Sony Splinters Apart -- Which Could Be a Good Thing

NEW YORK (TheStreet) -- Sony (SNE) consists of some divisions that are spectacularly successful and others that are spectacular failures. The result is usually "meh." But a big shakeup is in the works.

The company reported what seemed like a great December quarter from Japan early today. Sales were reported at $22.979 billion, up 24% from a year before, and operating income was reported at $860 million, up 94.6%.

But Sony admitted this was due entirely to the yen, which fell from an average value of ¥81.2 to the dollar a year ago to ¥100.5 to the dollar this year. On a constant currency basis, sales were up only 5%. And the great December quarter was due to a single, hot product, the PlayStation 4 video game machine. Game sales were up 33% on a constant currency basis, with profits of $172 million, even after a $59 million write-off of some old PC game titles.

So, on balance, "meh" again. Or maybe "yech."

That's because the full year ending in March should see a nearly $300 million shortfall, rather than the roughly $300 million profit Sony had been anticipating before its latest earnings release. The company could lose $1.1 billion in all.

Shares actually fell on the release, with the ADRs trading in the aftermarket at around $15, down nearly $1 per share from their closing price the day before.

Asked about Sony in October with the shares trading near $20, our own Jim Cramer said "I'd take a pass on that one." He seems to have been right.

The big news came in a separate release, where CEO Kazuo Hirai, who previously headed the gaming unit, said Sony will sell its money-losing PC business and carve out the TV business into a wholly owned subsidiary, cutting 5,000 jobs by the end of March.

The Vaio PC unit will be restructured through an investment company called Japan Industrial Partners, with the hope that a sale will be complete by the end of June. Sony will contribute 5% of the new company's operating capital, and it will hire just 250 to 300 of Sony's current employees in areas like planning and design.

When you take out PCs and TVs, Sony becomes an investment again. The PlayStation franchise is very profitable. Sony Music is the world's second-largest music publisher. Sony Pictures is the fourth-largest movie studio by market share. Its TV unit is the dominant producer of game shows and other daytime TV, and it has a vast library of re-runs acquired from a variety of producers going back to the 1950s.

Analysts had been hoping that the company would sell the studios, but it seems that Hirai has decided to keep what's making money and finally admit defeat on the things that were losing money.

This is realism; in Japan, it passes for progress.

A year ago, when analyst Brian Weiser suggested Sony sell Sony Pictures to CBS (CBS), he estimated the studio's value at $10 billion. The Sony brand remains valuable.

The gaming franchise is also valuable, especially in Japan. Sony smartphones are selling, and Sony is not abandoning the tablet market. At its present price the market cap of Sony is about $16.5 billion. The value of the profitable pieces of the company would appear, to some analysts, to be more than that.

This may be why, of 20 analysts following the stock, six still rate it a buy and the average rating is "overweight." Hope springs eternal when a company has assets with value.

Sony has assets with value. Whether Kazuo Hirai will ever realize that value has been the question.

Based on the latest news, Hirai is moving in that direction, which can't be anything but positive. After two years in charge at Sony, Hirai seems to have finally figured out what he can do, what he can't do, and the difference between the two.

If that realism in the executive suite can be turned into more decisive action, maybe there is hope for Sony yet.

 

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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