Where Is All This Sony Cash Suddenly Coming From?

Sony (NYSE:SNE) made a move in a good direction. While in may be the first such move in a while, it might not be quite big enough to please anyone.

For 10 years, Sony has not been in the greatest¬†financial standing. At that time, Sony’s profit margin was cut down significantly, and the company has been struggling to turn around profits since then. However, the most recent quarter might be the beginning of the company’s turnaround.

In the past 5 years, Sony has spent 400 billion yen — close to $4 billion USD — on restructuring, and it has plans to spend another 50 billion yen on a revamp next year. Also, in the past 4 years, the company experienced a net loss of 856 billion yen.

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It’s clear that the company has had some serious issues with bleeding money. But a significant portion of that cash burn has gone to restructuring efforts, and that may be what Sony needs to set itself up for a turnaround. Shareholders and management have agreed on the importance of the restructuring efforts.

From the beginning of the year through March, Sony managed to pull in a net profit of 43 billion yen. While it is only about a tenth of the cash Sony had put out over the past 4 years, it could be the beginning of future profits for the company. However, the money isn’t coming from expected places.

Apparently, Sony took its hands off certain assets, which likely helped it cut costs and earn money from the sales of those assets. Consumer electronics — like Sony’s smartphones, computers, and PlayStation devices — were not the main bread-winner for the company. Neither were Sony’s film or music businesses. Rather, the less familiar financial services unit was key to bringing in the money, as it accounted for a third of operating income and could be key in continuing to grow profits. The unit more familiar to consumers — electronics — only narrowly avoided being in the red thanks to cost-cutting efforts.

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Another thing that may have hurt Sony in recent years, but helped it this year, is the value of the yen. Because Sony relies so heavily on business in foreign countries, appreciation of the yen can have drastic impacts on its earnings. While a year ago the yen was quite strong, with an exchange rate floating around 80 yen to $1 USD — potentially cutting hundred of billions in yen-earnings for Sony — the balance has largely shifted this year, putting the exchange rate closer to 100 yen to $1 USD.

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