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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Microsoft Corporation (NASDAQ:MSFT), on the other hand, could be winning some customers as Piper Jaffray survey results shows that 5% of teens will be making their next phone purchase a Windows 8 phone. The brand’s power will have carry-over from the XBox One (once it’s released) along with Windows 8. The Xbox One will have an operating system that will have a similar interface to Microsoft Metro for Windows.
The company is hoping that by standardizing Windows across every single platform, the user will understand how to use the device — which will have a direct impact on the amount of revenue this company will generate across all of its product platforms. The company also saw a turnaround in its entertainment and devices division, which grew revenue by 56.42% year-over-year. The company on a consolidated basis grew revenues by 17.71% in the first quarter of 2013. The company is expecting tapering demand from Windows, but hopes to make up for it with growth across all of its other businesses. Analysts project that the company will grow earnings by 11.30% in its fiscal year ending June 2014.
Apple already has cloud based features that make it superior to other user platforms. Software that is purchased with an Apple ID is duplicated across all of the customer’s Apple Inc. (NASDAQ:AAPL) devices. This has been a sticking point that Microsoft Corporation (NASDAQ:MSFT) has been trying to address.
One of Microsoft’s greatest strengths is that it still has Microsoft Office Suite across all of its Windows devices, making it very worker-friendly. Now it’s a matter of coming up with cloud virtualization for the everyday user that will make sense, something Apple has already figured out with iCloud.
I anticipate significant pent-up demand for Apple Inc. (NASDAQ:AAPL)’s iPhone devices, and going forward it would be wise for investors to load up on Apple shares. Apple trades at an unusually low multiple relative to the projected growth rate for earnings. Also, Apple’s market capitalization makes it free from hysterical market manipulation, but at the same time, subjects it to massive swings in sentiment. For now, the company’s $60 billion share buyback plan, paired with its 2.79% dividend yield, should keep the stock from experiencing wild swings in volatility.
Conclusion
Sony Corporation (ADR) (NYSE:SNE) is transitioning from being a consumer electronics company to a laptop, smartphone, and tablet company. Sony’s future remains bright when strictly focusing on the mobility segment. Currency market fluctuations are what are keeping the company from being a great stock.
The article Sony Stepping on Apple’s and Microsoft’s Turf originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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