Sony Brand In Trouble

The Sony brand is in trouble with leading analysts now claiming that the struggling Company can no longer rely on its brand name to charge customers a higher price than its competitors.

 First it was the PS3 disaster with the product slipping till 2007 for markets like Australia and Europe then there was the multi million dollar battery fiascos with analysts tipping that the recall will wipe hundreds of millions of dollars off Sony’s bottom line profits.

Fitch Research analyst Tatsuya Mizuno said Sony had not been able to capitalise on its competitive strengths, including strong electronics expertise and huge movie and music software libraries. He says that the brands value is disintegrating and fast. He claimed that ‘Sony has failed to realise the synergies between its hardware and software capabilities and has not been able to bring innovative and break-through consumer electronics products to the market for a while,’ said Mizuno.

Other problems facing Sony is the competitive nature of the LCD TV market with analysts at organisations like Display Search claiming that they doubt Sony will hold onto it’s leadership position and if they do they will have to pay big rebates to retailers to promote the Sony Bravia brand over the likes of Samsung.

Fitch Ratings downgraded its long term foreign currency rating on Sony because of worries about problems with the PlayStation 3 and major recalls of its batteries. The ratings agency downgraded the long-term foreign currency ratings to ‘BBB-plus’ from ‘A-minus’ with a negative outlook.

The ratings agency said Sony’s financial profile was expected to continue to weaken over the next one to two years. ‘Fitch expects Sony would need a longer time to restore its underperforming electronics operations, while its game segment will likely incur large losses over the next three to five years given the huge investments and intensifying market competition,’ Fitch said this week.

The PlayStation 3 was likely to face more severe competition than the PS2 which could mean Sony will need longer to recoup the huge development costs, while the battery recalls have dealt a further blow, Fitch noted. Sony said on August 25 that it would incur costs of up to $350 million after major recalls by several computer makers Apple Computer and Dell due to concerns that they could potentially burst into because of overheating. Since then its troubles have spread further, with recalls by Toshiba, China’s Lenovo and Fujitsu. ‘The extent of the adverse effects of the recall… cannot be underestimated given Sony’s leading position in the global lithium-ion battery market,’ the ratings agency said. He said Sony could no longer rely on its brand name to charge customers a higher price than its competitors.

As Sony’s battery recall spreads, analysts are wondering how much business Sony could lose to competitors in the battery business and just how much Sony’s general reputation has been tarnished. So far, companies have stayed mum about their plans in terms of their supply relationship with Sony.  However many are believed to be looking elsewhere.

Industry observers say computer makers are likely to look hard at shifting at least some of their business away from Sony and giving it to its two main competitors in the battery business, Sanyo Electric and Panasonic Shikoku Electronics.  Last month Sony also revealed that it had not started production of the long-awaited console, leading industry analysts to question whether Sony would be able to keep to its timetables. In April, Sony posted a 68 per cent rise in full-year operating profits but hopes that the Japanese electronics-to-media group could finally be staging a concerted recovery were overshadowed by concerns over larger than expected costs for the launch of the PS3 and the recent battery recall.

At that time it said it expected its games division to rack up an operating loss of $1.1 billion this financial year amid spiralling PS3 costs. That hit is expected to cut operating profits in half from last year. But Sony also stands to lose in terms of reputation with bloggers expressing anger at today’s setback.

“So not content with overpricing the system, delaying for a year and ensuring it’s underpowered compared to its direct competitors [Sony is] now going to ensure the traditional Christmas market is utterly overlooked,” said Kuriyama’s Hovel on MySpace.com.

“Of course by this time next year they’ll be decrying pirates as the reason they’ve failed to establish a substantial [sic] foothold in the next-gen market … After the genius of releasing the Playstation originally, they really have done their best to run themselves into the ground,”