Feb 6 2014, 4:54pm CST | by Forbes
Sony never was a big seller of PCs, so its decision to dump its unprofitable computer business shouldn’t come as a huge surprise. That said, the swift decline of the fading consumer electronics giant in PCs and a 10th straight year of losses in the TV division are unpleasant reminders that when the ground starts shifting underneath you, it can swallow up everything in its path.
The PC business at Sony is a small player, accounting for only about 2% of global sales, according to IDC. The vast majority of those are stylish, well-featured machines sold directly to consumers. And while the PC market overall has been slipping, Sony sheds some light on how difficult that segment has been. It sold under 6 million Vaios last year, down a remarkable 33% from 2010. (In the same span, the overall market has shrunk about 10%.)
Sony’s troubles actually began earlier than many manufacturers because of its reliance on consumers. In 2010, Apple introduced the iPad and the battle for home-computing dollars was on. It might not have been clear at the time, but the effect has been profound. Where the upgrade of a PC was once a rite of passage in the home, the big deal now is buying the tablet — or the once-every-2-years new smartphone. None of this means the PC doesn’t remain useful, but rather that it, well, remains. When it’s time to run TurboTax or sort through hundreds of photos from the vacation to Africa, there’s still no better choice. But when it’s time to buy a shiny new toy, there almost certainly is.
The good news for Sony is that one of those new toys is the Playstation 4, which is off to a strong start in sales. But outside of that uptick, Sony’s electronics groups are struggling. The mobile-phone division has built some beautiful new products since Sony dropped the Ericsson partnership, but growth remains a challenge. Sony trimmed its forecasts for phones today from 42 million to 40 million. It’s a reminder than in the Android world, differentiation is hard and the high end is especially competitive with Samsung not ceding ground easily. Quite the reversal of fortune for the two companies as Samsung was once the upstart, Sony the dominant leader.
It’s that history — and perhaps only that history — that justifies Sony’s continued presence in the TV market. Sony announced that they will “spin off” their TV division, but the current plan is to hold onto 100% ownership. The old line about insanity as doing the same thing over and over and expecting a different outcome seems applicable. Sony will lose about $250 billion selling TVs this year. Doesn’t sound like much, but the TV division last turned a profit in 2004. YouTube didn’t exist yet and Netflix streaming was a talking point on a slide show. Since then, the company has managed to rack up very nearly $8 billion in losses moving flat panels to your living room.
The TV business, like PCs, is on a slow, and likely permanent, decline. Viewing is moving to tablets and phones, most especially in emerging markets. None of this means that there isn’t room to sell either any longer. Indeed, PCs and TVs represent a combined 500 million units sold annually at this point and in terms of dollar value, those two industry are bigger than the smartphone business. But the trend is not Sony’s friend here. To grow share in a declining business, you need to be really good at making the item in question. That’s why you’re seeing a powerhouse like Lenovo, which took over IBM’s PC business years ago, grow market share. It’s likely going to propel Vizio — a lean company which relies mostly on price and a deep global supply network — to a dominant position among TV sellers here in the U.S.
Sony was too small in PCs to be the domino that pushes over the stack, but it’s likely the canary in the coal mine. HP nearly spun out its PC business a couple of years ago and almost certainly regrets not doing so by now. Dell has gone private and no longer needs to fear the stock-market hit of lost revenues by trimming back its commitment to that sector. What likely happens is that as replacement cycles get longer still, the market shrinks enough that no one exit feels particularly daunting. Consumers still see some choice and next-generation computers like the Surface Pro from Microsoft fill in some gaps.
The TV business is lagging behind here, but probably not for much longer. Sony says it’s staying in: ”If you are asking if we have any plan to sell off our TV business, I can say we have absolutely no plan to do so right now,” CEO Kaz Hirai said. Of course, who would buy it? Most TV companies are brand names with a bit of R&D money slapped on top of commodity flat panels; you’re not buying a lot of intellectual property. That’s why a Vizio can do with hundreds of people what Sony once needed thousands for. Sharp, Panasonic and Toshiba are all bleeding money in TVs as well and none is in a financial position to float those money losers forever.
Consumers are unlikely to much care. Does anyone miss Mitsubishi or Sylvania TV? Longing for your DEC or Compaq computer? The center of gravity has shifted away and what were once very exciting products have now become things many of us have, but few of us crave. Ask a recent college graduate if they feel the need to have either a PC or a TV in their new apartment and you might be surprised at how few consider those must-own items. Ask them to give up their smartphone for a week and you might find yourself on the wrong end of whatever martial art they took as an elective.
A lot of people get up in arms about these recognitions that PCs or TVs are entering old age. The suddenness with which this happened makes it especially disturbing to those that grew up at a time when one or both was on the rise. Sony rose with them, most especially the television. Now, it’s saying goodbye to computers and moving televisions into a place where it can sell the division or ultimately shut it down. These won’t be the last farewells in either industry.
Source: Forbes Apple
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