Despite its recent drubbing at the market's hands, it might be premature to think of Sony (NYSE:SNE) as a value opportunity. More proof of that arrived on Tuesday, when Sony added to the massive recall of its laptop computer batteries by recalling them in its own machines. The electronics giant has also said that it's reviewing its financials, and that it may revise its profit guidance for the year in light of some recent developments.
As you probably know, Sony-made lithium-ion laptop batteries have been recalled by PC makers like Dell (NYSE:DELL), Apple (NASDAQ:AAPL), Toshiba, Fujitsu -- well, just about everybody. Now, in an ironic but sensible turn, Sony has joined the crowd in recalling batteries in its own laptops.
The massive battery recall (more than eight million have been recalled) will likely be expensive for Sony. Analysts initially estimated related expenses of roughly $250 million, but that figure was bound to rise, particularly as more and more PC makers recalled the batteries. Observers now predict that not only could the price tag for the recall swell to at least $500 million, but Sony could also find itself slammed with lawsuits. Whether or not legal problems come to pass, it's hardly rocket science to suppose that Sony's profit outlook might be hurt by the recalls.
Some investors might think Sony's venturing into "cheap" territory right now, but I still say that trading at 31 times earnings is no value, especially when you consider the challenges the company faces. Sure, the imminent launch of the next-generation PlayStation 3 is exciting, but the console's pending debut has been a bumpy ride, and it may partly explain why the company might revise its financial forecast.
Only 400,000 PS3 machines will be available in the U.S. for the November launch date. (Two million will be available worldwide by the end of the year as Sony slowly rolls out the consoles.) Furthermore, the machines have a high price tag (although Sony recently cut the price in Japan by 20%), and when a few of the PS3s were shown off at the Tokyo Game Show, rumor had it that they acted up, which made some gamers suspicious of possible bugs in the hardware. (Sony blamed overcrowded conditions and poor ventilation at the show for the machines' "erratic" behavior.) It's enough to make you wonder whether a good number of PlayStation diehards might consider defecting to Microsoft's (NASDAQ:MSFT) Xbox 360, if they haven't already.
Sony said that it will communicate any revisions to its forecast soon; its earnings announcement for the first half of the year is scheduled for Oct. 26. In light of Sony's growing pains, its stock price has sagged 13.5% in the last six months. Like I've said before, though, with all the uncertainties at work right now, investors should wait for signs of Sony's recovery before considering this stock.
Plug into further Foolishness:
- PlayStation's playing hard to get.
- Sony continued to lose power with more battery recalls.
- Sony stood up gamers. again.
- Sony's many growing pains.
Microsoft and Dell are Motley Fool Inside Value recommendations. To find out which other stocks have been highlighted as outstanding bargains by Philip Durell, click here for a 30-day free trial.
Dell is also a Motley Fool Stock Advisor pick.
Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy that will not be recalled anytime soon.
