Sony exits low-end smartphone markets

Sony Corp. has decided on a plan to fundamentally overhaul its global strategy for its smartphone business by exiting the market for low-priced devices in China, Central and South America, and other developing countries, sources said. The electronics giant will aim to improve profitability through targeted investments in high-priced devices for sale in Japan, the United States and Europe, the sources said.

A turnaround in Sony's smartphone strategy will likely be determined by the success of the management restructuring at the company, which has been performing poorly.

This is the second time this year Sony, the only Japanese company with a presence on the global smartphone market, has revised its sales plan for smartphones.

The firm sells devices in about 60 countries and regions. In May, Sony introduced devices priced around ¥10,000 (S$120) to ¥20,000 in China and Central and South America as part of a plan to sell 50 million units worldwide in fiscal 2014.

Yet sales have been sluggish due to the rapid growth of cheap products from Chinese manufacturers, prompting Sony to lower its target to 43 million units in July. The current recalibration will likely include shaving an additional several million units off the global sales target, perhaps putting it below 40 million, the sources said.

Sony will lay off several hundred workers as part of halting sales of low-priced devices in China, the sources said. The firm will continue selling high-end devices through China Mobile Communications Corp., the nation's largest mobile carrier, and others. Sony is considering similar measures to improve profits in other nations where Chinese makers have large market shares, such as Brazil and Argentina.

Sony has made its mobile sector, which is built around smartphones, a key business that is vital to its management reform. Operating profits for the mobile sector in the fiscal year ending in March 2015 are expected to be negative, after logging a ¥12.6 billion profit the previous fiscal year.

Sony will continue to introduce high-priced devices in Japan, where sales have been solid, and in the European market, of which it holds a large share, the sources said. In North America, the firm is this month beginning to supply high-end smartphones to Verizon Wireless, the United States' largest mobile carrier, and is in talks to do the same with Sprint Corp., the nation's No. 3 carrier that is owned by SoftBank Corp.

Reform by shrinkage

In scaling back its global smartphone business, Sony hopes to make this fiscal year the last year for rebuilding its electronics sector, which is the firm's main business but has been perennially in the red.

Its mobile business, which includes smartphones, video games including the PlayStation consoles and image sensors for smartphone cameras, form the core of Sony's electronics sector.

A second downward revision of the global sales target is expected to be accompanied by a significant shift to a narrower focus on profitable high-end smartphones. The strategy until now has been geared toward expanding scale.

The Chinese market has been particularly troublesome for Sony. Huawei Technologies Co., Xiaomi Inc. and other Chinese makers have introduced huge numbers of cheap products, and have seen sales soar. Even global leader Samsung Electronics Co. of South Korea has taken a big hit in its market share this fiscal year.

Sony is ranked below No. 5 in the Chinese smartphone market, making it difficult to continue to expend resources on a wide range of moderate- and low-priced devices.

Through its ongoing structural reform, in which Sony has stopped making personal computers and spun off its television business, "We are finally seeing a path back to profitability in our electronics sector," a senior executive said.

A return to the black apparently hinges on whether Sony can sell more high-priced smartphones in Japan, the United States and Europe.