growth in the mobile sector, but it will need to improve its margins. For Sony, the road ahead is long.

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Read/Post Comments (11) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2014, at 3:13 PM, 69ingRainbowDash wrote:

    Where is the article about the Xbox sucking and 1080p watchdogs?

  • Report this Comment On May 18, 2014, at 4:58 PM, awang0718 wrote:

    Sony' business is troubling, and a rebound is needed. Playstation and Sony's insurance business will help for sure.

    So why the hell is Nintendo mentioned in this article?

    Oh, that's right. It is becasue Keith Noonan does nothing but write about Nintendo's "impending" doom , even when the article has nothing to do with Nintendo.

    BTW, unless Pokemon Omega Ruby and Alpha Saphhire are delayed to next year, the 3DS will easily reach and likely exceed the 12 million unit sales target.

  • Report this Comment On May 18, 2014, at 6:35 PM, Hibern81 wrote:

    Damn Keith! You really got a hard on for Nintendo, don't you? You figured if threw Nintendo into the mix of a Sony article it would lesson the blow for the grim future Sony has in front of it. 78 million is a big deal especially considering it came from the only profitable division Sony has. Alas, I expected nothing less from one of your insightful pieces.

  • Report this Comment On May 18, 2014, at 7:03 PM, stangace20 wrote:

    you mean all the pro-PS4 articles you were churning out every other day the past few months had absolutely no effect?

  • Report this Comment On May 18, 2014, at 7:18 PM, Nightrob wrote:

    @ 69ingrainbowdash... They didn't write about the X1 sucking because of one fact... It doesn't suck. A little less power doesn't mean a system won't have great games. X1 already has them with tons more on the way.

  • Report this Comment On May 18, 2014, at 7:22 PM, Nightrob wrote:

    Sony needs to sell their Marvel movie rights to Disney (where they belong). The Sony movie division has not done great for a while and they could get their heads above water a little if they sold back the movie rights to those properties.

  • Report this Comment On May 18, 2014, at 10:50 PM, awang0718 wrote:

    @Hibern81

    Exactly. These guys at Motley Fool are clearly damage controlling Sony's financial losses. Sure, Nintendo is losing money, but no where near as much as Sony ( $299 million vs.$1.25 billion ). Also, what does Nintendo's losses have anything to do with Sony's losses? It's all part of the plan to make it seem like Sony is "fine" when in reality they are not.

  • Report this Comment On May 18, 2014, at 11:01 PM, geothedreamer wrote:

    If they really wanted people to buy the PS4, they would have made it reverse compatible so that people would not have to rebuy their favorite games. That or keep the old system as well. This is the reason I will not be buying one any time soon. Please join me in protest!!

  • Report this Comment On May 19, 2014, at 9:44 AM, keithnoonan wrote:

    @ anyone wondering why Nintendo is included in the article

    The Motley Fool encourages comparisons of companies that operate in the same space. Both Sony and Nintendo are Japanese companies that make gaming hardware and software. Both posted worrying fiscal results for their last business years. There is zero intent to distract from the results of one company or another, rather there is the implicit suggestion that you look at the operations and outcomes of each company in order to get a broader view of a given industry. Hope that helps!

  • Report this Comment On May 19, 2014, at 5:20 PM, awang0718 wrote:

    @ Keith Noonan

    Sony's financial problems have nothing to do with Nintendo's financial problems. That is why Nintendo should not be mentioned.

    Sony lost money due to their stuggling PC, TV, and PS Vita businesses. Nintendo lost money due to their stuggling Wii U business. The Vita and Wii U are both gstruggling aming machines, but that is about all they have in common.

  • Report this Comment On May 19, 2014, at 5:23 PM, awang0718 wrote:

    *struggling gaming machines

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