Sony Can No Longer Compete Against Samsung and Apple

Sony has been losing money the past couple of years as competitors Samsung and Apple eat away at its business, so what should the company do to survive?

May 21, 2014 at 11:45PM

Sony (NYSE:SNE) has been losing market share to the likes of Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF) for the past couple of years in the realm of televisions, smartphones, and other electronics. The company's PlayStation gaming consoles remain popular, however, and Sony has found success with them throughout the years. Sony has been reporting losses lately; the electronics maker reported a loss in its last quarter and in 2011 and 2012, while eking out a small profit in 2013.

Over the last five years
Sony's revenue has declined 5% on average the last five years while its net income has fallen even further, dropping almost 35% per year on average over the same period . Apple, on the other hand, has grown its revenue by 39% per year on average over the last five years. On top of that, Apple's net income has ballooned to average 50% increases over the last five years. Samsung has also done well over the last five years, averaging 44% income gains on average with 40% increases in net income. It is clear that Sony has been really struggling over the last half decade, while Apple and Samsung have blossomed and acted as juggernauts to some of Sony's business lines.

Sony Over Last Five Years

Source: Yahoo Finance

The dismal performance of Sony and the extraordinary performances of Apple and Samsung are evident in their stock returns over the last five years. Sony's stock has declined considerably over the last five years with a drop of 37%. In sharp contrast, Apple's stock has appreciated close to 400% and Samsung's stock has done well also with an increase of 200% over the last five years. The chart lends some credence to the belief that over the long-term, stocks do in fact track the underlying performances of the businesses they represent.

What have you done for me lately?
Sony has also diverged from Apple and Samsung recently in addition to lagging the companies over the last five years. Over the last twelve months ending March 2014, the Japanese electronics maker has recorded a loss of 130 billion yen -- or $1.3 billion. The loss was particularly painful as Sony expected to actually generate a profit of 30 billion yen this year. The loss also occurred despite Sony recording an increase in revenue of about 1% to 7.77 trillion yen over the last twelve months .

In its most recent fiscal year, Apple realized a decline in net income of 11% and in earnings per share of 10%. Its revenue rose by 9% in 2013 as compared to 2012, however. Apple really shined in its latest quarter, reporting an increase in revenue of almost 5% to $45.6 billion. The resulting net income grew by 7% to $10.2 billion and the earnings per share ballooned to just over 15% to $11.62 in the 2014 second quarter compared to year ago quarter. Apple seems to be picking up steam, especially with its latest version of the iPhone.

Samsung's last fiscal year ending December 2013 was spectacular. Its net income rose almost 29% on an increase in revenue of almost 14% compared to the 2012 fiscal year. The resulting earnings per share also rose by a wide margin of 28%. However, Samsung's recent earnings have not been as stellar as Apple's as the company's earnings have declined over the last two quarters. Moreover, Samsung's revenue fell by a considerable 9% in just its last quarter. Nevertheless, Samsung's problems are a far cry from Sony's at the moment as the South Korean company is still profitable.

Sony's future
At this point, Sony would be better off if it separated its divisions into separate companies. This would allow its PlayStation brand to blossom, its movie division to concentrate on movies, and its struggling divisions to focus on their operations and not have their managements distracted by other endeavors. Perhaps Samsung or Apple could buy one or more of Sony's divisions and integrate them into their own companies.

Interestingly, hedge fund manager Daniel Loeb is advocating for a break-up of Sony, so a separation could be coming within the year. Loeb believes that the sum of the company's parts could be more valuable than all of them as a whole; the company's movie division is responsible for the "Spider-Man" films, for instance, and its music division counts Miley Cyrus as one of its artists. Sony's investors should monitor the situation closely and evaluate if Loeb's assertion is good for the future of Sony.

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Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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