So near, Sony, yet so far. The market logic was clear enough: if Panasonic and Sharp, its two lossmaking rivals, managed to pleasantly surprise with operating profits, surely the one outfit bold enough to still bet on a full-year net profit by March could blow them out of the water. Sony's operating loss thus landed more like the splat of an exploding water balloon.
Investors face a quandary: has the share gain of at least 75 per cent enjoyed by each in the past three months been another false dawn, or are the cost-cutting efforts evident in Sharp's and Panasonic's progress – and Sony's shrinking losses – enough to justify a rally twice as good as that enjoyed by the broader sector? True, those looking for encouraging signs could find it. Sony and Panasonic both cut enough fixed costs to fully offset the respective 61-billion ($650-million) and 63-billion yen they lost through lower prices and sales. Sharp, the wobbliest of the three, sold more as it cut costs, although its biggest gains came from not repeating the inventory writedowns and other charges taken in the second quarter.
Beyond their internal efforts however, the future is still bleak. Consumer electronics accounts for between two-fifths and two-thirds of sales at the three and none of them are very big in smartphones, the only segment expected to grow significantly. Sales of the rest – TVs, games consoles, tablets and the like – will only creep higher, hampered by anaemic growth in the developed world, where these three are strongest. And after their three-month rally, enterprise values hardly suggest a bargain. Both Panasonic and Sharp trade at about seven times earnings before interest, tax, depreciation and amortisation, roughly in line with Bloomberg's calculation for the wider sector. Sony, meanwhile was trading at a relatively lofty 10 times before Thursday's numbers. The three are in better shape, but that fact has been more than reflected by the rally.