According to a Reuters report published Friday, consumer-electronics juggernaut Sony (NYSE:SNE) is reporting that in the most recent quarter, its television business has become profitable again. But the news comes with some caveats.
First off, there are two kinds of profits: the ones you hope for, and the ones you actually make. In the highly competitive consumer-television market, Sony's profits fell short of its hopes -- a consequence of declining retail prices for fancy flat-panel plasma TVs, more budget-priced rear- projection models, and plain old cathode-ray TVs alike. If not for its liquid crystal display (LCD) sets, it seems that Sony wouldn't have made a profit at all. LCDs saved the company's quarter and kept it on track to sell 700,000 LCD sets for this fiscal year.
Eating into the company's profits is that it still has to buy its panels from third parties such as Pioneer (NYSE:PIO), LG, Fujitsu, Hitachi (NYSE:HIT) for plasma, and LG.Philips LCD (NYSE:LPL) for, well, LCDs. Sony then assembles the panels into TVs. The LCD situation should improve in the next quarter, when Sony's joint LCD venture with Samsung gets up and running. But the plasma problem remains unresolved.
So let's go over that one more time. But for Sony's LCD sales, its television division might well have lost money again this quarter. LCD profitability was depressed by the need to buy from companies outside Sony's control. Therefore, in the next quarter, when Sony is able to buy LCD panels from its subsidiary for better prices, assemble them into flat-panel TVs, and resell them for even greater profits, LCDs will become even more of a profit driver for the company. Plasma TV profits, meanwhile, will depend in part on the company's success in purchasing plasma panels at attractive prices from third parties.
Under this scenario, Sony's reported plan to exit the plasma TV market and focus on LCDs makes a lot of sense. And the company's subsequent vehement denial of any such exit makes less sense. Perhaps the company feels a need to remain a player in the plasma TV market, to preserve its reputation as a leader of the consumer-electronics world. Perhaps Sony thinks that leaders don't drop out of a contest.
But Sony needs to consider. If its plasma business is not earning profits for its shareholders, this contest may not be worth winning.
For more Foolish news on the LCD/plasma industry, read:
Fool contributor Rich Smith has no position in any company mentioned in this article.
