Will Sony Benefit From Japan’s Stimulus Package?
Sony’s (NYSE:SNE) stock chart since the beginning of 2012 looks like a ski slope with a couple of interesting jumps thrown in. The Japanese electronics maker has faced selling pressure for years as it struggled with shrinking revenues and negative earnings.
Sony’s famous TV division has lost money for nine consecutive years, highlighting the company’s inability to compete with low-cost competitors. Consumers who are ambivalent about the nuances of quality will always opt for the cheaper option, and Sony hasn’t been able to match the low cost of many Chinese, Taiwanese, or South Korean firms.
At the higher end of the market, Sony seems to be routinely out-played by companies like Apple (NASDAQ:AAPL), which is innovating at a faster pace. At the Consumer Electronics Show, Sony unveiled the Xperia Z, a waterproof smartphone that runs on Google’s (NASDAQ:GOOG) Android platform. The device is interesting and relatively powerful. It sports a 1.5 GHz Qualcomm (NASDAQ:QCOM) quad-core processor, 4G LTE capability, 2GB of RAM and a NFC chip.
But at the end of the day Sony is still looking for profits in a market dominated by Apple and populated with a number of fiercely competitive tech companies. Apple’s product launch history suggests that by the time the Xperia gets rolling, the bar for smartphone technology will be set even higher. Sony will have to fight hard for every sale, and even if the phone is a success, it still has other major loss-making divisions to worry about…
However, the stock appears to have found a floor around $10, and some interesting economic news out of Japan has bulls who have an appetite for risk bidding up shares. Japan recently announced a new round of stimulus spending worth about 10.3 trillion yen ($116.82 billion) aimed at revitalizing the country’s struggling economy and weakening the yen. A weaker yen could be a boon to overseas sales, and with some highly-anticipated products like the PlayStation 4 on the horizon, the company may be able to drum up some long-needed revenue.
Against this backdrop, shares surged over 6.5 percent on Thursday after CEO Kazuo Hirai reaffirmed that the company would not be selling its profitable Sony Pictures division. Given the stock’s movement, it’s pretty clear where investors want the company to focus its attention. Focusing on profit-making divisions and increasing exports on the back of a weaker yen could finally turn the company’s negative earnings history around.
“I have always said, when asked the question about why we have the entertainment properties, one of the most important reasons we have them in our business portfolio, just like why we have financial services, is that it’s a profitable business to be in,” said Hirai.
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