Sony Expects Losses To Quadruple, Mid-range Android Devices With Razor-thin Margin Is The Culprit

Releasing a mid-range Android device with an aggressive pricing has become a fashion among mobile OEMs. The trend was started few quarters back and the trend is now being followed by most of the mobile OEMs including Sony. It seems like this strategy of selling mid-range Android devices with razor-thin margins is failing big-time. Today, Sony announced that it will writedown of 180 billion yen ($1.7 billion) in the value of its phone business due to competition in the market.

They stated the reason behind the loss as follows,

As previously disclosed, in light of the historical results and the operating environment surrounding the MC

segment, Sony began a review of its MRP(Mid-Range Plan) for the MC(Mobile Communications) segment in July 2014 and has revised the MRP for the MC segment. This new MRP reflects lower expected furture cash flows compared to the previous MRP. As a result, Sony determined that the fair value of the MC business has decreased. Accordingly, Sony will record an

impairment charge of approximately 180 billion yen, the entire amount of goodwill in the MC segment, in the second quarter of the current fiscal year.

The previous MRP was focused principally on achieving significant sales growth. The new MRP was modified to address the significant change in the market and competitive environment of the mobile business. Under the new MRP, the overarching strategy for the MC segment has been revised to reduce risk and volatility, and to deliver more stable profits. This revision includes changing the strategy of the MC segment in certain geographical areas, concentrating on its premium lineup, and reducing the number of models in its mid-range lineup.

In short, Sony’s previous plan was to just increase the sales of devices by producing low-cost devices for consumers, but this segment has now become super competitive especially with respect to price of the device, thanks to Chinese smartphone OEMs. Now, Sony has decided to focus more on premium Xperia device lineup and reducing its mid-range lineup. Making money from Android devices(Samsung is an exception) seems to be an achilles heel for most of the Android OEMs, we have seen HTC switching back and forth on its smartphone strategies leading to heavy losses. I think this is also the reason Microsoft is not yet competing with Android devices on price. Even though Microsoft has so much money in the bank than any other Android OEMs, going on this razon-thin margin strategy in a huge risk.

Back in July, Stephen Elop who heads Microsoft’s devices group wrote about their strategy as below,

Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope. Therefore, we plan to make some changes.

We will be particularly focused on making the market for Windows Phone. In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia. In addition to the portfolio already planned, we plan to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices. We expect to make this shift immediately while continuing to sell and support existing Nokia X products.

To win in the higher price segments, we will focus on delivering great breakthrough products in alignment with major milestones ahead from both the Windows team and the Applications and Services Group. We will ensure that the very best experiences and scenarios from across the company will be showcased on our products. We plan to take advantage of innovation from the Windows team, like Universal Windows Apps, to continue to enrich the Windows application ecosystem. And in the very lowest price ranges, we plan to run our first phones business for maximum efficiency with a smaller team.

Do you think Microsoft’s plan to play in the middle ground between Android OEMs and

Source: Sony