A Closer Look at the Sony Mobile Q3 2015 Results

Earlier today, Sony reported their Q3 2015 results which were mostly up, thanks largely in part to their entertainment divisions, PlayStation and Sony Pictures. Mobile continues to be a struggle for Sony (and most other smartphone makers) and in turn, resulted in another quarter with losses. The only bright side was that operating revenue grew by 133% to $201 million for the division. That’s due to Sony working hard at reducing the number of phones they offer while ensuring that the models they do sell are more premium, and in turn, more profitable per unit sold. According to Sony:

 a shift to high value-added models, as well as reductions in costs including marketing, research and development 

was the key reason for the higher operating revenue. Ultimately though, because of their focus on more premium models, there was

 a significant decrease in smartphone unit sales resulting from a strategic decision not to pursue scale in order to improve profitability 

which resulted in a revenue decline 14.7% to 384.5 billion JPY ($3.2 billion).

More details on the Sony Mobile Q3 2015 results, including more charts after the jump.

A quick heads up. All charts can be clicked on to viewed in much more detail.

Q3 FY2015 (year-on-year)

  •  Sales: 14.7% decrease (FX Impact: -2%)
    • (–) Significant decrease in smartphone unit sales resulting from a strategic decision not to pursue scale in order to improve profitability
  •  OI: 13.8 bln yen increase (FX Impact: -18.8 bln yen)
    • (+)  Improvement in product mix reflecting a shift to high value-added models
    • (+)  Reductions in marketing, R&D and other SG&A expenses
    • (–)  Decrease in smartphone unit sales
    • (–)  Negative impact of the appreciation of the U.S. dollar, reflecting the high ratio of U.S. dollar-denominated costs

FY2015 FCT (change from October forecast)

  •  Sales: 50 bln yen downward revision
    • (–) Expected decrease in smartphone unit sales
  •  OI: Remains unchanged from October forectas
    • (–) Decrease in sales
    • (+) Higher than originally anticipated selling prices of smartphones
    • (+) Additional cost reductions

Ultimately, things are not going well for the division. Sony was able to sell 7.6 million units during Q4 2015 compared to 10 million units in Q4 2014. In fact, we have to go as far back as 2011 to find a lower Q4 shipments as well as total units shipped. Sony now thinks they’ll ship 25 million smartphones in the full financial year (different from physical year) versus their original forecast of (27 million) which translates to 7% lower sales.

It’s now likely that Sony will ship around 3.5 million units in Q1 2016. You’d have to once again go back to 2011 to find a quarter with such low volumes. If there is a silver lining, it’s that despite lower sales than Sony expected, the company has been aware and actively lowering their own sales by offering less devices, especially at lower tiers which is where volume tends to be achieved. Consequently, thanks to more premium devices like the mid-range C5 Ultra and the flagship Z5 series, operating revenue has been increasing.

This, along with Sony’s reduction in R&D and hopefully more future reliance on whatever Google pushes out with Android (which once again translates to less work from Sony to skin the OS), should hopefully help the division towards profitability. The only question that remains is with smartphone markets maturing, is there room for Sony to sell more premium devices, even if it’s by a few million units more?

Update:

As I pointed out on our overall piece regarding Sony’s Q3 FY15 results, due to slipping sales from their mobile arm, Sony’s image sensor businesses is also taking a hit because of lower volume of sensors shipped. Consequently, the lower the volumes shipped, the higher the cost of each of those sensors. In addition to lower volumes from their own mobile division, many other smartphone makers are seeing their sales slip like HTC, LG, and Motorola to name a few. Because of this, it’s important for Sony that their mobile division pump out some sort of volume or it could really impact their money-making image sensor business even more.

Discuss:

Do you think Sony Mobile is headed on the right path?

[via Sony]

  • Malek Mangus

    It is nice to see that Sony is on the path to sustainability with their smartphone
    segment. I think what you call the only bright side with their result is the biggest news here. Sony achieved to grow their operating income by 133 per cent while their revenue decreased by 14. This really shows that their strategy of focusing on fewer sales and maintaining profitability is truly working (next
    quarter will have a loss due to seasonality effects). Why not give credit where credit is due and acknowledge that their strategy is working? :)

    A side note, by exiting markets which aren’t profitable, Sony is much better equipped to defend the markets where they are healthy now when they don’t have funnel resources to grow market shares in other regions.

    Ps. I think you have written revenue instead of income/profits in the beginning of the text.

  • But here is the problem Malek, Sony doesn’t have any markets to defend. For context, Apple sold my iPhone 6s units in their launch weekend (48 hours) than Sony sold their entire quarter. That means that Sony isn’t number 1, 2, 3, or 4 in any territory. As sales of smartphones are beginning to mature, I’m not convinced there is much left for Sony. It’s almost a Microsoft story where the mobile ship has passed at they were too late.

    Because profits aside, lets say Sony could turn the division profitable, in order for Sony Mobile to matter, they need to ship some real volume BECAUSE so much is tied into the mobile ecosystem. If it was just a matter of profits, then sure, if they can sell low units and make a profit, why not. However, so much of our life is tied to mobile. From our smart home features to our watches, and now car nav units, the phone is the central key. To not have a meaningful marketshare would mean that Sony Mobile becomes just an accessory maker like FitBit with their SmartBands etc.

    And perhaps that’s ok and that’s their future?

  • Malek Mangus

    I don’t think you need to compare the struggles Microsoft are in with Sony’s and your argument about market share is in my opinion misplaced. Microsoft needs market share in order to attract developers to the platform. Sony belongs to android’s ecosystem and as long as the platform is healthy they will get supported by developers. You can be a very successful car manufacturer with a very small output of cars per year as long as you don’t need to build your own roads and gas stations. There are even examples where a small ecosystem can make it, eg. the mac which is now very healthy profit wise.

    Secondly, Sony do have market share in regions in Europe. I believe they are third in my country, but more importantly they have a larger market share in the high end to defend which is the bracket they want to be in. I think they are second in Japan which is the third biggest economy counting countries, not bad at all.

    And to answer your question; yes, if they stay in the business they will be a small player in the smartphone arena but it is ok since they are part of a bigger ecosystem and will get supported. Selling 20 million phones per year is fine as long as they don’t lose money on it, if they do the investors are going to put pressure on Sony to shut it down regardless of how many phones they are selling. The very near future will be interesting to watch since several big players are struggling (sony, lg, htc, Motorola in its different shapes and forms, Samsung is squeezed) and the Chinese manufacturers expansion cannot continue without getting into problems soon.

  • Here is a few problems, Android in itself isn’t a healthy place to be. Almost nobody outside of Samsung is making money in mobile and even they are struggling. But outside of that, context is very important. Sony isn’t even in the top 5 handset manufactures anymore. So while they might be second in Japan or any other country in Europe, it’s not the places that matter. It’s not France, it’s not UK or Germany. And even if they were, the fact that they shipped 7.6 million units is telling. Even if they were number one in all of Europe and Japan, selling that few handsets is pointless because you’re never reaching true scale, even if it profitable.

    The thing that I argue is that Sony needs to decide how they envision the next 10 years. As it stands, everybody but Apple and Samsung have lost the mobile war. They own no real stake with such low volumes. But like 10 years ago, mobile is the hub of our world. Again as I argue, none of our watches or smart home features etc. would work without a mobile device. Sony needs to decide if they want to be part of what controls these devices in which case Xperia needs to do far more volume to be a player or do they want to be part of what attaches on to the hubs, aka make the accessories that work with what everybody else making. From what I can tell, it’s the latter, seeing how all of their first flight products like the WENA Watch and Qrio Lock etc. all work with iOS only at this time.

    But to address the last part about how Sony’s own mobile division is impacting their Devices segment which accounts for image sensors, this is directly from Sony:

    “Lower than expected sales of image sensors and camera modules reflecting a decrease in demand for mobile products”

  • Malek Mangus

    Thank you for your long and interesting reply and I agree on the many things you talking about here, especially on how toxic android is for the manufacturers. I think Sony themselves acknowledged in 2014 that they wouldn’t be a major player in smartphone business and therefor changed their strategy to scale back its efforts. It seems we have different views on if Sony has a strategy or not but I guess we have to agree to disagree here. It is also a business that is very capital intensive which could go really bad, really quickly and putting the whole company in financial risk. Some changes have been seen 2015 but it is this year the changes truly will translate into the results. Let’s see how it plays out, personally I am far more optimistic about their smartphone business now than I have been for years, smaller yet more stable. I followed Nokias attempt to enter the US with their Lumia-line very closely and saw how utterly impossible it was to enter the market where the carriers are the phone-customers, not the end users. That puts the carriers in control and the manufacturers in a position of weakness. So in my mind Sony having any success entering the US have been but a dream (unless they tied it to their PlayStation services in a really clever way which truly connects with the PlayStation-audience).

    Reaching scale among the consumer’s mindshare is far more important than from components manufacturers. When you buy components by the millions you have the required figures to push down the price, you don’t need to sell hundreds of millions in order to achieve that. A bigger customer will however get prioritized. Being a default go-to-brand is far more important and sustainable than trying to win over new customers which brings me to my earlier point that Sony should focus on markets where they are strong and where they already have a strong mindshare (Europe, Japan). The smartphone war is over and Sony have lost, we are in an agreement. That doesn’t mean however that they can’t be making and selling great phones successfully, albeit in limited sales number, while waiting for the next big thing to happen (like their AR-glasses or smart home appliances). In time Sony might be able to take advantage of some peripherals in order to sell more phones like Apple have done with iOS and their macs.

    I do think it is time to let go of the idea that Sony will be a big player in smartphone business and instead appreciate what they are doing; building and selling great phones in smaller numbers. There is no point on dwelling on the past. It is a difficult business since it is connected to so many different players (retailers, carriers and their firmware, cellular frequency
    band for different countries), which makes it very entrenched and hard to enter. It is far easier building for example pc and selling them on a global market than for example smartphones. I would like to ask you a question, do you think that Sony should exit its smartphone business if they only sell them in smaller quantities but with a small profit?

  • Malek Mangus

    *a little bit off topic*
    I would like to add one last thing and that is I think Sony maybe is already on the verge to release the next big thing, which is VR. I read your article about the move of PlayStation headquarters from Tokyo to California, a very good read by the way. I would like to argue that the move most likely is because the soon to be launched VR-headset. It’s the possibilities with not only gaming but music, sports and movies that has led to change of location to the place where Sony have both a movie and a music studio. There is some serious synergy to be made there if executed correctly which I can see no other competitor can match. Exciting times, especially since there are so many things that has not been addressed yet by Sony about the PlayStation VR experience.

  • I think for the most part though, we agree on what a lot of people don’t want to admit, that the smartphone wars are over and almost everybody has lost. It’s time for most companies to stop pretending their next phone will somehow challenge Apple because it’s not just about a good phone, it’s about retail, it’s about marketing, it’s about carrier support and a fast global launch.

    And no, I would absolutely stick in the market. I think if anything, with so many companies getting decimated, it leaves an opening for Sony to expand. I would just be more aggressive because I think there is room within the Android market for a premium device maker, as long as there aren’t delusions of tackling Apple.

  • I think you’re absolutely right. Everything for VR which is gaming/entertainment and good software/services comes from the US. If Sony wants to leverage them and they’ve never been able to do that when they’ve only been a hardware focused company, than it makes sense for those divisions to be in the same country. Certainly makes working on this much easier and you’re culturally on the same page

  • Also, thanks much for being a reader and commenter. I always enjoy a good discussion/debate

  • RbbrDcky

    I can only imagine how frustrating Apple’s smartphone success must be to every other phone manufacturer! On paper, there’s no way that the iphone can hold a candle to most other (Android) phones released in the last year or two. Between enhancements to phones like multi-day battery life, wireless/rapid charging, enhanced durability, customizability, stereo sound/hi-res audio, etc, it’s crazy to think that the iPhone is even a contender, let alone the market leader, as it doesn’t have any of these things! How long can the iPhone fad seriously last?? Haven’t people gotten sick of buying virtually the same phone every year with higher and higher price tags? Why hasn’t the law of diminishing marginal utility affected Apple like it’s done every other manufacturer?? I attempted to use my friend’s iPhone the other day and that overly simplistic single-button interface drove me up the wall! I just don’t see the appeal.

  • I’ll give you a different take on it. When Apple chooses a technology, they want it to have the maximum impact with ease of use. For example, Apple introduced Touch ID which had a real purpose, use with Apple Pay, unlock your devices, purchase from iTunes, get into apps without password etc. And system wide it was supported. Now look at it on Android, some phones have it, some don’t. Most apps don’t support it. There is 18 different payment solutions and it’s garbled mess. You and somebody else could have the same phone but different carriers and your firmware could be a year apart, there for one of you has a feature and the other does not.

    Now, the issue is that with most of the things you mentioned, they simply don’t matter or are really crap technology. For example, wireless charging sounds cool, except it’s slow as hell. If you’re going to place something down, you might as well take the extra 3 seconds and plug a cable into it and have it charge 10x faster. Hi-Res Audio sounds nice except nobody cares. Most reviewers, including myself have listened to it and can’t tell the difference between Hi-Res Audio on good headphones and a high quality song on MP3. Even if you like Hi-Res Audio, who knows where you can get content for it and is that content compatible on any other device? Two day batter life doesn’t mean anything because most of us charge our phones at night anyway. Again, it sounds useful but more the majority of people, they don’t care and if they do, there is the iPhone 6s Plus. If they did, people would demand them. Stereo sound is a fantastic joke because the speakers are so close to each other on phones that you couldn’t even tell the difference or have the sound make a difference, other than to just be loud.

    But what does Apple spend time on? Camera where the iPhone 6 with a 8MP camera takes far better photos than a Z3/Z4 with a 21MP camera. The app ecosystem that is far richer on iOS with most features coming months ahead of Android. Same thing with security, privacy, and ease of use, etc.. I’m not arguing that the things you stated don’t matter but they don’t matter to enough people or the implementation isn’t good enough on Android and so people don’t buy into them.

  • RbbrDcky

    I get it. It’s just that the iPhone has way too many dealbreakers (price, proprietary connector, and the inability to set default apps are at the top of that list) for me to even consider it. And it just floors me that I’m in the minority in that opinion.

  • Malek Mangus

    Yes, we are in an agreement here, Apple has won the war. Glad to see that you want Sony to keep making smartphones even if they will not be part of Sony’s main focus. I too believe there is headroom for a premium alternative in the android ecosystem but the dust needs to settle first in the Android premium/middle smartphone-segment. Sooner or later there will be a backlash among other manufacturers that are still very aggressive in chasing market share. Sony was early in winding down and might be able to take advantage later on when all the restructuring is done (the ongoing quarter is the last one). However, I do think that Sony’s next big push will be VR in 2016 but their smartphone business might be able to take advantage of that later on with a gear-VR alternative (think remote play but with VR).

  • Malek Mangus

    Thank you for taking the time to respond in this great detail! Much appreciated.

  • Yea, Sony has actually had a long history AR with different apps on Xperia units and even games on PS3 and PS Vita. It will be interesting to see if there is some kind of play they can do with their mobile division and AR/VR. Either way, it’s good for them to be in VR so early on. You’ll see me talk about this in a post that’s coming out in about an hour or so which discusses the PS4 sales numbers and how it affects their VR ambitions.