Smartphone is Sony's "chicken rib”

By Ding Heng

The Japanese electronics giant Sony has closed its smartphone plant in Beijing after more than 23 years. With its closure, the company will only be making its own smartphones in Thailand, and will continue to outsource production to contract manufacturers. Meanwhile, plans are reportedly underway for the company to slash half of its smartphone workforce - up to 2,000 people - by March next year.

Visitors take photos of the new Sony Xperia 1 during its presentation on the opening day of the Mobile World Congress 2019 (MWC19), in Barcelona, Spain, 25 February 2019. [Photo: IC]

Chinese people use the term “chicken ribs” to describe something not entirely without value – after all, chicken ribs do have some meat on them – but they are not something people really want. Sony’s mobile business is its corporate chicken ribs: it generates about 6 percent of the company’s revenue, and it's the only business unit continuing to lose money. Sony has forecast that sales of its Xperia smartphones plunged more than 50 percent to 6.5 million units in its 2018 financial year that ended in March. That’s less than the number of handsets Samsung ships in a fortnight. According to the Hong Kong-based market research firm Counterpoint, Sony held just a 0.5-percent share in the global smartphone market last year. Reducing costs by closing plants and laying off staff is the most pragmatic approach for Sony if it’s to realize its goal of making its mobile business profitable by its 2020 financial year.

Sony’s phones were some of the most fashionable handsets in the pre-smartphone era. It sold phones through a joint venture with Ericsson before it bought out Ericsson’s stake in 2011. At its peak in 2007, Sony Ericsson held a 9 percent share of the global market, making it the world’s fourth largest vendor. But 2007 was also a turning point for the market: Apple released the first-generation iPhone and began the gradual yet irreversible market shift towards smartphones.

Sony wasn’t a late entry into the smartphone market, and it performed fairly well early on. It unveiled its first Xperia in 2008 and in 2010 became one of the earliest adopters of Android. In 2012, Sony was briefly the world’s fourth largest smartphone manufacturer with more than 34 million units shipped. The release of the Xperia Z series in 2013 showed that Sony had reached a level of maturity in applying water resistance technology to smartphones – something Apple didn’t accomplish for another three years until the iPhone 7.

However, Sony’s smartphone business has taken many wrong turns.

As part of former Sony CEO Kazuo Hirai’s “One Sony” strategy, the company’s mobile business decided to cut the lead time for product development – the time between inception and release – by half in 2012. As a result, Sony released more than 80 Xperia models from 2012 to 2017. On the surface, this offered consumers a lot of choice. But most of these models were hastily developed, which made it difficult for any one of them to excel in the increasingly competitive market. By 2017, Sony’s global market share had slumped below 1 percent and the phones gained a reputation for having old designs and offering a mediocre user experience. When it comes to reliability and satisfaction, Sony ranked last in a survey by American magazine Consumer Reports of more than 132,000 customers who purchased a new handset between 2013 and 2018.

Sony might have been able to better defend its market share if it had not completely dropped out the low-end smartphone market after 2014. In the premium and mid-range market, Sony doesn’t seem to have any competitive advantage. In terms of user experience, it doesn’t pose a serious challenge to market leaders Apple, Samsung, and Huawei. And while brands such as Xiaomi and Oppo are cheaper than Sony, they don’t necessarily offer a subpar user experience.

Sony’s internal rivalry also seems to have played a role in its failure in the smartphone market. While Sony produces some of the world’s best cameras, the cameras in its smartphones aren’t competitive. More than 30 models of smartphones rank ahead of Sony’s best camera phone, the Xperia XZ Premium, in the latest ratings by photography benchmark website DxOMark. Adam Marsh, Sony’s senior manager of global marketing, said in an interview earlier this year that sometimes Sony’s Alpha camera team doesn’t want to give the mobile team certain things even though they belong to the same company. It seems the camera team is more concerned that sales of Alpha cameras would be affected if consumers could get the same experience from an Xperia handset. Ironically, Sony technology has contributed towards the development of many of the rivals to the Xperia. For example, Sony collaborated with Huawei in developing a sensor in the latter’s new P30-Pro that is considered by DxOMark to be the world’s top camera phone currently on the market.

Despite long-time calls from investors that Sony stop making its own smartphones, the company seems to have no plans to let go of this market. Smartphones are expected to be a central part of the emerging 5G wireless networks, and Sony obviously wants to try its luck in the 5G era. At this year’s Mobile World Congress, Sony joined many other vendors in showcasing a prototype 5G smartphone. At this point, it’s too early to tell whether the rollout of 5G networks will lead to a reshuffle in the smartphone market. But one thing seems clear: Sony doesn’t own too many 5G-related patents.

There are also signs that Sony is seeking a resolution to its internal rivalries. It has started merging its mobile, television, audio, and camera products into one new unit. And the market is waiting for the scheduled release of Xperia 1 in June to see whether it really has a top-of-the-line camera as Sony has promised. But the camera is, after all, just one part of a smartphone. At a time when the market is more saturated than ever, it will be extremely difficult for Sony to stage a strong comeback.

(Note: Ding Heng is a current affairs reporter with China Plus.)