Japanese electronics and entertainment group Sony has today shocked the markets by reporting a net profit of Y43bn ($435m) for the year to March. That’s quite the turnaround from the Y457bn loss just a year earlier. And things are looking up for 2013 too, with Sony predicting a 16% rise in profits for the year to Y50bn.
But unless MT blinked and missed something, Sony hasn’t released an electronic marvel to rival the iPad, it hasn’t made inroads into the untapped market of Smell-o-Vision – so where has all this cash come from? Ah, yes, restructuring. The business parlance for ‘slashing the company down to size, cutting jobs and selling off rotten parts of the business’.
Over the last year, Sony has axed 10,000 jobs (6% of its workforce), and shrunk its loss-making television manufacturing business. It has also sold its $1bn New York headquarters.
But the company’s success is not all down to ‘slash and burn’. Sony has received a sizeable boost from the weakness of the yen, which has lost almost 20% of its value against the dollar and euro compared with the same period a year earlier. This has made Sony products much sexier to overseas suppliers. As a result, Sony turned a profit of Y94bn in the last three months, compared with a Y255bn loss a year earlier.
However, the picture of Sony’s success is still a bit fuzzy around the edges. Its TV business, once the dominant supplier of tellies to the world, is not keeping pace with its South Korean and Taiwanese rivals and continues to haemorrhage money. Its consumer electronics loss in the year to March, of Y84bn, was however 60% smaller than a year earlier.
The benefits of restructuring have a sell by date, unfortunately. Once the process has been completed, the company won’t be able to boost its balance sheet through cost savings; it’ll have to actually make lots more money. But as long as Japan's prime minister Shinzo Abe continues driving down the value of the yen (coining the term 'abenomics' in the process), it'll still maintain a currency advantage.
This uncertainty has prompted a move by 40 of Sony’s senior executives (including chief executive Kazuo Hirai) to forfeit bonuses worth 30-50% of their pay. It’s a kind of corporate hara kiri after they failed to keep a promise to return the TV division to profit.
The saving grace of the Sony empire remains its mostly unknown Japanese banking and insurance division. Last year, this financial arm earned a profit of Y149bn, three times more than the next most profitable division, its US-based film studio. And unless the clever bods in R&D have some game-changing new electronics in the pipeline, it looks like Sony’s reign as electronics giant supreme is well and truly over.
Like this? Read 'Sony: all chewed up?'