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Sony Corporation (ADR) (SNE): Is This When The Comeback Happens?

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Sony Corporation (ADR) (NYSE:SNE)Sony Corporation (ADR) (NYSE:SNE), for the first time in ten years, reported a profit. The company is no longer the technology company it once was. It also helps that the USD/JPY has been on an uptrend, which resulted in the company reporting inflated Japanese Yen-based figures.

Earnings highlights

The company’s growth in financial services, along with mobile, was the primary reason for its earnings success. Sony Corporation (ADR) (NYSE:SNE)’s financial services segment generated 266 billion Yen in the fourth quarter of 2011, and it grew to 315.5 billion Yen in the fourth quarter of 2012 (for some reason, the company ends its fiscal year three months later as the fiscal year begins in the second quarter of 2013). The company reported 18.6% growth year-over-year in its financial services revenue.

Sony Corporation (ADR) (NYSE:SNE) followed up those strong results with an 81.5% growth rate in its Mobile Products & Communications division. The company grew revenue in this segment from 194.4 billion Yen in the prior year period to 352.8 billion Yen in the fourth quarter of 2012. Growth in revenue was driven by increasing demand for its Sony Xperia line of phones.

The forex improvements inflated the overall performance of the company by around 15% across all segments. Forex improvement was driven by the rally in the USD/JPY currency pair. The USD/JPY currency pair has increased 13.78% since the beginning of 2013. This significantly contributed to Sony Corporation (ADR) (NYSE:SNE)’s performance for the current fiscal year.

In summary, the company generated 1.733 trillion yen in the current fiscal year; it grew its revenue 8.3% year-over-year. Sony’s operating income increased from 41.1 billion yen in Q4 2011 to 191.1 billion yen in Q4 2012. The company grew its total operating income by 314.1%.

Changing technology landscape

The company’s improvement in its banking business was driven by the greater adoption of the internet. When Sony Corporation (ADR) (NYSE:SNE) rolled out its bank in 2001, the internet wasn’t fully saturated. The company’s bank was purely online. That being the case, the company’s financial services started to see substantial improvements in revenue and earnings towards the end of the 2000s. Internet adoption gradually improved during the 2000s, and by 2010, internet users as a percentage of the population were 78.2% according to the International Telecommunications Union.

The company’s progress in mobile will be challenged by Motorola and Apple Inc. (NASDAQ:AAPL). Sony Corporation (ADR) (NYSE:SNE)’s mobile offering, while compelling, isn’t extremely competitive against the Apple Inc. (NASDAQ:AAPL) ecosystem at the moment. Sony hopes to change this by providing cloud services that would allow its products to have remote access to a PlayStation 4. This could potentially lead to on the go gaming. However, there are limitations to on-the-go gaming that Sony Corporation (ADR) (NYSE:SNE) will have to address (how will you play PlayStation games using smartphone touch commands as your means of control?). For now, Sony is a late comer in a space that’s dominated by Apple Inc. (NASDAQ:AAPL).

Apple Inc. (NASDAQ:AAPL) currently dominates in terms of market share. According to the latest statistic from comScore, Apple has a market share of 38.90%, with Google Inc (NASDAQ:GOOG) Android at 53.70%. Android saw a 3% decline in market share.

Apple’s gain in market share was driven by the ease of using an Apple Inc. (NASDAQ:AAPL) product, cloud capabilities, along with the strong customer support. It also helps that Apple has increased its advertising spend by $2 billion year-over-year, which has helped it fend off competition from BlackBerry and Samsung to some extent.

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