Sony’s Third-Quarter Triage: Isolate Television, Sell PC Business

Source: http://www.flickr.com/photos/munky79/

Source: http://www.flickr.com/photos/munky79/

Things have gone from bad to worse for Sony (NYSE:SNE) over the past six months — hell, the past six years have been bad for the electronics company. Sony reported a net profit for just one of the past six fiscal years, and that (the fiscal year ended March 2013) was largely the result of the sale of property. The company sold landmark property in both New York and Tokyo, a move that is as indicative of the hard times that have befallen Sony as anything.

On Thursday, with shares already down 23 percent since August, Sony reported a number of new decisions alongside its third-quarter earnings report that caused shares to fall as much as 5 percent further in early trading. As part of a massive reform and restructuring program, the company will be isolating and spinning off its once-flagship television business, a unit that has lost $7.8 billion over the past decade. The goal is to make the television business more manageable — and possibly to dress it up for sale — by making it a wholly owned subsidiary of Sony.

As for a possible sale, though, chief executive office Kazuo Hirai told reporters in Tokyo that “we have absolutely no plan to do so right now. … I think we are heading in the right direction, and by making it a separate company we will speed decision-making up. As for the future, there are many possibilities, and not just for our TV business.” But despite Hirai’s comments, there is plenty of speculation that an exit from the TV business could be in Sony’s future.

Sony also announced that it will be selling its personal computer division, Vaio, which is a landmark event in its own right. The sale of Vaio will mark the first major consumer product line that Hirai pulls from the company. Vaio will go to Japan Industrial Partners.

Buried behind the rest of the major announcements from Sony on Thursday was the company’s third-quarter earnings report. For the quarter, the company reported sales and operating revenue of $23 billion, up 23.9 percent on the year. The gain was primarily the result of favorable foreign exchange rates, the launch of the PlayStation 4, and strong smartphone sales. With 4.2 million sales of the new PlayStation under its belt already, Sony is on track to beat guidance of 5 million by the end of the March quarter — and with exchange rates favorable, the company has at least one pillar to lean against as it goes through restructuring.

However, after a 44.8 percent year-over-year increase in the third quarter, smartphone sales are expected to decelerate in the coming year. Sony downwardly revised its outlook from 42 million to 40 million because of expected weakness in the European and Asian markets. Thanks in large part to restructuring, full-year operating profit forecasts were slashed in half. The company expects restructuring to cost $1.1 billion in the coming fiscal year and will lay off nearly 3 percent of its workforce in the process.

Sony reported net income of 22 cents per share for the quarter and operating income of $860 million.

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