The Company That Inspired Steve Jobs Is Stumbling

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SonyThere was a time when Sony (SNE) was a big part of our lives.

The kid that grew up with a Sony Walkman eventually bought a Sony PlayStation that he connected to his Sony TV. When he had kids of his own, he whipped out his Sony camcorder or digital camera to record memories that would be played back later on a Sony VCR, DVD, or Blu-ray player.

In his youth, Steve Jobs, Apple's iconic leader, drew inspiration from Sony. However, now that Apple (AAPL) is the new Sony, where does that leave Sony?

Relegated to the Tabloids

Sony is still around, and it's certainly not going away anytime soon. However, the consumer electronics giant is smarting these days. Lately the company has been making headlines for all of the wrong reasons.

There was the nasty incident back in February where it was caught advantageously marking up Whitney Houston's digital downloads in the United Kingdom after her death.

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Sales in Japan of its PS Vita tailed off quickly, and February's stateside rollout hasn't generated the necessary buzz to make the handheld gaming device popular. Just last month a popular gamer blog reported that Sony's eventual PS3 replacement will likely not play used games or any PS3 titles.

If we step further back in Sony's timeline we see last year's prolonged network outages after successful hacking attempts, waning interest in its smart television initiative through Google (GOOG), and more red ink.

The stock took another hit earlier this week, after the Japanese company warned that it would be posting a larger loss for its fiscal year that ended in March.

Deficits aren't new at Sony. The former consumer tech darling hasn't turned a profit since 2008. Its flagship TV business lost money in each of the seven past years. Sony recorded a $3.2 billion loss in fiscal 2011, and fiscal 2012 is going to be even worse. Writing off $3.7 billion in deferred tax assets -- as Sony announced this week -- is a sign of how far the company has fallen and how hard it will be to get back up.

New Hope for Old Problems

In a move that was several years overdue, Sony finally made a change at the top two months ago.

Sony's board tapped cost-cutting insider Kazuo Hirai as the troubled consumer electronics giant's new CEO.

Despite having risen up through the ranks at Sony at a time when an external "outside the box" thinker would seem to be the better fit, Hirai's a solid choice. He's a brazen free thinker who isn't afraid to ruffle some feathers at the historically conservative Sony.

Unfortunately, even a great CEO sometimes isn't enough to rescue a doomed company.

Break down Sony's businesses and there are more red flags than catalysts.
  • Sony hasn't been able to turn the profitability corner with its signature TVs, and just wait until we see what Apple does in that segment. Several analysts expect the iEverything company to put out an actual high-tech TV as early as this holiday shopping season.
  • Gaming? Forget about it. The PS Vita is too expensive at a time when handheld gaming is favoring more casual smartphone diversions that are far cheaper. PS3 continues to lose ground to the Xbox 360, and Nintendo (NTDOY.PK) should turn heads with its Wii U console later this year.
  • Digital delivery is killing a lot of Sony's other businesses. Who needs a Blu-ray or DVD player when we can stream? Broader connectivity access can be either an opportunity for its movie studio and record label, or -- more likely -- a larger looming piracy threat.
  • Sony may have been ahead of the curve in electronic books with its Sony Reader, but now folks are favoring Kindles, Nooks and iPads.
  • Sony's exports are feeling the pinch given the historical strength of the Japanese yen, but the company's problems are more than something that's lost in the currency translation.
One of the profitable segments at Sony, oddly enough has been its financial services unit, which includes life insurance and bank subsidiaries. There may not be anything grim in that division's future, but it's clearly not enough to carry the rest of the company.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Nintendo and creating a bull call spread position in Apple.


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