Difficulties Facing Sony

We believe Sony (SNE - Analyst Report) will continue to struggle as it faces competition from innovative digital products and struggles to ramp production of its PlayStation3 (PS3). In addition, Sony is facing increasing competition from low-cost manufacturers in Asia as the consumer market slows. We therefore maintain a Sell recommendation on SNE shares with a $35.00 price target. To strengthen its top-line growth and drive growth for the future, Sony is currently banking on its next-generation game console, PS3, which has experienced several delays and has come with a hefty price tag. The European launch has been rescheduled due to manufacturing problems from November 2006 to March 2007, thereby missing the important holiday season. Sony’s brand image has recently been hurt by the global recall of its batteries for notebook computers produced by Dell (DELL - Analyst Report), Apple, Inc. (AAPL - Analyst Report), and Lenovo. As a result, it has recorded a $440.8 million provision in the Electronics segment during the second quarter. The company’s position has been susceptible to the entry of new manufacturers and distributors, especially those from Korea and China (competing on price and driving the market further towards commoditization), and the industry shift from analog to digital technology. This has resulted in significant price erosion in the end-user consumer audio video (AV) product market. Meanwhile, as more home AV products become digital, technology companies have appeared to gain a head start in innovation, eating into some of Sony’s traditional markets. Read the analyst report on SNE Read the analyst report on DELL