Across the main thoroughfares of the Shinjuku neighborhood of Tokyo, trendy consumers are embracing Apple's (AAPL) latest iPhone. And just about every other trendy neighborhood in Japan, for that matter. According to the Japan Daily Press, Apple now controls more than one-third of the Japanese smartphone market.
Apple has taken market share away from rivals such as Sharp and Fujitsu, though the U.S. juggernaut is causing especially pronounced pain for its most famous Japanese rival -- Sony (SNE). For a company that was once synonymous with consumer technology innovation, a fourth-place standing on its home turf is quite sobering. Adding insult to injury, Sony's once-vaunted VAIO laptops no longer hold much cachet either.
Sony's losing streak has been under way for quite some time. Sales have shrunk every year since fiscal (March) 2008, with revenue falling more than $20 billion since then to a recent $66.5 billion.
SNE has dropped by more than two-thirds since 2007. In that time, shares of Apple have soared more than 500%.
Yet as is often the case in Japan, such a dismal performance has not been met with much complaint or action by shareholder activists. The local business culture tends to frown on cage-rattling by outsiders.
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Still, enough is enough, according to activist investor Dan Loeb, who runs hedge fund Third Point LLC. He's been pushing for bold action for nearly a year, and Sony's management appears inclined to give his insights fresh consideration.
While Apple has been sharply focused on solely delivering communications and entertainment products that begin with the letter "i," Sony has suffered from attention deficit disorder. Management has a hand in film and TV production, insurance and financial services, along with a wide range of electronics.
Sony, likely in response to clamoring from Loeb, has begun the painful process of retrenchment. It is in talks to sell its money-losing VAIO computer business to Japan Industrial Partners and is also taking steps to spin off its television business.
Merrill Lynch's Eiichi Katayama said, "Sony deserves credit for announcing all of the required measures to address loss-making businesses at this juncture. Some investors may question the impact of spinning off the TV business, but we think this marks an important step." He adds that he is "looking for the pace of reform to accelerate and for measures to cut TV fixed costs to come through swiftly."
By unloading its lagging divisions, the company's strengths should become better appreciated by investors. A revamped SNE would stand out as both a deep value play and an impressive cash flow growth stock.