Dear Sony: Less > More
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Dear Sony (NYSE: SNE),
You really put yourself in a pickle this time. And shareholders hate the taste of pickles. We are a cold-hearted bunch when it comes to missteps and are first to jump ship when the red surfaces. Not that this is the first sign of blood or anything. Should you need a quick reminder, you’ve actually been bleeding for years. Four years.
You can’t continue to blame “transitory conditions” as the root cause of your financial problems. Dare you be so naïve?
It has become rather apparent the Sony of today is merely a shell of its former self. The former Sony was king of the land, in the mind of consumerist culture, an impressive feat by any critic’s standard. Present day Sony struggles for survival in a brave new mobile world dominated by Apple (NASDAQ: AAPL) iDevices. In the current environment, there isn’t much room left for Sony at the big kids' table.
However, not all has been lost.
Before we jump into solutions, let’s take a moment to reflect on how you got here. Simply put, a combination of poor management enveloped by the mania and collective mindset of the inflating housing bubble are central to the cause. During this expansive period, management was on a mission to expand overall world domination and in many ways this diluted Sony’s innovative reach. This herd-like business mentality took many great companies captive during this period, and has since proven to be a fool’s errand. One step further and I fear Sony will be on the brink of irrelevance.
If I were part of today's management team, I would borrow one theme from Apple’s playbook and flavor it with a taste of Sony. The playbook would read: Less > More.
Stop selling products consumers associate as being low value in society. Should you need examples, think portable Blu-Ray/DVD players, alarm clocks, and CD/cassette boom boxes (seriously?). Smartphones and tablets replace most of these types of products. Really, any low valued, near obsolete product should go. Cutting this fat will allow Sony to refocus on its core and get back to innovating.
To give you an idea of how little you should focus on, Apple’s product core consists of only 12 product lines, which helps support a $566 billion market cap. If anyone has proven it doesn’t take a gazillion products to make it big, it’s Apple.
Also noteworthy, it is common practice for businesses to offset the cost of losing products into the price of winning products. My suspicion leads me to believe Sony engages in this practice. The notorious above average prices offered by Sony products helps justify this thought. Focusing on less will likely mean fewer losers, having the potential to bring down prices at no expense to profitability. It goes without saying: lower prices for great products will make the brand more competitive.
If you don’t start cleaning house, shareholders will grow impatient and demand things happen quickly. Financial Times reported Sony’s entertainment business could be worth over $10 billion, having booked a $2.5 billion operating profit in fiscal year 2012. With a $13.7 billion market cap for the whole company, a spinoff like this has “potential goldmine” for written all over it.
In the end, please don’t let shareholders force your hand. We don’t always know what’s best for a company.
TopDownTrends has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple. 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.