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Sony's inability to sell smartphones is costing it $1.7 billion

Sony's inability to sell smartphones is costing it $1.7 billion


No more dividends this year as Sony tries to fix ailing mobile business

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Sony has just revised its annual earnings forecast with the addition of a major 180 billion yen (roughly $1.7 billion) "goodwill impairment charge." This relates to Sony's Mobile Communications (MC) business, where the company says it had overestimated revenues from smartphones and tablets and has now decided to alter its strategy and accept the loss. As a result, Sony now anticipates overall losses for the fiscal year ending next March to be over $2.1 billion.

Sony has been in rebuilding mode for a number of years now, looking to narrow down its focus around Kaz Hirai's One Sony strategy and become a more cohesive and agile company. Central to these efforts has been Sony's emphasis on mobile devices: the Xperia range of Android smartphones has kept the company's revenues going even as it was divesting itself of iconic manufacturing divisions like the VAIO laptop line.

Mobile strategy has now been "revised to reduce risk and volatility"

Today's recognition that mobile devices haven't been selling as well as hoped shows an unexpected fragility to what should be the backbone of Sony's revenues. The company's statement accompanying the forecast revision states that the original plan of selling phones at razor-thin profit margins in order to gain market share hasn't paid off. "The overarching strategy for the MC segment has been revised to reduce risk and volatility, and to deliver more stable profits," says Sony. That means a reduction in mid-range devices and a focus on the premium lineup that was recently refreshed with the Xperia Z3 family.

Sony identifies a "significant change in the market and competitive environment of the mobile business" as the primary cause of its frustrated ambitions. Given that its issues relate mostly to the more price-sensitive entry-level and mid-range devices, it's reasonable to conclude that Sony is suffering at the hands of cheaper Chinese alternatives (and even American ones in the shape of the Moto G) in the same way that Samsung is. The renewed focus on premium devices will take time to put into action and will require patience from Sony investors. There'll be no dividend paid for the rest of this year and profits are unlikely to bounce back immediately even if Sony gets everything right.