PS4 Is Good For Sony, But Electronics Should Die

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The Sony Corporation (NYSE:SNE) PS4 is set to hit the market on Friday. The console may have an advantage over the competing XBox One from Microsoft Corporation (NASDAQ:MSFT), and it is probably a good medium term catalyst for the company despite the short term pressures on earnings. That doesn’t mean the company should stick with the business long term, however.

A new report from Jefferies analysts Atul Goyal on Sony Corporation (NYSE:SNE) (TYO:6758) says that the PS4 is likely a positive for the company, but in the long term the company should get rid of its electronics division in favor of concentrating on its content business. According to Goyal the company should do this in order to maximize shareholder value.

Sony PS4 release

Sony will release the PS4 in the United States on Friday, November 15. The release will cost Sony Corporation (NYSE:SNE) (TYO:6758) a fair amount in the short term. Goyal estimates that the company will lose about $150 on each console they sell. The console has certain advantages over the Microsoft Corporation (NASDAQ:MSFT) Xbox One, according to the report.

The first, and possibly most significant, of these advantages is the PS4 price. The console will retail for $399, $100 less than the $499 that Microsoft is going to charge for the Xbox One. Sony Corporation also looks better after the launch cycle. Microsoft managed to alienate some customers with its policies, though the company has turned around on most of those since.

The current state of Microsoft Corporation (NASDAQ:MSFT) is also an advantage for Sony Corporation (NYSE:SNE) (TYO:6758) according to Goyal. The Redmond company is still looking for a new CEO and some rumors have indicated that one of the frontrunners, Steven Elop, may be ready to spin off the Xbox division.

PS4 long term outlook

The PS4 is going to lose money in the short term. There is little doubt about that. The device will sell below cost, and Sony Corporation (NYSE:SNE) (TYO:6758) investors will see those losses hit the company’s bottom line. It’s all about the long term in the console race however.

Goyal thinks that in the medium term Sony Corporation (NYSE:SNE) (TYO:6758) will see the PS4 take a higher install base than the Microsoft Corporation (NASDAQ:MSFT) XBox One. That will leads to higher game sales in the medium term and should be a positive catalyst for the company. In the long term things look different at Sony Corporation (NYSE:SNE) (TYO:6758), however.

Goyal thinks that Sony Corporation (NYSE:SNE) (TYO:6758) should get rid of most of its electronics business in order to increase shareholder value. He bemoans the state of the company’s television, smartphone, personal computer and camera businesses. In his view the company would do well to get rid of all of these parts and concentrate on the place it makes its real money: content.

If Sony Corporation (NYSE:SNE) (TYO:6758) were to opt for this strategy it leaves the PS4 up in the air. There have been musings that Microsoft Corporation (NASDAQ:MSFT) should get rid of its XBox One business for the same reasons. The console gaming market has never been a stable one, and it might improve both businesses if they were to exit the hardware market.

Sony Corporation (NYSE:SNE) (TYO:6758) is developing a game streaming service, called Gaikai, alongside the PS4. If the company could move gaming to a subscription service, along the line of Netflix, Inc. (NASDAQ:NFLX), it may be more in line with the content goals that Goyal wants the company to pursue. The future of the PS4 is difficult to predict, but fans of the console and Sony Corporation (NYSE:SNE) (TYO:6758) investors can bask in the release for a little while before worrying about the unknown.

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