Sony Corp (ADR) (SNE)

Let’s think of Sony not only in terms of the Playstation brand. Sony is well diversified electronics maker with businesses ranging from TV, PCs, cameras, and even financial services. So let’s take a look at it’s prospects in terms of profitability, management and growth potential.

1)   Profitability: Sony has been losing a lot of money in the past couple years, but only recently have started to turn around. Operating margins for this year is estimated to be 5% compared to the Wall Street’s estimate of 4%. In addition, total revenues are up by over 10% and net profits are considered to rise by a good amount as well. The cybershot, ericsson, vaio divisions are all doing very well as well as their financial division which had one of the biggest stock offerings in Japan. The Bravia TV division has not grown as much, but their recent addition of low budget HDTV to be sold in places such as Walmart, Kmart & Target should help increase it’s market share and compete with cheaper priced TVs from Vizio, Olevia and LG. Additionally, Sony Pictures has once again started operating at a profit, considering it has been bleeding money for the past couple quarters. The huge money hog is the highly publicized Computer Entertainment Division, which is still losing tons of money on each PS3 unit. However, it’s important to note that the PSP and PS2 are both selling more than the 360’s worldwide, and the PS3 has outsold the Wii in Japan for the month of November, and NPD has released data that the PS3 has increased in sales by over 250% and is gaining on the market share held by the Wii and 360. The downside still is that software sales, where console makers make their most money, is still very slow for the PS3 with their lack of major hits this year.
2)   Management: Howard Stringer has envisioned a “unified sony”, which is the same pitch he made as his predecessors. However, he has been more successful than those before him…although not as much as we would like to see. First he streamlined Sony to get rid of its unprofitable divisions, such as the lovable Aibo robots. Now he’s trying to actually bring the different divisions together such as the cybershot and bravia with the ericsson, the PS network with the sony pictures and such. The only problem is that with ever increasing competition, Sony needs to hurry up if it wants to claim any significant market share. Sony’s management seems to have been too arrogant in the eyes of many consumers, but the recent set backs seemed to have straightened them out a bit. Frankly put though, Sony’s management is not the bright spot in this company.
3)   Growth Potential: Sony has huge growth potential. While they missed the ball on the music download cycle, video download on the other hand does not have a clear market leader and is still very much immature. If they are able to get on top of the “Sony United” plan which Stringer has been pushing for, Sony is perfectly positioned to utterly dominate that market and have a huge rebound like Apple did with the iPod and iTunes. Sony is a huge player in electronic hardware from MP3 players, PCs, cameras, TVs, video gaming, movies and music publishing, etc…which leaves them at a huge advantage compared to the other major players in this digital revolution such as Microsoft, Apple, Yahoo. Whether they can efficiently leverage this power is another question. Sony has been aggressively trying to make all of their products be able to connect to their yet developing Playstation network, which if it all works out will be huge. Their early attempts include, the PSP being able to play PS3 games, movies, and music remotely as well as accessing the PSN. In addition, the PSP can serve as a GPS navigator to video downloader in Japan. Sony has recently allowed their PSN to be accessible through the web and is now in the processing of allowing their bravia TVs to connect to the network via wifi as well. Imagine where all Sony products can connect to a global network and access the PSN at will and upload, download, trade pictures, videos, games, etc. This is all within the reach of Sony…one problem, their management isn’t really capable of pulling this off in time.

Overall though, I'm bullish on Sony over the long term. I bought sony back @ $32 and 42 couple years back and will keep holding onto this for awhile. This is a long term investment.