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Sony dumping once trendy Vaio line

Sony (SNE) is revamping its corporate structure and product lines in hopes of lifting the company's sagging profits.

The consumer electronics giant said today it will sell its Vaio line of PCs to private equity company Japan Industrial Partners. The buyout firm will sell computers in Japan only under a different name. No terms of the deal were disclosed, but Japanese press reports put it at between $292 million and $365 million.

Sony also cut its earnings forecast for the year, disclosing that its television business would not return to profitability in the fiscal year ending on March 31.

As part of a corporate reorganization, the company said it will split off the TV division into a wholly owned subsidiary focused on selling pricier TVs. The company now says that it hopes to return the division back to profitability by next year. If not, the changes would position the company to be able to sell the division.

Sony CEO Kazuo Hirai called the decision to shed its Vaio assets an "agonizing decision."

The decision reflects the steady decline in PC sales in recent years as more and more consumers shift to tablets and smartphones. The performance of Sony's Vaio line, once considered a design trend-setter, has been anemic of late. According to market researcher IDC, the company's share of the PC market has been about 2 percent for the past decade. And the Sony division that sold PCs has been losing millions for years.

Investors seemed to cheer Sony's move to dump Vaio, with the company's ADRs rising more than 4.5 percent in early trade. Shareholders have long urged the company to streamline, with Sony recording either losses or slender profits in recent quarters.

For the quarter ending December 31, Sony reported a 24 percent year-over-year growth in revenue, to $23 billion. But its $257 million in profits for the period amount to only 1 percent of sales, while net income for the first nine months of the fiscal year were virtually non-existent. 

Despite its lackluster profits, Sony retains some important strengths, and it has already make some internal changes that analysts say are paying off.

"Sony has numerous bright spots as a whole, including a growing range of attractive new products and services, strong PS4 sales, structural changes that have boosted movie and music earnings, and better disclosure," Deutsche Bank analysts recently wrote.

But figuring out what to with its older business lines is critical because Sony has stated that the drivers of future growth for the company would be imaging, gaming and mobile technology. Meanwhile, the company's mobile unit lost $21.3 million in operating income on sales of $318.8 million in the quarter, while imaging lost $2.9 million on revenue of $186.9 million. Sony on Thursday also lowered target smartphone sales for the year from 42 million to 40 million. 

Of those three Sony divisions, gaming was the only unit to make money last quarter, with a 33 percent jump in sales largely due to its introduction in November of the PlayStation 4.

The upshot? Apart from gaming, Sony is struggling to advance in product areas that the company says are key to its growth. That raises the pressure on Sony to free itself of the distraction of selling TVs and PCs, whose costs -- and profit margins -- keep dropping as these hardware items become increasingly commoditized.

If Sony's internal reshuffling could help boost profits over the longer term, for now the move will cost plenty. Sony cut its profit expectations for the year and expects to lose more than $1 billion, largely because of restructuring expenses.

"[W]e believe the market will start to realize there is further downside risks to Sony’s consumer electronics businesses given shrinking industry and potential charges associated with restructuring," analysts with JPMorgan (JPM) recently said in a research note.
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