Sony’s shift towards premium TVs has resulted in lower sales and flat profits
Is it the right strategy or will this be a repeat of Mobile?
Over the past few years, Sony has been shifting its electronic product portfolio away from entry level devices for sake of marketshare towards more premium products that bring with them higher profit margins. TV, a division that was once responsible for staggering losses, has since stabilized in part due to this strategy. However, you don’t need to go to business school to know that the more costly a good, the fewer are likely to be sold and that’s exactly where Sony finds itself.
Sony CFO, Hiroki Totoki:
FY18 Q2 sales decreased 9% year-on-year to 274.9 billion yen primarily due to a decrease in unit sales of televisions reflecting a focus on profitability. Operating income of 24.5 billion yen was recorded, essentially flat year-on-year, as profitability improvements resulting from a shift to high value-added models were offset by the impact of foreign exchange rates and lower sales.
Compared to to 2010, the height of sales where Sony shipped 22.4 million LCD TVs, shipment is down nearly 50% to an estimated 11.5 million for FY2018. For comparison, Sony managed to sell 2.8 million TVs this quarter while Samsung sold 8.9 million.
Now I’m not a proponent of selling units for the sake of volume, revenue, or marketshare, something that’s vindicated by Apple who sells phones, tablets, and computers in large numbers while maintaining their premium position. Even if we consider Apple an outlier, another market worth looking at is the PC market which saw vendors drive prices into the ground in hopes of making up profits in sheer volume. Ultimately, this viciousness set consumer expectations to think a PC should cost no more than $500 and drove many players out of the industry, including Sony’s own VAIO.
My argument isn’t that Sony should focus on the sub $1,000 TV market, but I also can’t help correlate their current TV strategy with their Mobile strategy which eventually decimated the division. For years, Mobile was growing, mainly because Sony offered phones at all different price ranges, but despite their volume, the division was losing billions of dollars. Eventually, Sony began to phase out their entry level lineup and focused primarily on their premium tier and this worked for a while. Sony Mobile lost tremendous marketshare, but in the process stopped the cash bleed and even managed to squeeze out a small profit here and there. But that strategy can only work for so long.
At some point, you need shipments to stay at a certain level in order to cover basic overhead costs like R&D and employee salaries. With their current trajectory, Mobile, which is back to losing money again, is not only dragging Sony down, but also losing marketshare at an accelerated rate.
For Sony, TVs aren’t there yet because each unit sold enjoys a higher profit margin than their smartphones, but if sales continue to shrink, how long before Home Entertainment & Sound, which encompasses TVs, falls victim to what happened with Mobile Communications which is responsible for Xperia phones?
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