Sony and Olympus Heal Each Other

Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The marvels of technology and the true extent of its capabilities are often most appreciated when technology shakes hands with the field of medicine. Technology is why we stand a chance against cancer and Parkinson’s, amongst other deadly diseases. So what do we expect when a multi-national, billion dollar conglomerate joins hands with the world's leader in gastro-intestinal endoscopes?

A promise of a healthier and safer future, one might say.

How Olympus has fared

Olympus (NASDAQOTH: OCPNY.PK) has maintained its stronghold with its wide array of ultrasound, electrocautery, endotherapy and endoscopy technology. Olympus controls 70% of the world’s market in these products, a market which is valued at $2.5 billion.  But as great as that may sound, under it all Olympus has been dealing with heavy blows ever since its accounting scam in 2011 unfolded and wiped off 75% of its valuation.

In June 2012, Olympus announced it will cut 7% of its global workforce (around 3000 jobs) by the end of March 2014, and will shut down about 40% of its manufacturing plants around the world by the end of March 2015. The company justified these moves by citing the need to make up for the $15 million loss it incurred from the previously mentioned accounting scam, as well as a settlement with ex-CEO Michael Woodford.

Olympus has already started looking for alliances to boost its prospects, and has received offers from Sony (NYSE: SNE) and Fujifilm, amongst others. In fact, on Sept. 28 Sony announced that it'll pay $640 million to hold 11% in Olympus. Sony’s investment will make it a majority shareholder in Olympus and let it have 51% in a joint venture for producing high-tech endoscopes. A win/win situation for both the companies!

What this means for Sony

Sony has established itself firmly in the field of electronics and entertainment over the years. In spite of its accomplishments, venturing into medical equipments by itself could've been a very long and winding road. Joining hands with Olympus will make Sony's task a lot easier, as the former has already made its mark in the surgical equipment industry. I believe this alliance couldn't have happened at a lower price for Sony and at a better time for Olympus.

Since no date has been set for when these high-end medical devices will be available, no immediate reaction is expected from the market. But this is a definite mood enhancer for Olympus (and its shareholders) as the stock price is bound to go up. I'm very convinced of Olympus' bright future, especially with the company's forecast of $88.6 million for the fiscal year through March 2013.

This Foolish Blogger’s Opinion 

Holding on to Sony seems to be the best option as of now and, with Sony expecting to earn over $2 billion in sales by 2020, its stock is good for the long run. Olympus is bound to bounce back with this boost, along with the news that Sony wants to get hold of 20% of the medical equipment market in a few years. The future of both companies seems to have been salvaged just in time.

Shaunak88 has no positions in the stocks mentioned above. The Motley Fool is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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