Sunrise for Sony

Sony Corporation manufactures audio, home video game consoles, communications, key device, and information technology products for the consumer and professional markets. The Company's other businesses include music, pictures, computer entertainment, and online businesses.

Sony is a world-class electronics brand and entertainment conglomerate with a range of leading products in AV equipment, games, movies, music and finance. Sony has underperformed its peers markedly over the past six months, due to declining revenues in its Mobile Communications segment and Semiconductors segment - primarily as a result of weaker smartphone demand; and larger promotion expense which dragged down the profitability of the Game & Network Services segment.

The recent announcement that Daniel Loeb’s hedge fund Third Point is building a stake in the company (after a successful exit in 2014) as part of an effort to sway its corporate strategy, and is pushing the company to explore options for some of its business units, gives us faith that an improvement may be on the horizon.

However, it is important to note the following trends. Digital appliance businesses, especially handset businesses, are extremely competitive, and so Sony will be unable to generate sustainable excess returns from them. Because of overcapacity and depreciation of the U.S. dollar, Sony will fail to regain profitability in the image sensor business. As the PlayStation 4 and PlayStation VR are too expensive, people will be more interested in the AR experience provided on smartphones.

Source: Bloomberg, Morningstar Research