Sony’s Smartphone Gambit

Sony is launching its new flagship smartphone, the Xperia Z, in Japan

Saturday, at a time when investors are growing frustrated at the slow

pace of recovery at the struggling Japanese electronics giant. The

much-anticipated new product represents Sony’s effort to step up its

game in smartphones–an effort that could determine the whole company’s

outlook.


Sony has a lot to prove in order to convince investors. On Friday, its stock fell 10% to ¥1,365 after the company reported a net loss

of ¥10.8 billion for the three months through December.  Sony’s movie,

music and financial operations were profitable in the quarter, but

losses from the television, personal computer and mobile phone

businesses continued to weigh on its bottom line.


Sony’s smartphone business remained unprofitable in the quarter, but

its loss narrowed sharply from a year earlier while sales grew. In April

last year, Sony set a goal of doubling the revenue for its mobile

products and communications division, which includes smartphones and

PCs, by the fiscal year ending March 2015.


“Whether Sony can make a comeback depends on its smartphone business,” said SMBC Friend Research Center analyst Hiroshi Sakai.


In the quarter ended December, Sony shipped 9.8 million smartphones

and its global market share rose to 4.5% from 3.9% a year earlier,

according to research firm IDC. That made it the world’s fourth largest

smartphone vendor, after Samsung, Apple and China’s Huawei Technologies

Co.


But in today’s ultra-competitive smartphone market, increasing market

share while maintaining a highly profitable business could prove to be a

tall order, analysts said. Even if  Sony’s smartphone business starts

making money, it may not be profitable enough to power the company’s

earnings growth.





“With the exceptions of Apple and Samsung, profit margins are thin

for most smartphone vendors world-wide,” said Nicolas Baratte, CLSA’s

head of Asia Pacific technology research. Most global smartphone players

face continued margin pressure as the market matures and Chinese

handset makers churn out more low-cost phones with increasingly advanced

features, he added.


To differentiate its smartphones from rival products, Sony is drawing

on the strength of its digital imaging technology such as camera

sensors. The new Xperia Z comes with a 13-megapixel camera that the

company says works well even in low light. Apple’s iPhone 5 and

Samsung’s flagship Galaxy S III come with 8-megapixel cameras.


“The smartphone market is growing fast, and we see opportunities to

compete as a premium brand,” said Sony spokeswoman Yuki Shima.


Other than camera technology, another potential differentiator for

Sony’s smartphone business is the company’s movie and music content

offerings, said SMBC Friend’s Mr. Sakai. Still, figuring out new

business models that allow smartphone operations to benefit from the

entertainment content business won’t be easy, he added.


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