The Tokyo-based company lost $1.1 billion (98.9 billion yen) last year, and it expects to lose another $1.4 billion (120 billion yen) in its fiscal year ending March 31.  That would be Sony’s first back-to-back annual loss since the company went public in 1958.

And despite renewed optimism within its ranks, Sony still faces a plethora of challenges, including a questionable direction, cost-conscious consumers and a strengthening yen.

The onetime bellwether of the electronics industry has seen its market share crumble in almost every category: Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii game console has supplanted Sony’s PlayStation brand, Sony has given up its lead in portable media players to Apple Inc.’s (Nasdaq: AAPL) iPod, and Samsung Electronics Co. Ltd. is now the world’s largest seller of televisions.

Hoping to turn the tide, Sony earlier this year underwent a major restructuring with the goal of unifying its hardware, software and entertainment businesses. The idea is to leverage its growing catalog of networked products with the software and services its sells, such as Internet-enabled televisions that enable consumers to watch Sony movies through an online connection.

“Consumers want products that are networked, multi-functional and service-enhanced utilizing open technologies, and user experiences that are rich, shared and, increasingly, green,” said Sony Chief Executive Officer Howard Stringer. “[The restructuring] will now make it possible for all of Sony’s parts to work together to assume a position of worldwide leadership and, together, achieve great things.”

Doubts Cast Shadow Over Efforts

While analysts agree with Sony’s loss estimate for this year, some doubt its restructuring efforts – which included thousands of layoffs and a streamlining of manufacturing in the – will truly pay off.

“They were hit fairly early by the downturn and have moved quicker than some competitors to restructure, but it remains to be seen if those moves will pay off,” Hideyuki Ookoshi, who helps oversee $365 million at Chiba-Gin Asset Management in Tokyo, told Bloomberg News. “The problem with Sony is it doesn’t know what it wants to be: Is it a game company, a consumer-electronics maker, a financial-services provider? There’s no direction.”

Operating income at Sony’s financial services division was propelled more than 57% by a boost in its life insurance revenue in the company’s fiscal first quarter ended June 30. But this non-core business won’t be the catalyst that brings Sony out of the red, according to Makoto Haga, president of Tokyo-based hedge fund Wing Asset Management Co.

“Profit at the financial unit helped Sony narrow a loss, but investors don’t appreciate that,” Haga told Bloomberg. “I can’t see any engine that drives its recovery and the company’s prospects are dim.”

As it stands now, CEO Stringer’s cost-cutting efforts have only gone so far, and investors like Yasuhiko Hirakawa want the British-born executive to prove he can boost Sony’s sales, which are expected to be 6% lower than last year.

“Cost cutting and reshuffling of management may help mend unprofitable businesses but they won’t make Sony competitive against Samsung and other rivals,” said Hirakawa, a fund manager at DIAM Co., which oversees $80 billion in assets including Sony shares. “The brand is still highly regarded but that won’t last forever.”

Premium Without the Value in Tough Times

While all electronics manufacturers have suffered during the worst economic crisis since World War II, premium-branded Sony has been hit especially hard. The economy has brought out the practical side of consumers, who flocked to cheaper television sets from makers like Vizio Inc., which is No. 2 in North America behind Samsung.

It’s the “intensification of price competition” that contributed to Sony’s $1.7 billion operating loss in its electronics segment last year, the company said. Comparable televisions from Samsung are often hundreds of dollars less than a Sony, without a significant sacrifice in tangible quality.

“I don’t think you can say a Samsung TV has a better picture than Sony TV,” Richard Doherty, co-founder of industry researcher Envisioneering Group told the San Diego Union-Tribune. “But (the difference) has narrowed, and that’s one of the problems.”

Indeed, while TVs from Sony may have technically superior features such as 240mhz refresh rates, it usually won’t make a difference to the mass market. The benefit of such a feature is “difficult to discern,” writes CNET, a leading Web site from CBS Interactive Inc.

Televisions are just one area where Sony is struggling with its value proposition. Until recently, Sony faced mounting pressure from video game executives and analysts to cut the price of its $400 PlayStation 3 (PS3) console.

“They have to cut the price, because if they don’t, the attach rates [the ratio of games purchased to a console] are likely to slow. If we are being realistic, we might have to stop supporting Sony,” Bobby Kotick, chief executive officer and president of Activision Blizzard Inc. (Nasdaq: ATVI) said in a June interview with Times Online.

After months of lowering manufacturing costs on PS3, Sony finally dropped the price of the console to $300 in the United States and launched an ad campaign touting “It only does everything,” a reference to PS3’s ability to play games, Blu-ray movies and browse the Internet.

The result was Sony selling more than 1 million PS3s in the first three weeks of September, almost the same amount it sold in the entire second quarter. A similar price drop in Japan led to PS3 outselling Nintendo’s Wii last month, a first since the console was released in Nov. 2006.

Sony’s Walkman, which first revolutionized portable audio 30 years ago, now comes in the form of a touchscreen digital media player, but has failed to put a dent in Apple’s ubiquitous iPod, which also has a touchscreen model. Sony’s 32-gigabyte Walkman sells for $400. But while it gives users some limited Internet options, Apple’s comparable iPod Touch sells for $100 less and has access to thousands of applications – many of them free – in its vaunted App Store.

Without any tangible features to discern it from the competition, it’s no wonder Sony expects to sell just 6.7 million Walkmans this year, while Apple sold 10 million iPods in its third quarter alone.

Currency Crisis

Sony, like its Japanese counterpart Panasonic Corp. (NYSE ADR: PC), is inherently at a disadvantage to Korean competitors like Samsung and LG Electronics Inc. due to the yen’s strengthening position against the won and U.S. dollar. The yen’s gain has enabled the Korean manufacturers to sell its products at a discount of as much as a 10% without taking a hit on margin.

“We don’t have a moment to breathe,” Sony Vice Chairman Ryoji Chubachi said of the strengthening Japanese currency in a Bloomberg interview on Tuesday. “It is a tough environment.”

The yen has gained about 15% versus the Korean won and 14% against the dollar in the 12 months ended Sept. 30, according to Bloomberg data. The dollar is at its weakest levels against the yen since February, trading at as low as 88.86 yen on Tuesday. The yen has been the third-best performer among G-10 members in the past 12 months.

For Sony and other Japanese companies, a rising yen is “like a death warrant as things stand now and if this continues, they will have a very difficult time,” said Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which manages the equivalent of $26 billion in assets. “For Korean companies, it’s a favorable environment and the currency has been the biggest factor for their good performance.”

Source: The Three Roadblocks to Sony’s Turnaround

I’m talking about organic light-emitting diodes, or OLEDs. OLED displays are taking off in a big way. These next-generation displays are perfect for the mobile phone and personal media device markets because they are thinner than traditional displays and produce sharper images.

OLED — and active-matrix OLED — technology has now reached its tipping point. Very soon, we will begin to see OLEDs used in a vast array of electronics, including small televisions, digital cameras, netbooks, phones — the list goes on and on.

The rise of the OLED display is similar to that of the flat-panel television. Once a novelty, flat-panel LCD and plasma televisions quickly became the industry standard as quality and production increased while prices fell. The “transition” from bulky tube televisions to sleek flat-panel displays took only a few short years.

Try walking into your neighborhood electronics store today to browse the tube television selection. Be warned: You will be disappointed. Only a few models remain, and you can easily purchase a comparable flat-panel television for about the same price. And a flat panel can actually save you money, since it uses less power than a standard TV. Yes, it seems that the tube television is going the way of the VCR. It won’t be long before they’re only available at yard sales and antique stores.

OLED Growth: The Story Is in the Numbers

Experts from world mobile display sector leader Samsung Mobile Display are banking on OLED screen use in mobile phones to “grow significantly.” And with overall smartphone use also growing dramatically, we have before us a unique opportunity in the OLED market.

The Samsung venture expects the global smartphone market to grow to 500 million units by 2012, making up almost 30% of the industry. To put this in perspective, consumers are using 170 million smartphones right now.

Better phone technology means better displays. Samsung predicts OLED screens will be used in half of these new phones over the next five years. That’s hundreds of millions of units…

Overall, the OLED display market will grow to $6.2 billion, according to DisplaySearch forecasts. Last year, the total OLED market was worth an estimated $600,000. As you can see, we are looking at exponential growth, with the mobile phone market leading the charge.

As the technology continues to improve, we will begin to see even larger OLED displays. LG Electronics and Sony (NYSE:SNE) are each planning on releasing 15-inch and bigger OLED display televisions by the end of this year, according to DisplaySearch, with OLED netbooks and larger televisions showing up by the end of 2010.

Obviously, LG and Samsung are the big players in this market. But there are a couple of small-caps that have also found success developing OLED technologies. A good place to start looking would be Universal Display Corp. (NASDAQ: PANL). While the company is not yet profitable, it does have a promising patent portfolio that includes phosphorescent OLED technology.

Best,
Greg Guenthner

Source: OLED: The Next High-Tech Profit Opportunity

If you need proof, just look at the Top Five suitors for General Electric Co.’s (GE) century-old home-appliances division. There isn’t a U.S. company on the list.

GE Chief Executive Officer Jeffrey R. Immelt – who last week told analysts the company was “seriously considering a spin-off” for the unit – said yesterday (Wednesday) that there were five possible buyers, including:

• LG Electronics Inc., a South Korean electronics and telecommunications giant that’s positioning itself as a global heavyweight.
• Haier Group Co., a China-based appliance-maker that’s one of that country’s real corporate success stories.
• Controladora Mabe S.A. de C.V., a successful Mexico-based appliance firm that is partly owned by GE, and that already makes appliances for other brand-name firms – including GE.
• Electrolux AB (OTC ADR: ELUXY), a Stockholm-based company that parlayed its success in high-end vacuum cleaners into a broader success in home appliances.
• Arcelik Anonim Sirketi, an Istanbul, Turkey-based appliance-maker that does business throughout the world – including in the United States.

It’s only been a week since reports surfaced that GE was looking to sell or spin-off its home-appliance business unit, the latest in an ongoing series of divestitures aimed at unshackling the Corporate America heavyweight from the ebb-and-flow of consumer-focused markets. In that time, however, the unconfirmed rumors have solidified to the point that Immelt yesterday identified specific possible suitors.

“The players become very obvious,” Immelt said during a breakfast meeting with businessmen in Seoul yesterday. “It’s Haier in China, LG in Korea, and so on. Of course, LG is one of the leading candidates.”

Immelt said the sale of the unit will be “a long process.”

GE’s appliances division is the No. 1 provider of refrigerators, ovens and dishwashers for newly-constructed houses in the U.S. market. The unit may draw bids of $3 billion to $8 billion, according to analysts at Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS).

For Haier, the acquisition of the GE unit would give the China-based company a household brand name it could use to accelerate its U.S. expansion. Once named Qingdao Refrigerator Plant, the company is now “China’s ambassador to appliance stores worldwide,” according to Hoover’s, the well-known business-information provider.

From the brink of bankruptcy, Haier rebounded and remade itself into China’s largest appliance company and a world-renowned brand that sells refrigerators, freezers, mobile phones, computers, air conditioners and more in more than 160 countries worldwide. Since “pulling itself up by its bootstraps,” Haier has used joint ventures and other shrewd maneuvers to branch out both geographically and commercially, Hoover’s reports.

For the Seoul-based LG Electronics, the purchase of GE’s appliance business would allow the Korean firm to challenge U.S. heavyweight Whirlpool Corp.’s (WHR) global lead in the production of appliances, Bloomberg News reported.

According to published reports by Bloomberg and others, LG hasn’t decided whether to bid for the GE unit, the company said yesterday in response to a query by Korea’s stock exchange.
LG is “carefully monitoring” the sale of GE’s appliances division, Chief Executive Officer Nam Yong said. Zhao Rui, a spokeswoman at Haier, declined to comment, Bloomberg said.
James Kim, an analyst at Lehman Brothers Holdings Inc. (LEH), wrote in an investment note that speculation that LG will bid for GE “has been overdone, without any concrete developments … according to our channel checks, GE and LG Electronics have not talked about this potential acquisition.”

However, Castor Pang, an analyst at Sun Hung Kai Securities in Hong Kong, told Bloomberg that “both LG and Haier need [the] GE [business unit in order] to break into the U.S. market because [GE] has a very strong brand. Buying GE would be a big advertisement for them. After all, the U.S. market is still a very big market.”

GE’s appliances business had a U.S. market share of 27% in 2006, the most recent figures available, JPMorgan Chase & Co. (JPM) analysts estimate. The unit had revenue of $7.2 billion in 2007, according to Credit Suisse Group (ADR: CS) estimates.

Source: GE Home Appliance Unit Sale Underscores Again That Corporations and Investors Alike Must Go Global to Succeed