In 1950, post-war in Japan, Ibuka and Morita created Sony’s first hardware device, a tape player/recorder called the G-TYPE recorder. Materials were in such high demand that the first tapes were made of paper with hand painted magnetic material applied by Sony’s first engineers. In January 1958 the name Sony Corporation was adopted and has been used ever since.
Sony has launched many items over the years which have changed individual’s everyday life. In 1979 Sony launched to first stereo cassette player known as the “Walkman” to the market. Soon after in 1982 the first CD player was launched and in 1985 the eight millimeter camcorder hit the market. The success of all these electronic items positively affected Sony Corporation’s stock price. Some other products that Sony has produced over the years consist of: LCD televisions, projection televisions, CRT-based televisions, personal computers, printer system, broadcast and professional use audio/video/monitors and other professional-use equipment, batteries, audio/video/data recording media, and data recording systems.
Inserted below is a visual of Sony Corporation’s stock price movement from 1983 thru 2009:
(Yahoo! Finance)
As illustrated, Sony’s stock price has grown greatly since 1983; on April 6, 1983 Sony’s stock price was sold for $4.28. Sony hit its peak on February 29, 2000 when its stock sold that day for $150. Shortly after on May 25, 2000 Sony Corporation’s had a 2:1 Stock split. The anticipation of the stock spilt increased the value of Sony Corporations stock greatly however, after the stock split the stock price gradually decreased. Also as shown, Sony’s stock has constantly dropped since its 2000 peak. February 23, 2009 marked Sony’s stock price’s all time low since its peak in 2000, closing out at $15.72.
FINANCIALS
Sony Corporation has taken a hit financially. Sales decreased and losses were recorded due to factors including the slowdown of the global economy. Inserted below is a visual of Sony Corporation’s income statement (the Total Revenue and Gross Profit sections) period ending from 2007 thru 2009:
(Yahoo! Finance)
As illustrated Sony’s revenue at period ending decreased by $9,982,353 from March 2008 to March 2009 also, Sony’s gross profit decreased by $5,042,830. Therefore, Sony Corporation is having some difficulty earning profit due to the recession.
For the electronic section of Sony sales decrease by 17.0 percent which is said to be the negative impact of the appreciation of the yen against the U.S dollar and euro. For the game section there was a decrease of 18 percent year on year. The hardware for the game section overall decreased as well as the software for the hardware Sony sells. Sales of Sony’s Picture section decreased by 16.4 percent primarily due to the lower home entertainment revenues of new release and catalog products. The Financial Services of Sony decreased 7.4 percent year on year due to the decrease in the revenue at Sony Life. Lastly, the All Other section of Sony increased 41.2 percent year on year. This increase was primarily due to the fact that the results of Sony BMG were consolidated by Sony.
During the fiscal year end March 31, 2009, with respect to all segments excluding the Financial Services segment, the major cash inflow factors included a cash contribution from net income. This was however after taking into account depreciation, and decreases in notes and accounts receivable. It exceeded cash outflow which included decreases in notes and accounts payable. And the Financial Services segment generated net cash mainly from an increase in revenue from insurance premiums reflecting a steady increase in policy.
FUTURE RISK
The forecast of future growth for Sony Corporation is based on management’s current expectations and is subject to uncertainties and changes. The risks and uncertainties which might affect Sony are:
- The global economic environment which Sony operates – particularly levels of consumer spending as well as the recent worldwide crisis in the financial markets and housing sectors.
- Exchange rates – particularly between the yen and US dollar, the euro and other currencies in which Sony makes significant sales.
- Their ability to continue to design and develop and win acceptance of its products and services in their highly competitive market.
- Their ability and timing to recoup large-scale investments required for technology development.
- Their ability to implement successfully its networking strategy for its Electronics, Game and Pictures segments
- Their ability to secure adequate funding to fiancé restructuring activities and capital investments given the current state of the global markets
- The outcome of pending legal and regulatory proceedings
- The impact of unfavorable conditions in the Japanese equity markets on the revenue and operating income of the Financial Services segment.
FUTURE GROWTH
Sony Corporation has announced a series of measures designed to improve its profitability and drive future growth in response to the deterioration of the global economy. There are three areas which Sony would like to focus on. First, structurally reform Sony’s core electronics operations to better compete with its best in class peers in terms of speed to market and profitability. Second, continue margin improvement activities to lessen the impact of the weak economic profile of key markets. And third, accelerate the integration between products and network services by leveraging the combined strengths of Sony’s electronics and computer entertainment operations.
With the changes above in mind Sony Corporations expectation for future growth is broken down by the four segments of Sony: Electronics, Game, Pictures and Financial Services. To begin, the Electronic segment does not have sight for future growth. It’s expected that a decrease in sales is expected mainly due to the continuing weakness in the business environment and the impact of the appreciation of the yen against the U.S. dollar and the euro. Regarding operating income, Sony is expecting to reduce manufacturing costs and operating expenses. With these reductions in costs Sony expects to slightly increase their overall operating loss due to the increase in restructuring charges.
Regarding future growth for Sony’s Game segment is slim to none. There is an expected decline in sales and is expected to negatively impact the appreciation of the yen. However for the Picture segment of Sony, the company anticipates higher revenue and operating income as a result of a greater number of major films to be released. Lastly, regarding future growth in the Financial Services segment, Sony anticipates an increase in revenue and significant improvement in operating profitability.
UPCOMING DATE
Sony Corporation has commercializes world's first TransferJet Compatible LSIs. As of November 30, 2009 the consortium consists of 19 promoters and 22 adopters. TransferJet is a close proximity wireless technology enabling a high speed data transmission rate of 560 Mbps and eliminating major issues of current wireless technologies such as complex initial setup, unstable transmission or the need for access points. TransferJet has adopted an intuitive interface consisting of simply bringing two products in close proximity. For example, one can display a picture simply by touching a digital camera to a TV, or transfer music files just by holding a cellular phone over a portable audio player. This technology is expected to be widely utilized as a high-speed universal interface connecting a variety of consumer electronic products. This is the world’s first product of its kind therefore issue are most likely to surface when it first hits the market although, this could be what Sony Corporations needs to help their quarterly revenues increase.
COMPETITION ANALYSIS
Sony Corporation’s main competition is the Electronic Equipment industry. Illustrated below is a visual of Sony Corporation verse the Electronic Equipment sector for the single day of November 27, 2009:
(Yahoo! Finance)
As illustrated Sony and the Electronic Equipment sector move in the same direction and at the same pace. Other industries which affect Sony Corporation are:
- Consumer Electronics
- Banking
- Computer Hardware
- Computer Peripherals
- Metal ores
- Computer Displays & Projector
The two main competitors who affect Sony’s yearly revenue are: Panasonic Corporation and Koninklijke Philips Electronics. Inserted below is Sony’s direct competition comparison:
(Yahoo! Finance)
As shown, all three companies are seeing the effects of the recession. The industries quarterly revenue growth is are six percent; however Sony, Panasonic and Koninklijke all have negative revenue growth.
Panasonic Corporation manufactures and sells electronic and electric products, systems, and components for consumer, business, and industrial uses worldwide. Like Sony, Panasonic Corporation has seen a decrease in total revenue and gross profits. Panasonic Corporation’s stock price has decrease also drastically since 2008.
Koninklijke Philips Electronics products and comprise televisions, electric shavers, female depilation appliances, hair care and male grooming products, wakeup lights, and kitchen appliances. Also, home and portable audio and video entertainment products, including MP3 and MP4 players, and docking stations; and peripherals and accessories consisting of headphones, portable audio accessories, and remote controls just to name some of their products. Koninklijke Philips Electronics however, is seeing less of a hit to their total revenue and gross profits but they still have losses.
The competitors who are a concern to the success of Sony Corporation are being hit by the recession as Sony is. The recession is affecting the companies more than their competitors are at this point.
BUY/SELL PRICE TARGET
(Yahoo! Finance)
According to analysts of Yahoo! Finance one should purchase Sony Corporation when the stock price is at $31.50. Yet, the stock price as of November 30, 2009 is $ 26.69 which is $4.81 lower than the recommended purchase price. The analysts also said that Sony Corporation should be sold at $34.30. With the economic recession present and the sensitivity of the sector, Sony should not be purchased at its current stock price.
RECOMMENDATION
I recommend that the Lancer Student Investment Fund should sell Sony Corporation. After researching and analyzing Sony’s history, I found that the 150 shares have already hurt the portfolio and keeping the shares has great risk. I came to this conclusion partially for the fact that the financial sector, consumer discretion, tends to be the most sensitive to economic cycles. However, I also looked at their income statement, balance sheet, key statistics and history before I came to my conclusion to sell Sony Corporation.
Inserted below is a visual of Sony Corporation’s stock price movement from Monday, November 16th through Friday, November 20th:
(Yahoo! Finance)
As illustrated above, Sony Corporation’s stock price dropped about four dollars in five days. The student investment fund purchased Sony Corporation at $46.81 per share, the current price of Sony as of November 20, 2009 is $26.80. Therefore the fund has suffered a loss of $20.01 per share equaling a total loss of $3,001.5 to the portfolio.
The large drop in stock price for Sony should not be the only reason to sell the portfolios shares; however, since January 2008 their stock price has continuously dropped. The stock price since January 2008 only recovered its losses once in June 2008 and since then only has managed to recover its stock price to about $30 per share. With that Sony’s overall revenue as of March 1, 2008 was $89,344 however, as of March 1, 2009 Sony’s revenue has dropped to $79,456.
The Beta for Sony Corporation is also too high, at 1.62. Inserted below is the stock price history for Sony Corporation:
(Yahoo! Finance)
As shown above the beta is very risky which is good for some investors however, with this high risk does not come the expected high returns as wanted. Also the 52-week high and low has a difference of $15.18. This wide different in price illustrates that Sony Corporation is not stable.
Sony Corporation has had a constant decrease in stock price due to the recession and competition therefore; the Lancer Student Investment fund should take a hit and sell their 150 stocks at the current price. Selling these shares will open up the opportunity to purchase shares in different sectors of the market. Ideally recession proof sectors such as: Health Care, Utilities and Consumer Staples.
CONCLUSION
Sony Corporation’s transformation will not be a one-time restructuring, but rather an ongoing process of driving growth, efficiency and innovation across their businesses. With improved operating performance and cash flow, a lighter asset base and a stronger software and network infrastructure, we will be in a solid position to strengthen our core businesses while offering new alluring products that will beckon to our customers. However, the forecast of future growth for Sony Corporation is based on management’s current expectations and is subject to uncertainties and changes.
The Consumer Discretionary sector is highly sensitive and should benefit from a gradual economic recovery although the lingering uncertainty regarding the slope of the recovery leaves the success of the Consumer Discretionary sector unknown. Therefore, as the recession continues and more jobs are lost the amount of money individuals choose to spend on unnecessary goods will decrease. The money that individuals do have will be spent on the necessities of everyday life which will hurt the Consumer Discretionary sector. So, depending on how risky an investor one is, selling Sony Corporation at this time could increase the portfolios return in the future.
WORK CITED
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Fidelity Investments. Web. 22 Nov. 2009. <https://www.fidelity.com/>.
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Yahoo! Finance - Business Finance, Stock Market, Quotes, News. Web. 22 Nov. 2009. <http://finance.yahoo.com/>.
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Sony Global - Sony Global Headquarters. Web. 29 Nov. 2009. <http://www.sony.net>.