CLSA Asia-Pacific Markets’s Christian Dinwoodie this morning reiterates an Outperform rating on shares of Sony (SNE) and a $25.93 price target, after attending the company’s strategy meeting Thursday.
The strategy session with analysts followed Sony’s warning on Tuesday that its net loss for the fiscal year that ended last month would come in at more than double the loss analysts had been forecasting.
There were “no significant new details” at the meeting, he writes, with the overall message was about having management focused as one entity on three priorities: digital imaging, mobile, and gaming.
Dinwoodie thinks the company can increase profit “dramatically” this fiscal year ending March of 2013, although the company is promising an operating profit margin of more than 5%, which is higher than the ?250-300 billion in operating profit he’s modeling “long term.” (The consensus estimate for this fiscal year is for ?176.95 billion in Ebit.)
but he is concerned about competition from Apple (AAPL) and about the health of the TV market.
In particular, Dinwoodie is particularly concerned about the prospects Apple may make a splash in the TV market:
However, we feel more cautious about the risks of a shrinking TV market and potential competition from Apple in the high-end market for TVs sooner rather than later. We also expect that the market will unlikely pay a premium for new TV panel technologies (OLED or crystal LED) and that size along with seemless integration of TV with other devices may be the only areas where the market will offer a premium which would benefit the potential alliance between Sharp (6753 JP – ?527 – O-PF), Hon-Hai and Apple (AAPL US – US$622.56 – BUY) at the high end.
As far as the mobile business, Dinwoodie sees it as being an “uphill battle,” despite some upbeat discussion by the company of new initiatives:
Sony plans to turn its mobile business from a loss of ?30-40bn in FY3/12 to a profit of ?30-40bn in FY3/15 but turning around its mobile phone business in particular by leveraging Sony�s unique technologies, digital imaging and game technology, and entertainment or content assets. We are most confident of Sony approaching or achieving its FY3/15 goals in digital imaging and games, but the company may be able to surprise with a stronger-than-expected performance in its smartphone business now that it is consolidating the business (post Ericsson JV), will leverage unique content with operators, and will differentiate in branded components.
In an even more cautious vein,�Credit Suisse‘s�Shunsuke Tsuchiya�wrote following the meeting that the meeting “did not contain any surprises,” given it matched what had been reported by Japan’s Nikkei�news service. Moreover, “although management team displayed a keener awareness of the importance of management speed, we believe explanations regarding the timeframe for execution and assessment of proposed initiatives fell somewhat short.”
As far as the mobile business, Tsuchiya thinks the company was “unable to demonstrate a competitive edge relative to its rivals” and its hard to see the rebound with an “all-Sony” phone “likely still a ways off.”
As for the TV business, cutting out 30% each of fixed costs and of operational expenses will help, but “it would be premature to factor in a return to profitability at this point.”
Sony shares today are down $1.26, or 7%, at $17.47.
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