Sony today full year results for FY2009, and reported revenue of yen 7,730 billion (down 12.9% in the year). This sharp decline in revenue is attributed to weakening of the consumer market and due to a strong local currency. Still, it is not common in the technology industry that we see such strong downturns in the top line figures. Operating loss amounted to yen 227.8 billion (down from an operating income of 475.3 a year ago). Given the overall weakness in the results, Sony delivered a net loss of yen 98.9 billion for the year, which is down from a net income of yen 369.4 billion in 2008.
The Japanese industry is in a tough position. The yen is very strong, while the Korean won is weak. This gives the Korean electronics industry a competitive advantage in export markets over the Japanese companies as their profit margins increase due to favourable exchange rates. As we commented in Samsung's latest results, this is what is called "bugger thy neighbour". Wealth within a country is created by keeping its own currency low so that imports are made more expensive while exports are made cheaper.
The Electronics Group bore the brunt of the downturn. A year ago the Bravia business unit forecast sales of 17 million units for the next year, up 70%. We commented that this could be difficult to manage for Sony given the looming economic downturn. Through the year Sony had to revise down its Bravia forecasts and ended the year with 15.2 million units sold. We suspect that Bravia TVs contribute to a net loss for Sony normally, so given the troubled year the TV group has gone through we suspect that loss contribution has widened. Overall sales for electronics was down 17%, and an operating income of yen 441.8 was turned to an operating loss of 168.1 billion. On the positive side, Blu-ray did better than we expected, with shipments of 500,000 Blu-ray recorders and 2.2 million Blu-ray players. Sony is also optimistic about its Blu-ray outlooks for next year, where it expects to ship 3.5 million Blu-ray players.
The Game Group is, as most have caught onto, in trouble. Sales amounted to yen 1,053.1 billion which is down 18% from a year ago. The bright spot is that the operating loss decreased from yen 124.5 billion to only 58.5 billion. The decrease of losses for the group is due to cost reductions on the Playstation 3 (and that the PS3 still sells in relatively modest volumes, thus containing the overall losses) and uptake of PS3 software sales. We suspect that the haydays of Sony selling 20-25 million of a game console per year are over for the time being. The long time star Playstation 2, which used to sell in 20+ million units a year, is in sharp decline, both in terms of hardware and software sales. Our key concern with the PS3 is that Sony is focusing on short term profitability. Shareholders do of course need to be satisfied, however, with the current pricing of the PS3 and lack of non-gaming element development, Sony runs the risk of alienating game developers away from the platform and over to Microsoft, Nintendo, and Apple. Yes, Apple is a likely contender to Sony's gaming empire. The most popular category on the Iphone application store is games. Apple is helping game developers monetise their developments, which is exactly what game developers want from manufacturers. The Iphone is not a direct competitor to the PS3 (more a competitor to the PSP), however Sony executives should be concerned if Apple turns an Apple TV type product into a gaming platform. Sony needs to accept that it got the design of the PS3 wrong, take the loss, keep game developers and customers happy so that for the next round it still has the loyalty of the developers and customers in place. Instead, now, Sony risks alienating the very people that create value for their platform and the ones that ultimately buy their products. Where will developers and customers go? Microsoft, Nintendo and Apple.
