Cuts are not all doom and gloom, with Sony having assets it can use to boost the mobile business
Not long ago, Sony Mobile was one of the leading names in the smartphone arena. Even before the smartphone era, it was a popular name up against the likes of Nokia, BlackBerry and LG, with the Sony Ericsson brand particularly favoured worldwide.
In 2014, Sony Mobile shipped just over 3.6 million smartphones in the UK, a sizeable chunk of the 34.5 million sold in the market.
Fast forward to last year and that number had shrunk considerably to only 450,000 of more than 20 million smartphones sold – with the company’s market share evaporating from 10.5 per cent to just 1.9 per cent in the space of four years.
It might be those dips in sales that have led to Sony Mobile announcing that it is downscaling its operations, with plans to cut both its operating costs and 4,000-strong workforce in half.
This means the company’s staff could number just 2,000 by this time next year, with cuts having already started in Europe, China and Japan.
Sony Mobile said in a statement, however, that plans for reducing operating costs are yet to be finalised.
A decade ago, this would have been unthinkable.
But have Sony Mobile’s recent plans come as a shock? Analysts such as Gartner senior analyst Roberta Cozza don’t believe so.
“I’m not surprised by Sony’s decision, but this is a shame because it has had some really strong smartphones in the past with good features,” she says.
Ovum consumer technology senior analyst Daniel Gleeson also isn’t too surprised, but says Sony’s plan to carry out such sizeable reductions is questionable.”
“By cutting numbers of people that make and sell its devices, it will impair the company’s ability to keep up with the market and create unique products,” he says.
“Sony has already withdrawn from many international markets: it has given up entirely on North America and much of Europe. And in Germany, Sony gave up talking to operators as it lost more market share.”
CCS Insight chief of research Ben Wood says Sony’s plan shows that the company expects challenging times to continue.
“The commercial reality is that Sony is under enormous pressure, and in a cut- throat sector such as the smartphone market it is difficult,” he says.
“It is a critical time for Sony Mobile as a business to get into a shape where it has a long-term future.”
Western Europe accounted for 37.9 per cent of Sony’s mobile sales as recently as 2014, but that figure had fallen by half to 18.3 per cent by last year.
As a region that was previously so important for Sony Mobile, the decline is alarming. But what has caused the fall in markets such as the UK?
Wood puts the trend down to past mistakes made by the company, such as its slowness to implement features that other vendors have brought to the market.
“Sony has come under a lot of price pressure and is paying for a lot of mistakes that it made years ago,” he says. “It missed some key trends such as bezel-less displays and dual cameras, and this has caused the brand to fall behind.”
The arrival of an array of new competitors – notably from China – hasn’t helped Sony’s cause. Huawei and its sub-brand Honor, as well as OnePlus, Honor, Xiaomi and, most recently, Oppo have all eaten into what could have been its market share.
“Sony has become overwhelmed by the competition and has not been investing strategically in the smartphone business to keep it where it once was,” says Cozza.
“Its products have almost become a showcase of what it can do in the smartphone space rather than pushing the brand as a defining player.”
Gleeson doesn’t feel, however, that a lack of features has been Sony’s biggest issue – instead citing the experience it provides for its customers, which may not always be enough to keep them coming back.
IDC research manager Marta Pinto believes Sony’s problem is linked to both marketing and overlooking the competition that has now surpassed it.
“Sony has always had good phones with good specs, but has lacked direction with its marketing and branding,” she says.
“The company has also lacked separation between its smartphones and other consumer electronics. Sony Mobile needs to tell its own story.”
For Cozza, the brand has simply lost its spark. “It’s a market where the need to innovate and constantly reinvent is essential,” she explains. “Sony had a very successful Xperia brand in the past, but now it feels as if it has lost its coolness.”
Although Sony’s position in the market might not be as strong as it once was, the consumer electronics giant still has strong relevance in the space – at least as far as components are concerned.
Analysts seem to agree that these could still prove crucial to Sony Mobile remaining or becoming more competitive.
For example, Sony’s camera technology has been something that other rival manufacturers buy for key flagship devices, with Huawei and Apple among two of the big names that use its camera sensors.
Components such as these could give the vendor a chance to fight back says Wood.
“Sony has some clear advantages on a few different levels, especially with its components and its camera sensors,” he says. “Whether it’s Apple or Huawei, they are using Sony for these components, so clearly the company has world- class technology. It therefore feels like the camera side of things is where Sony should step up and exploit its own potential.”
Gleeson agrees that Sony has this capability in place but has lacked in execution. Sony’s camera technology has been excellent and is so top of the range that it even sells this to other smartphone manufacturers,” he says.
“Yet while the technology is there, the message hasn’t always been put out to the consumers who buy the phones. Sony has fallen into the trap of producing cool technology but hasn’t really explained why it matters or why people should care.”
In 2014, Sony shipped a total of 40.1 million smartphones worldwide. By last year, this had declined to just over eight million, with the company targeting shipments of just seven million for this year.
While the smartphone market has begun to decline in this period, this drop in numbers on a global front is also startling. So what can Sony do to change its fortunes?
Recovery begins with investment, says Wood, who believes that Sony can only expect to see better fortunes if it spends the necessary money.
“To deliver some outstanding smartphones, Sony needs to invest and differentiate its products from the mass market,” he says. “I believe that Sony needs to regain some initiative in the camera space and has the ability to do so.”
Wood also thinks the company needs to maximise use of its content and varied features.
“Sony has so many fantastic assets such as its content, screen technology and, of course, its camera technology, which is the best in the world.
“Added to that, Sony is one of the most recognised brands in the world when it comes to consumer electronics. The challenge has been converting these assets into success in the mobile phone market.”
Pinto agrees that Sony has the content to compete, but must use it to its advantage, saying: “Sony has an ecosystem full of amazing content and should use this content within its phones to differentiate the brand from the competition.”
While Cozza feels a change of strategy is required, Gleeson says Sony should identify a select few markets and push hard in those places. “To steady its chances, Sony has to be very focused and identify a small handful of key markets, plough all the marketing into that and withdraw from markets that it is struggling in,” he says.
“There is no point competing in markets with the likes of Xiaomi, OnePlus or Vivo in terms of price. Sony should also focus on the story of its own camera technology.”
The PlayStation factor
A particular Sony asset that has long been successful is its PlayStation range of gaming consoles.
Sony launched the first model in the range in 1994, since followed by the PlayStation 2, 3 and 4, plus some handheld variants. More than 500 million of the consoles have been sold to date, showing their popularity.
And in the mobile space, gaming has never been more popular, with favourites such as Fortnite and PlayerUnknown’s Battlegrounds available on devices through a number of vendors.
Both Samsung and Huawei have been particularly active in the mobile gaming arena in recent times and as 5G homes into view, there has been a lot of talk about the potential for cloud gaming.
Pinto believes Sony can use PlayStation’s pull factor by integrating it more into its smartphones to offer something unique.
“Sony can grow its market share by using its content, such as that offered by PlayStation,” she says. “Last year, the company did some bundles with the PS4 and its Xperia devices, and these products flew off the shelves.
“PlayStation is valued highly, and there isn’t a player in the market like Sony that has ties to its own gaming console.”
Gleeson also feels there are opportunities for Sony to harness the strength of the PlayStation brand as the market moves towards 5G.
“The story of PlayStation could be strong if Sony wants to push this within its smartphones, perhaps with cloud gaming and 5G,” says Gleeson. “There is a huge opportunity.”
Wood agrees, saying: “Right now, it’s clear that gaming on mobile is a hot area – and with 5G, there is a huge opportunity with cloud gaming.
If Sony were to introduce PlayStation on its phones, it could become a killer feature for them.”
So despite its recent difficulties, the possibility of using such strengths means there is still room for Sony to compete in the smartphone market, say the analysts.
Gleeson likens the company’s position in the smartphone market to that of LG, another big consumer electronic brand that has found the sector a challenge in recent years.
“LG is in a similar position to Sony,” he says. “One similarity is that while Sony supplies a lot of smartphone cameras, LG supplies many manufacturers with displays.”
As one of the few Japanese smartphone manufacturers left, Gleeson says that Sony will continue to fight on.
“There is a lot of pride involved too, as Sony Mobile used to be an integral part of Sony’s overall business plan,” he says. “As one of the last remaining Japanese smartphone manufacturers, it is also one of the only ones with international relevance.”
Wood believes that Sony Mobile will carry on competing in the smartphone battle because its parent company can’t afford to be out of it.
“It’s a lucrative market that is worth billions and this is why Sony will continue to have interest,” says Wood.
Pinto agrees, adding that staying in mobile will keep Sony’s portfolio complete.
“I expect Sony to continue in this market,” he said. “If it were to disappear, I think it would end up lacking a product in its portfolio. Sony is already lacking a device in wearables, so shouldn’t contemplate not being in mobile.”
Although Sony will find it difficult to scale the heights again as one of the leading smartphone brands for market share, there is hope of a revival.
The likes of Nokia, with the help of HMD Global, or BlackBerry, assisted by TCL Communications, have both experienced some upturn in their fortunes – and Pinto says these specific examples can act as an encouragement for Sony.
“Look at BlackBerry, which disappeared out of the market a few years ago,” she says. “After being bought by TCL the brand has been able to find its way back into the market and has found that demand has increased.”
“The fact that Sony isn’t as relevant as it once was doesn’t mean it will completely disappear.
“Sony Mobile has continued to strike partnership deals with the likes of Amazon Prime and Netflix, and this reflects that it still has some standing in the market.”
In a special statement sent to Mobile News, Sony Mobile said that it was thinking ahead with a commitment to gearing up for 5G, thus indicating it intends to remain a competitor in the mobile sector.
And major markets such as Western Europe are set to continue as areas of major interest for Sony, with CCS Insight’s Ben Wood believing that the company will continue to “give it a good shot” when it comes to smartphones.
“Sony won’t give up and rightfully so,” he says.
“As long as there’s interest in the smartphone market, Sony will give it a good shot.”