Can Sony Reverse Declining TV Sales With Bravia Android Smart TVs?

NEW YORK (TheStreet) -- Sony (SNE) is confident its television business will turn a profit this year after a decade of losses, but industry trends suggest it may be easier said than done.

Masashi Imamura -- the head of Sony's new TV unit, which will become a separate subsidiary of Sony on July 1 -- told the media on Monday that he was "confident" the company's TV business would grow stronger as a standalone company.

Imamura said his company could better respond to market fluctuations after cutting fixed costs last year and handling expenses at distribution companies in the future.

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Imamura's confidence is a welcome change for Sony's struggling TV unit, but industry trends signal that diminishing TV sales may not be exclusive to Sony.

IHS Technology, which tracks sales trends in the television industry, was unavailable to comment on the decline of TV sales over the past decade, but did point to a study it released earlier this year.

The study shows that the U.S. television market experienced a 9% loss in unit sales last year due to low demand.

Low demand was attributed to market saturation. Consumers have little interest in buying new TVs after upgrading to high-definition, flat screen models less than 10 years ago.

U.S. TV shipments in 2013 declined to 34 million units, compared to 37.5 million units in 2012, the report stated.

"The TV market in the United States has reached a point of saturation following a period of huge growth in years past, especially as the flat-panel-TV craze set in," IHS TV analyst Veronica Gonzalez-Thayer explained in the report. "As a result of the market's maturity, and also because of lingering uncertainties in the economy, American consumers have been less eager to rush out and buy new replacement TV sets."

This finding suggests that although Sony is treating the problem as company-specific, underlying trends in consumer behavior could be the main culprit of declining U.S. television sales.

A bright spot in the report, however, shows that there has been an increase in the shipments of large "smart TVs," which have features such as Internet connectivity and full high-definition 1080p resolution.

But can Sony's TVs compete more broadly?

Imamura said that as a part of his TV unit's new strategy, it will adopt Google's (GOOGL) new Android TV software for its Bravia TVs to be launched in the fiscal year starting April 2015.

The connected Sony TVs would allow users to access features such as Netflix (NFLX) , as well as music from Pandora (P) and games. The new TVs will compete directly against TV systems offered by Apple (APPL) , Roku and Amazon (AMZN) .

SNE Chart
SNE data by YCharts

Sony is making a strong push to return its TV unit to profitability, but it looks like the only way to reverse the prevailing trend in declining sales is to think outside the box.

Let's hear from TheStreet Ratings on Sony:

TheStreet Ratings team rates SONY CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SONY CORP (SNE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 17.4%. Since the same quarter one year prior, revenues rose by 41.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.57, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that SNE's debt-to-equity ratio is low, the quick ratio, which is currently 0.61, displays a potential problem in covering short-term cash needs.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Household Durables industry. The net income has significantly decreased by 228.4% when compared to the same quarter one year ago, falling from $1,044.22 million to -$1,340.40 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Household Durables industry and the overall market, SONY CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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At the time of publication, the author had no position in any of the funds mentioned.

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

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