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2/7/2014
12:34 PM
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Sony Dumps PC Business: Who's Next?

The PC slump became too much for Sony. Other PC makers face the same reality.

7 Mistakes Microsoft Made In 2013
7 Mistakes Microsoft Made In 2013
(Click image for larger view and slideshow.)

Sony will dump its PC business as part of a new restructuring effort, the company announced Thursday. Investment fund Japan Industrial Partners agreed to purchase the electronics giant's PC business for a to-be-negotiated amount. Japan Industrial Partners will rely on the purchased assets to establish a new PC company, in which Sony will keep a 5% stake.

In a sense, PCs are only one part of Sony's troubles. The company also announced plans to exit the North American e-book market, spin off its television business, and eliminate 5,000 jobs. Then again, with PC shipments down a historic 10% in 2013, it's telling that Sony abandoned a brand as visible as its long-running Vaio PC line.

It begs the question: Does the sale say more about the state of Sony's sprawling portfolio of low-profit products, or about the sagging PC market?

"It's kinda about both," Gartner analyst Mika Kitagawa said in a phone interview. "It's partly a Sony thing, and partly an issue of the PC industry struggling to maintain good margins."

With the exception of Lenovo and possibly Apple, virtually all PC makers suffered in 2013. But for a company like Sony, conditions were particularly brutal.

[Will Satya Nadella and Bill Gates click? Read Nadella, Gates: Right Team for Microsoft?]

Commercial PC shipments have actually held relatively steady, Kitagawa said. With still-popular Windows XP set to lose support in April, many businesses spent the last year refreshing hardware and upgrading OSes, usually to Windows 7.

But consumer sales fell dramatically, cannibalized by an onslaught of tablets and smartphones.

"Sony is almost all consumer," Kitagawa said. "It has a presence among SMBs, but it's not like HP, Dell, or Lenovo, who also sell to large enterprises. Sony is mainly a consumer player."

Sales of the PlayStation 4 and other consumer tech have been a silver lining for Sony.
(Source: Wikipedia)
Sales of the PlayStation 4 and other consumer tech have been a silver lining for Sony.
(Source: Wikipedia)

Against these bigger PC makers, Sony's business was fairly meager to begin with. According to Gartner, it accounted for only 2.3% of shipments in 2011 and 2.1% in 2012. The company's share slipped to only 1.9% in 2013, its lowest mark since 2009. Sony clearly didn't see things getting much better.

But could we see similar moves from other PC players? Kitagawa said the market is challenging because most companies have to adopt one of two approaches to sell PCs.

"You can sell a lot [of low-profit computers] and enjoy the economy of scale to improve margins," she said. With its recent acquisitions, Lenovo, the largest PC maker in the world last year, seems to be embracing this tactic.

"Or you can be a niche player in a small market, where you don't sell a lot but you specialize," Kitagawa continued. Japan Industrial Partners appears to be going this route. It will initially sell Vaio-branded computers only within the Japanese market, with possible expansions to be evaluated later.

It remains to be seen if any larger PC players make drastic moves in coming months. Sony said in a statement that it would focus on smartphones and tablets. What does this mean for the company and its PC customers?

Sony said its customers will continue to receive aftercare services. The company also said 250 to 300 of its current PC employees will be hired by Japan Industrial Partners' new company.

Thursday's announcement represents the fourth time in the last decade that the company has cut at least 5,000 jobs. The company also lowered its projection for its fiscal year, which ends in March. It had previously expected a modest profit, but now expects a $1.1 billion loss.

Sony can point to a few silver linings, such as the PlayStation 4's strong launch. But given its current financials, a shakeup of some sort was clearly in order. The company could remain focused on final products, or it may follow the lead of some other Japanese electronics companies and focus more attention on selling components, such as its widely used CMOS sensors, to other companies.

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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RobPreston
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RobPreston,
User Rank: Author
2/10/2014 | 9:39:56 AM
Re: Commodity Business
Sony's problem is that it stopped developing breakthrough products. The Walkman created an entire genre until the iPod and its followers made that product irrelevant. Sony can be only so successful making high-quality versions of commodity hardware products--TVs, PCs, gaming consoles. It needs some breakthrough products. And as my colleague Tom Claburn suggests, it needs to put more of its R&D into software.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
2/10/2014 | 9:22:34 AM
Re: Commodity Business
I also wonder if a company can be a PC player without also being strong in tablet technology, as the lines blur between the two formats. I was just talking with someone this weekend raving about his Lenova Yoga.
Michael Endler
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Michael Endler,
User Rank: Author
2/8/2014 | 5:50:08 PM
Re: Commodity Business
Yeah, it's a bit ironic that Sony threw in the towel just as news reports revealed that Steve Jobs had once considered licensing OS X to Sony. Jobs was very partiuclar about the kind of hardware he'd allow his platform to run on. But Sony tried to sell mainly in the higher price brackets-- and only had mild success. Without a presense in the lower ends of the market, Sony was never able to become a big player. And once the consumer market fell out, I imagine the business became tough to justfy.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
2/8/2014 | 2:26:34 AM
Re: Commodity Business
So no more Sony Vaio laptops and All-in-one-PCs, it kind of sad because those were some fine products and that the division is being sold to an investment fund and not a PC maker. It speaks of the state the PC market is in currently. When Compaq merged with HP, at least it was like with like. Having said this, if we include Smartphone and tablets into the definition of PC then the industry could not be doing any better.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
2/7/2014 | 7:49:59 PM
Re: Commodity Business
I wonder if hardware companies can survive without the patronage of a strong software platform maker.
danielcawrey
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danielcawrey,
User Rank: Ninja
2/7/2014 | 4:39:54 PM
Re: Commodity Business
I remember when HP was going to sell of their PC business, only to backtrack on that. 

It would not surprise me in the least if they again went down that path. I know that Microsoft is trying to develop OS software in the form of Windows 8 that can rethink the idea of the PC, but it simply is not going to resurrect the concept. 
Gary_EL
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Gary_EL,
User Rank: Ninja
2/7/2014 | 3:18:26 PM
Commodity Business
Japan is a first world country that needs to pay employees first world wages so the employees can survive. Unless you are an artist or a gamer. PC prices have plummeted to almost nothing.

PC's aren't a business for Japan, any more then they are a business for the US or Europe. PC's are going the way of consumer electronics, they can be built easily in low wage counties like China for now, and if trends continue, soon they will move down the food chain to – where?
Server Market Splitsville
Server Market Splitsville
Just because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.
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