Sony Corp. (NYSE: SNE) called the firing of 1,000 people at its mobile phone business part of a grand plan. Kunimasa Suzuki, the president of Sony Mobile, said:
We are accelerating the integration and convergence with the wider Sony group to continue enhancing our offerings, and a more focused and efficient operational structure will help to reduce Sony Mobile’s costs, enhance time to market efficiency and bring the business back to a place of strength.
The truth is very different. Sony’s handset unit, until recently jointly owned with Ericsson AB, is on its last legs. There is no particular shame in that. The company is part of that lengthening list of ones that cannot overcome the popularity of products from Apple Inc. (NASDAQ: AAPL) and Samsung. Competition will only become more difficult when the iPhone 5 is released next month. And Sony has no highly successful businesses to fall back on as it tries, almost certainly without hope, to become a force in smartphones.
Sony is in retreat across a number of its businesses. The only ones that do well, occasionally, are its financial services and studio operations. Sony management must know now that the deal it set to buy Ericsson’s interests in the cellphone venture last year was a bad one. Everyone in the industry admits the sector is too crowded, but each competitor believes that it will be the one, the only one, that can take on the two front-runners. Time after time, as quarterly results are released by these firms, their smartphone sales are down, revenues fall and losses grow.
Sony’s new management has yet to pick an area of ground to make a stand. Its video game business is backed by brand loyalty and a large customer base. It TV businesses are doomed because of the number of competitors and poor margins. Sony is only a small presence in PCs, and Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Co. (NYSE: HPQ) recently posted earnings that show that even the market leaders in the industry are in trouble.
The cellphone business is the last place Sony should look to as part of a new foundation for the company. The 1,000 layoffs at its mobile operation are only the beginning of what will need to be an exit from the sector.
Douglas A. McIntyre
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