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Sony Corporation (ADR) (SNE) Stepping on Apple Inc. (AAPL)’s and Microsoft Corporation (MSFT)’s Turf

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Sony Corporation (ADR) (NYSE:SNE)Sony Corporation (ADR) (NYSE:SNE) recently released the next iteration of its tablets, with the Xperia Tablet Z. The tablet market is becoming increasingly important as it is seen as the third alternative to entry-level computing. Most of the growth in tablets is driven by the low-end, because component costs for creating a tablet are much cheaper than a PC. Tablet devices are becoming a product substitute in emerging markets.

Sony’s market position

The new Sony Corporation (ADR) (NYSE:SNE) Xperia Tablet Z is a welcomed addition. The product comes packed with the standard features of a current generation tablet device. However, one thing that sticks out about the product is that it’s water-proof and that it has the Sony Corporation (ADR) (NYSE:SNE) logo. Sony’s brand is perhaps one of the most valuable in the world and is arguably a key-selling point to even owning the product.

Source: IDC

Over time, it is highly probable that if Sony Corporation (ADR) (NYSE:SNE) was to execute on a marketing strategy that emphasizes smart phones and tablets, it could capture the number 3 or 4 spot in global market share. According to Forbes, Sony is the world’s 38th most powerful brand. The only three brands that are more valuable in the smartphone space and have greater pricing power are Apple Inc. (NASDAQ:AAPL) ranked at number 1, Microsoft Corporation (NASDAQ:MSFT) ranked at number 2, and Samsung at number 12.

I believe that Sony Corporation (ADR) (NYSE:SNE) can carve out an effective niche in certain markets as being the 4th most valuable brand in both smartphones and tablets. Based on the earlier table, I believe that Sony could eventually reach 3rd or 4th in market share, securing perhaps 2-3 million tablet shipments per quarter totaling $1 billion to $1.5 billion in additional revenue per quarter, or $4 to $6 billion in additional revenue per fiscal year. The company’s revenue was $72 billion in its 2013 fiscal year ending on March. The company’s net profit was $45 million in 2013 in the same period. If the company were to sell enough tablet devices at a net profit margin in the 15% to 20% range, the company’s tablet sales could have a $600 million to $1.2 billion contribution to net income, but this is only probable if the remaining segments aren’t too negatively affected by foreign exchange, and the video game segment breaks even. The $600 million to $1.2 billion contribution from tablets could easily happen over time.

Mobile phones a working business

Despite the weakness of its mobile strategy in the United States, the company still shipped a staggering 33 million phones in the first quarter. The Xperia generated approximately $7.8 billion in revenue, and if Sony is to generate the 27% growth that it projects, then the company will earn an extra $2.1 billion in revenue; and at a 15% to 20% net profit margin, the contribution will equate to an additional $316 million to $440 million in net income. If we combine my estimated tablet and smartphone increases, it totals to a $916 million to $1.64 billion range of added net income. I have not factored in potential cost cutting or currency market fluctuations, so these are extremely rough estimates. But hopefully, Sony can make $1 billion to $1.64 billion in net profit. That way investors have a reason to buy the stock outside the depreciation of the yen.

The Sony Xperia ZL struggles in the United States as it has not been able to secure any of the major mobile carriers (T-Mobile, Sprint, Verizon Communications Inc. (NYSE:VZ), AT&T). Usually a mobile carrier will sell a subsidized phone in a $200 package. If the device isn’t being sold as a part of a data package, you will not find it at any of the retail locations that Verizon Communications Inc. (NYSE:VZ), T-Mobile, Sprint, and AT&T operate. No retail distribution equals no sales.

Sony Corporation (ADR) (NYSE:SNE) executives need to sign a deal with one of the major carries otherwise Xperia ZL growth will remain in the 27% to 30% range.

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