Sony is last Japanese company standing in tough smartphone market

November 28, 2013 4:51 pm

Sony is last Japanese company standing in tough smartphone market

By Sarah Mishkin in Taipei and Jennifer Thompson in Tokyo

One by one, Japanese electronics makers have fallen by the wayside as competition intensifies in the smartphone market: Panasonic and NEC both abandoned the business altogether this year, while Fujitsu and Sharp now only sell their smartphones within Japan. The last Japanese company standing is Sony, where improving sales of its Xperia smartphones helped narrow the operating loss in its computer and smartphone division to Y900m last quarter from Y23.1bn the same quarter a year ago.Sony, which has come under pressure from activist investor Dan Loeb and recently appointed Bain & Co to advise it on cost-cutting in its Sony Pictures unit, is relying in part on growing mobile sales to turn the company around.

It expects smartphone shipments in the 2013 fiscal year to rise by more than a quarter from the previous year to reach 42m. That was one of the few targets that chief executive Kazuo Hirai left unchanged when he cut Sony’s full year net profit forecast by 40 per cent in October, under pressure from falling sales of TVs and other electronics.

Sony’s optimism about its mobile business, however, isnot shared by many analysts  and observers.

“The company [Sony] plans to expand market share for its key products, but we see no signs of this happening,” says Shiro Mikoshiba, analyst at Nomura.

As the growth of smartphones in more mature western markets slows, Samsung and Apple have established themselves as the dominant players with their strong research and marketing budgets, while a growing number of cheaper Chinese makers are carving out their place at the lower end.

The result was that Sony’s global market share position fell from third to seventh in the past year, accord-ing to data from Canalys, the market research group. As an indication of the tough task facing Sony, Calum MacDougall, head of marketing at Xperia, said that “one of our key tasks is to make people aware that Sony makes smartphones”.

Sony’s strategy for making themselves stand out in a crowded marketplace, says Mr MacDougall, is straightforward: cramming the technology and entertainment from Sony’s other divisions, such as cameras and games consoles, into pocket-sized devices that can also make phone calls.

The smartphone division has been a primary beneficiary of the sprawling group’s attempts to foster more collaboration between its divisions, with recent products including a camera lens that snaps on to the phone and an offer of free Sony Pictures movies to Xperia owners.

That collaboration has potential, says Rachel Lashford, analyst at Canalys, but it has yet to translate into strong sales. Sales were up 9 per cent year-on-year last quarter, slower than total market growth of 44 per cent, according to Canalys data.

The vast Chinese market presents a further problem for Sony, according to analysts. To break into the list of top five vendors globally, says Melissa Chau, analyst at IDC, “they would pretty much have to crack that China problem.”

The issue is not just price competition with domestic Chinese brands. Sony’s sales there have also been hurt in the past by anti-Japanese sentiment.

Late last year, when China and Japan clashed over claims to islands in the south China Sea, Sony’s sales fell dramatically, according to data from market researchers IDC. Although they have recently come back, so have tensions, as China claimed the airspace over those islands as part of its defence zone, forcing Japanese civilian carriers to notify it of their flight plans there.

Analysts say that Sony has increased its marketing budget by 50 per cent this year. Recent ads play up its connectivity with other Sony products such as its smartwatch, and some more unusual technical features that its competitors’ phones lack – including the fact that users can take the waterproof phone for a swim.

“I like where they’re going in trying to carve out niches. That’s all you can do against a competitor such as Samsung,” says Ms Chau.