Sony slashes value of its mobile business, projects larger loss for fiscal year

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Sony says its mobile brand is now worth a lot less than before.

The struggling smartphone maker has written off the entire value of the goodwill associated with its mobile business.

Goodwill covers intangible assets such as a business’s reputation, and is the difference between what a company would be bought for and the value of tangible assets such as stock, factories and cash reserves.

The writedown more than quadruples the net loss Sony forecasts for the year to March 31. It now expects a net loss of ¥230 billion (US$2.15 billion) for the year instead of the ¥50 billion loss forecast in May.

Sony said it would book a ¥180 billion impairment charge in its second quarter for the entire value of goodwill in its Mobile Communications Segment.

The move follows a revision of the midrange plan for the segment that foresees lower future cash flows.

Sony cut its assessment of the fair value for the business after reconsidering its 2012 buyout of Ericsson’s share in their Sony Ericsson mobile phone joint venture, which gave Sony phones an international presence.

“It means they think it’s worth less than when they bought out Ericsson’s stake,” Macquarie Securities analyst Damian Thong wrote in an email. “It’s not worth zero since there are other assets—working capital, etc.”

At a briefing in Tokyo, executives cited the growing strength of Chinese smartphone makers, intensifying competition and weak sales of its own midrange models as reasons for the revised forecast.

Sony’s mobile segment will now focus on stabilizing profit instead of significant sales, shedding unprofitable midrange phones and emphasizing markets where Sony phones have a chance against their many competitors. The segment will be restructured and head count will be reduced by 15 percent.

In a historic move, Sony also said it would eliminate its interim and year-end dividend for the year, the first time it has done so since listing on the Tokyo Stock Exchange in 1958.

“We will do everything we can to complete restructuring this fiscal year and recover our profitability next fiscal year,” said Sony President and CEO Kazuo Hirai. “I’m sure we can create a new Sony that amazes and moves customers on a consistently profitable basis.”

Sony’s mobile communications segment logged an operating loss of ¥2.7 billion for the April-June quarter, when the company as a whole recorded a net profit of ¥26.8 billion.

The expected loss for the year will be Sony’s sixth in seven years. It recorded a loss of ¥128.4 billion for the year to March 31, 2014, blaming costs related to its exit from the Vaio PC business.

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