by Tyler Durden
It was over a year ago, when contrary to the propganda spewed on a daily basis by the Japanese government hell bent on destroying the domestic economy, now suffering its Keynesian death rattle, just to push stocks to highs which nobody except for a few thousand people will be able to monetize on, that the CEO of Sony explicitly warned that "the preconception is that a weaker Yen is good overall. Unfortunately for us, versus the USD, it goes the other way... we are actually at a disadvantage." He wasn't kidding and just under a year later, back in May, Sony shocked everyone when the electonics giant not only posted a massive net loss of $1.3 billion, far worse than previously expected, but also slashed its profit outlook by 70%.
Fast forward to today, when minutes ago the Yen hit another multi-year low against the dollar, which sure enough, is great for the nominal value of Japanese stocks, if horrible for the actual Japanese companies, the Japanese middle class, and pretty much everyone except for a few superrich people. Such as Sony. Because the (now former) electronic giant, which once upon a time was the target of an activist campaign by none other than Dan Loeb who mysteriouly saw value in the company, once again stunned everyone when it reported overnight that it expects its annual loss to swell to $2 billion, but, far worse, canceled the payment of its dividend for the first time ever after writing down the value of its troubled smartphone business.
Needless to say, Sony's stock which doubled in 2013 for the completely wrong reasons, is now crashing.
And while guiding lower is a staple of virtually all companies in the New Normal, halting dividends can mean only one thing: the end of the road may finally be in sight.
For the first time since going public in 1958, the Japanese electronics and entertainment conglomerate canceled dividend payments for the half- and full-year. "This is the very first time we ever eliminated a dividend," said Sony's president Kazuo Hirai. "For more than 50 years we always paid a dividend. The entire management takes this very seriously."
The company plans to cut staff in its mobile communications business by about 15 percent, or roughly 1,000 people, Hirai said. Details of that plan are to be announced later.
But... Abenomics is an economy-boosting miracle. Oh wait, there we go again confusing the economy with a stock market priced in devalued currency terms.
Sony has been trying to reshape its business after years of red ink and has repeatedly promised turnarounds without delivering. It said the bigger loss for the current fiscal year stems from a lower valuation of its mobile phone business due to weaker than expected sales. The company is recording an "impairment charge" of 180 billion yen ($1.7 billion) in the July-September quarter.
The charge is purely an adjustment to the company's balance sheet, involving no cash, but it reflects that the mobile business is far less valuable and will generate lower profits than previously thought.
The smartphone business has proven particularly tough for Sony. Apple and Samsung dominate at the top end while Chinese and other Asian manufacturers are hogging the market for cheaper phones that are most likely to appeal in fast-growing developing countries. Hirai said Sony had not managed to stay ahead of sea changes in the industry.
"The Chinese smartphone manufacturers have made great strides and are expanding outside their own market, and this has caused a shift in the pricing," he said. "Meanwhile, Apple and other manufacturers are launching strong, innovative products. The changes are very rapid and dramatic." Hirai said Sony expects a loss in its mobile business this year, but would return to profit by cutting costs and focusing on higher end devices. It is also positioning itself for future growth in smartphones and mobile technology.
"We have to be in the competitive landscape in the next stage and be ready for that evolution," he said. Sony intends to leverage its vast archive of music and movies, network services and technology to compete.
But... we thought all it took to boost trade, sends exports soaring and raise your GDP, was to crush your currency, while obliviously keeping everything else unchanged and telling corporate CFOs to just hang tight and that any minute now EPS nirvane would be upon them.
It there really more to being competitive in today's world than selling products at a low, low FX-adjusted price. Oh, forgot to mention: products which nobody wants regardless of the price?
Could it be that finally Japan is waking up to what we said in January of 2013, namely that just crushing your currency will do nothing for the underlying economy, and as Sony has shown, actually lead to ongoing corporate devastation and soon, widespread bankruptcies?
In a parallel note, Bloomberg reports something else we warned in January of 2013, namely that "business leaders in Western Japan warned central bank chief Haruhiko Kuroda that the yen’s slide to a six-year low is boosting costs of imported raw materials and fuel and may spell trouble for the economy."
Companies in the industrial city of Osaka report that their profit margins are deteriorating as they can’t pass along the higher costs even as sales rise, Osaka Chamber of Commerce and Industry Chairman Shigetaka Sato told Kuroda at a gathering yesterday. Kansai Economic Federation Chairman Shosuke Mori said the rise in fuel costs warrants close monitoring.
“It is a source of concern, that given the recent rapid yen weakness, the negative aspects such as rising import costs will become more prominent,” said Sato, who is also chairman of Keihan Electric Railway Co.
The comments underscore the burden that the cheaper yen is putting on the world’s third-biggest economy even as it gives a tailwind to the Bank of Japan’s effort to spur inflation. Kuroda said the currency moves don’t pose a problem for Japan and that it’s natural for the dollar to rise against the yen as the U.S. economy improves.
Golfclap. Now we just wonder how long it will take Japan to figure out the last thing we said in January 2013, namely that Abenomics was never meant to boost the Japanese economy, and was entirely geared to boosting the global, and mostly the US stock market, courtesy of some $75 billion in fungible liquidity thanks to the BOJ every month. Of course, if and when Japan does figure out what was painfully obvious to anyone who is not an idiot, Abe may need something far stronger than diarrhea to escape the rightful vengeance that the people will demand upon his head and other parts of his body.
Sadly for Sony, it will probably be too late.