Posted on January 06 BusinessWeek (blog)
08.01.10
Sony
Posted on January 06
Sony has struggled for years to recapture the glory days when its Walkman and Trinitron brands were the hottest things in electronics. Since then the company, with $79 billion in sales expected this fiscal year, has scored successes intermittently with its motion picture division, its PlayStation game machine, and its high-end Bravia line of flat-panel TVs. But it has yet to achieve a solid turnaround with all divisions pulling their weight. Play Station 3 does not dominate the industry the way its predecessor did: It has lost ground to Nintendo’s Wii and Microsoft’s Xbox and is not quite the money machine it once was. Sony’s consumer electronics business remains a work in progress.
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This neither-one-nor-the-other position makes it hard to assess the value of Sony shares. They reached a recent peak of 78 in mid-2007, but the Tokyo-listed stock now trades at 29. That’s after a 39% runup from last year, with Sony benefiting from general market euphoria and investors’ desire to scoop up the battered blue chip’s shares on the cheap. (Sony also trades in New York as an American depositary receipt. Recent price: 29.85.)
The stock still looks inexpensive to Junichi Misawa, head of equity investment at Tokyo-based STB Asset Management, which manages the equivalent of $14 billion. “You can expect a return from a stock whose price-book ratio is below one,” says Misawa. Sony’s price-book level, a ratio of the stock price to the book value per share (a company’s book value is tangible assets less liabilities), stood at 0.92 as of Jan. 4. In other words, the shares trade for less than what Sony’s assets are worth. That compares with an overall price-book ratio of 1.43 for Japan’s benchmark Nikkei 225 Stock Average and 1.66 for Sony rival Samsung Electronics, whose shares surged 77% in 2009. The bargain price only goes so far in attracting buyers, though. “Sony seems to be lagging behind its peers in emerging markets, and the company’s strategy on how to strengthen its product line still remains unclear,” says Yoji Takeda, who manages the equivalent of $1.1 billion at RBC Investment (Asia) in Hong Kong. Sony generated $18 billion in revenue outside Europe, Japan, and the U.S. in the year ended March 2009. By comparison, Samsung had sales of $17.5 billion in China alone and $18 billion in the rest of Asia outside of South Korea. Sony plans to invest heavily in the so-called BRIC countries—Brazil, Russia, India, and China—to broaden its customer base.
Sony Chief Executive Howard Stringer said recently that televisions, game consoles, and other electronics capable of producing 3D images will generate $10 billion in sales in the year ending in March 2013. The company is entering the lithium-ion car battery market and is boosting its online services for downloading music and video. Stringer is near his target of cutting some $4 billion in costs by eliminating almost 20,000 jobs and shutting 10 factories. Writedowns and other expenses will result in a net loss of $1.03 billion this year ending March 2010, Sony says.
Out of all this, no game-changing device has yet emerged. All but 1 of 38 brokerage firms’ ratings compiled by Bloomberg advise clients to buy Samsung. In contrast, only 9 of 21 brokerages recommend Sony.
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