Sony’s record share buyback misses the big picture as smartphone business worsens

Source:Global Times Published: 2019/2/11 15:35:35

Sony's blockbuster share splurge misses the big picture. On Friday, Japan's $55-billion electronics giant said it would repurchase 100 billion yen ($911 million) worth of its shares. This announcement was just days after disappointing earnings, and that's a strong sign of confidence from new(ish) boss Kenichiro Yoshida. To boost longer-term returns, though, he needs to convince investors a much-needed and deeper overhaul of the video games-to-movies conglomerate is also underway.

The buyback will be Sony's largest ever. Just last week, the company announced a worse-than-expected fall in operating profit from its PlayStation console division, Sony's cash cow business. That helped wipe some $9 billion off the company's market value in the days that followed. The latest move is already cushioning that blow: by late morning in Tokyo on Friday, Sony's shares were up by as much as 5 percent.

That should boost Yoshida's standing with shareholders. Since taking over last April, the chief executive has presided over a negative 8 percent return as of February 7, largely in line with Tokyo's benchmark Topix index.

Moreover, the repurchase plan shows that Sony's balance sheet is stronger than it has been in recent years. Net cash, excluding the group's financial services business, stood at 445 billion yen, around $4 billion, as of December, up from 177 billion yen a year earlier. Yet the stock trades at roughly 11 times forward earnings - well below its own two-year average and video-games rival Nintendo's 14 times, Refinitiv data shows.

An unruly conglomerate 'sprawl' is to blame. Besides video games, music, and movies, Sony also houses a capital-intensive semiconductors unit as well as a loss-making smart-phones businesses. Unlocking value will require bolder steps like spinning off the chip-making business, or exiting handsets. A share bonanza, though welcome, will only go so far.

The author is Robyn Mak, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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