From time to time, I like to dig into the health of a company. Any publicly traded company’s financial data can be found on their website. This includes all SEC filings, press releases, and balance sheets.
Now there’s no “SOE” listing. It’s under Sony Computer Entertainment which is owned by Sony. Thus, the SOE SEC documents and releases are listed under Sony’s site.
The first thing I pulled up is the 3rd quarter earnings release for the fiscal year 2012 (FY2012 Q3). This was more of an attempt to get familiar with their reports before actually asking any questions. As I scrolled through, I got to a section labeled ‘Game’. Figuring EQOA was a software that was a game, I figured I’d read the summary… this is what it says:
Sales decreased 15.1% year-on-year to 268.5 billion yen (3,086
million U.S. dollars). Overall segment sales decreased significantly due to lower sales of hardware and software of the PlayStation®3 (“PS3”) and PSP® (PlayStation Portable) (“PSP”), partially offset by the sales of the PlayStation®Vita introduced in December 2011.
Operating income decreased 29.2 billion yen year-on-year to 4.6 billion yen (53 million U.S. dollars). This decrease was primarily due to the above-mentioned decrease in sales of PS3 software and PSP hardware.
This is from the most recent earnings report. As you can tell, sales are decreasing. To put an even bigger number on this, the above report says “significantly decreased” (underlined). Just how low were those sales? Try -86.4% compared to 2011. Yikes.
Knowing that this word ‘game’ includes all gaming items, I hit ctrl+F and typed in game until I found more information. Piece 2:
Primarily due to the lowering of the annual unit sales forecast for portable hardware, sales and operating income are expected to be lower than the November forecast. Sales and operating income are expected to decrease significantly year-on-year.
Again, sales are dropping for Sony in their gaming division. I do want to underline that their gaming division still makes a lot of money. Billions, to be exact. It’s just that their operating income is dropped between 20-24% compared to 2011. On top of that, there’s only 2 regional markets that sales are decreasing: the US and China.
And their plan to fix this?
In the game business, Sony is working to expand sales and operating income through the introduction of an attractive software lineup and through offering game software on mobile devices, including smartphones and tablets.
I’m under the impression that terminating a game like EQOA falls in line with this strategy. What I’m digging for are the cash flows and balance sheets showing the Game categories revenue and expenses… but unfortunately those don’t exist in the detail that I’m looking for.
After reading through this most recent report, I figured I would look for the report that came out just before the February 28th announcement that EQOA was being killed off. And that report was released February 2, 2012. It’s for FY2011 Q3. And to nobody’s surprise… sales for gaming (which actually included more products than it did a year later) was down 9.6%. There’s no mention of consolidating product lines in their gaming division.
I will say this, after looking through several quarterly reports, I can tell that Sony has some major issues, especially in the American market. Almost every division is suffering.
Here’s Sony’s financial pie. This is directly from their site:
And here’s how they’re doing year to year. The same website lists 3 reasons for Sony’s falling numbers:
- Unfavorable impact of foreign exchange rates, the impact of the Great East Japan Earthquake and the floods in Thailand, and deterioration in market conditions in developed countries.
- Lower sales factors and a significant deterioration in equity in net income (loss) of affiliated companies.
- A large net loss attributable to Sony Corporation’s stockholders was recorded mainly due to the recording of a non-cash tax expense related to the establishment of valuation allowances against deferred tax assets, predominantly in the U.S.
How does the market feel about Sony? Pretty bearish. In March 2011, the stock traded at more than twice it trades at now. $34/share. vs $15/share.
I spent some more time looking through analyst reports on Sony. What I’m writing here has been written before. A lot. Sony is a struggling company and there are years of numbers to support that. Couple that with a recession in the US and Japan, and you have a company that’s looking to slim down their product lines. If I ran a division, which John Smedley does, then I would be looking at what’s making me money. Chances are, EQOA wasn’t. A company the size of Sony could probably get away with letting a game like EQOA live on for a bit, but it’s kind of like playing Solitaire all day at work. Sure, you can get away with it for awhile, but eventually your boss or your boss’s boss notices a lack of productivity. Eventually you get canned.
So while it was easy for us to yell at SOE for shutting down EQOA, the reality was/is, they had no choice. The game is owned by a company that’s simply fighting to stay competitive. Tough luck for us but we’re not a unique case. I’m looking at you MiniDisc owners.