One investor believes in Sony Corporation (ADR) (NYSE:SNE), in fact, he believes in the electronics maker so much that he has established a 6.5% stake in the company worth $1.1 billion. What’s more is that he not only wants to be a shareholder, but he also wants to have a major influence on the company’s direction moving forward. Third Point’s founder and CEO, Dan Loeb, is the activist investor in question. On his latest move, questions are being asked as industry specialists try to narrow in the possible reasons behind his investment.
In it all, nobody has squarely placed the downturn in PC as a leading reason. Well, I am doing that now. The downturn in PC, or more importantly, the central changes in how people use PCs is one of the primary reasons why Dan Loeb, someone who doesn’t like losing money, made a huge bet on Sony.
Let me put this into perspective and then match it to Loeb’s agenda for Sony Corporation (ADR) (NYSE:SNE).
PC is no longer at the center of tech
There was a time when PC was at the center of tech. With your Pentium 2, you could listen to music, play games, type some office work, and in some cases, even cook (just kidding). My point — the PC was the central pillar in the tech industry. With the advent of smartphones, however, and later on tablets, the PC started losing out on some of its key roles, leading to dwindling sales.
Tablets, in particular, have taken over most of the key roles that were previously played by PC. In fact, the 14% downturn in PC sales during the first three months of 2013 was largely attributable to the gain in tablets. With tablets, users can engage on social media, do office work, and even do academic and business presentations. For most users, PCs are used for heavy typing and as backup devices.
Because of this, the gaming role of the PC, which has still not been fully taken by tablets, has taken a plunge. It doesn’t make sense to fit a PC with a state of the art video card and limitless RAM, not to mention a very expensive processor, only to end up with high costs and high prices. I, for one, know that I wouldn’t buy a PC to exclusively type and backup documents; I’d rather buy a flash disk and hunt for a typewriter from a tech museum.
Indeed, the downturn in PC has been bad for the likes of Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ), but for game console makers, it is a blessing in disguise. It is a chance for them to reclaim market share that had previously swung toward PCs and that is currently uncontested by tablets.
Spin-off entertainment and focus on electronics? Not a coincidence
With that takeaway on the changes in the PC sector, let’s take a look at Dan Loeb’s plan for Sony Corporation (ADR) (NYSE:SNE). First on the agenda; Loeb wants the entertainment arm — the one that has signed Taylor Swift, among other key celebrities — spun off, preferably through an IPO. Loeb ventures that spinning off the entertainment arm will allow Sony Corporation (ADR) (NYSE:SNE) to focus more on its electronics business.
I believe that the renewed focus on electronics that Loeb is fighting for is greatly influenced by the confidence he has in the PlayStation’s prospects. The PlayStation 4’s entry comes at a time when PCs have seized playing the role of ultimate gamer. Of course, if you want to catch a game of Super Mario or Need For Speed 2, you could power on your old dusty 2004 PC, but nonetheless, most modern high end games are better off on consoles. This is what Loeb has discovered.