Sunday, 28 January 2007

PS3 European Launch

With the recent announcement that Sony (SNE) will delay its PS3 launch in Europe, a similar reaction should be based in your mind of whether to buy or sell your shares of this company. With such a shaky corporation in terms of announcing favorable information, the confidence in buying shares of Sony has dropped as shown by its stock the past few months. With the added problems of having the major laptop producers having to recall the specific Sony brand batteries, such a situation does not pose well for this corporation and its shareholders.

Speaking in terms of fundamentals, Sony has done terrible the past few years. Supposedly to be represented as a strong player in the technology sector, margins have proven to provide counterarguments. Having negative margins the past three years does not ease any shareholder’s concerns. While some investors may argue that many companies still post negative margins and receive a favorable capital gain, with the added problem of having these negative fundamentals during a time when technology is supposed to sell more rapidly from one year to the next, such numbers are embarrassing for a company of Sony’s nature. While some analysts have noticed such a trend and reduced their EPS estimates, Sony does seem to surprise investors and beat most of them but with the negative effect of not showing such resiliency in its cash flows or balance sheet. Along with negative operating margins and poor profit growth, I would be wary for both long and short term investors wanting to get into this stock.

In terms of technical analysis, Sony is as volatile as it gets. It’s true there are bursts of growths and sparks over the past few years, but the overall trend has been downward after its terribly overbought status during the early parts of the millennium. From 140 to 40 points is a large margin, even for the technology sector, but is equally represented by its poor fundamentals. With the added problems of a delay in its PS3 launch and the batteries having to be recalled, don’t look for consumer or institutional confidence to increase in relation to buying more shares.

Some investors may argue that it is possible that Sony is in trouble currently but, in the future when the PS3 launches and the battery problem is fixed, Sony should be a very low price and ready for a rally. While there might be truth in such a sentiment, think about when the PS2 launched about six years ago. Sony was at its peak then and Sony shares have only gone down from that point regardless of the fact that Sony won the console war against Nintendo and Microsoft. With the PS3 launching during a time when a recession is inevitable and consumers should spend left, don’t look for Sony to provide any capital gains in the near future.

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