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