Sony Corporation (ADR) (SNE)’s Diversification is a Blessing and a Curse

Versus Competitors

Being a conglomerate sprawled across so many industries, Sony does not have any direct competitors. Yet individually, it competes with Canon Inc. (ADR) (NYSE:CAJ) for the camera market, Nintendo Co., Ltd (ADR) (NASDAQOTH:NTDOY) for the video game one, and Panasonic Corporation (ADR) (NYSE:PC) for home electronics. How does Sony fare fundamentally against these rivals?

Source: Yahoo Finance

Canon, which specializes in cameras, camcorders and printers, has the sturdiest financials. Panasonic’s home electronics business, its core competency, has been decimated by Samsung and LG, and it is faring far worse than Sony. Meanwhile, Nintendo, which only creates video games and consoles, has been crushed by waning demand for its products, which peaked in 2007 with the launch of the Wii.

These fundamentals of these companies also paint a picture of vastly different demand for different products.

They tell us that there is still a market for high-end cameras, which Canon produces, while low-end ones, such as Sony’s Cybershot series, are being gobbled up by smartphones. We also see Panasonic’s fate as a cautionary tale of being too highly exposed to consumer electronics, which don’t stand a chance against the pricing power of South Korean manufacturers. Lastly, Nintendo’s stagnation shows us that it wouldn’t be prudent to put too much fate in Sony’s video game business.

The Foolish Bottom Line

Sony’s exposure to such a wide variety of businesses is both a blessing and a curse. Like a diversified mutual fund, Sony’s worst losses are often offset by its better performing segments. Yet as a result, the company misses out on major gains because it is weighed down by non-performing businesses. For Sony, the most important macro factor is a weaker yen. If the Japanese government can successfully weaken the yen, then it can regain pricing power – which will generate sales, margin and earnings growth. While the worst of times may be over for Sony, the best of times are still a distant goal.

The article Sony’s Diversification is a Blessing and a Curse originally appeared on Fool.com and is written by Leo Sun.

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