Sony To Exit PC Business By Selling VAIO

Sony will sell off its lackluster PC division and focus on spinning off its TV business into a standalone entity by June. The company’s announcement confirms a report yesterday that Japan Industrial Partners planned to purchase the VAIO brand. The amount of the deal was not disclosed, but Nikkei reported that it may be up to 50 billion yen ($490 million).

The deal will be finalized by the end of March. Sony said it will cut 5,000 jobs worldwide by the end of this fiscal year, but the new PC company plans to hire about 250 to 500 Sony employees and continue to fill aftercare warranties. Sony will initially invest 5% of the new company’s capital to support its launch.

The sale of VAIO isn’t a big surprise, as Sony’s PC business has long underperformed its other divisions. Indeed, when Kazuo Hirai took over as president and CEO of Sony in 2012, he didn’t even list PCs as one of the company’s cornerstones. Instead, he said Sony’s future rested on digital imaging, gaming, and mobile. But even though Sony has consistently released innovative products in all three categories, including its Xperia smartphone line, its performance still lags behind competitors like Samsung and Apple.

Sony also said that it expects to spend 20 billion yen restructuring its PC and TV segments, with a focus on high-end sets and 4K screens. The company hopes these changes will allow its TV arm to become profitable again by the end of fiscal 2015.

Net profit at the company has been unstable, due to in large part to increased competition. In its Q3 2013 earnings release, Sony reported a year-on-year sales increase from its mobile business, but said it still expects an annual loss of 110 billion yen (or about $1.1 billion) for all of 2013, a turnaround from its previous prediction for a profit of 30 billion yen.

While the PlayStation 4 has done very well, selling 4 million units during the holidays, the consoles have very thin margins after launch and are not expected to generate significant profit until later in the product cycle.

Sony had reported that demand for PCs was slowing down in previous financial statements, but said just yesterday that it was still considering various options for VAIO.

But it was clear that Sony had to take action quickly. At the end of January, bond credit rating agency Moody’s cut Sony’s rating from Baa3 to Ba1, meaning that it now considers the company a speculative investment. This in turn makes it harder for Sony to borrow money.

Sony’s inability to turnaround VAIO’s performance is in-line with an overall downturn in the PC market. Last month, Gartner released a preliminary set of results for the global PC market in 4Q 2013, indicating the PC sales fell 6.9% to 82.6 million units. 2013 was a low-point for PCs and laptops, with the market shrinking 10% during the year, though it is expected to stabilize in 2014.