Virtual reality can be Sony’s iPhone?
The idea that Sony could surpass Apple sounds like something out of fiction now, given the yawning gap between the two companies’ market capitalizations. But this could be made a little less far-fetched by a potential game changer coming out in October: the PlayStation VR, a virtual reality headset that makes users feel as if they are right in the middle of the action.
When preorders started in Japan on Saturday, long lines snaked through big electronics retailers in the Tokyo district of Akihabara, Japan’s gaming mecca. Store after store sold out of the device.
“Even I couldn’t buy one,” grumbled an investment manager of a mutual fund that holds Sony shares. The Japanese manufacturer is scrambling to reopen preorders after a start that exceeded stock market predictions, again underscoring high expectations for virtual reality.
Though Sony has not said how many PSVR units it will ship, Junya Ayada of Daiwa Securities sees the figure for this fiscal year at around 1 million to 3 million. With the headset priced at $399 in the U.S. and 44,980 yen ($429) in Japan, this would put sales between 50 billion yen and 150 billion yen.
This figure, though a drop in the bucket compared with Sony’s annual group sales of 7.8 trillion yen, would let the manufacturer turn a profit on the hardware in the PSVR’s first year. Hopes are high for a more visible contribution to earnings next fiscal year as shipments grow and games made for the device take off.
Breaking new ground
The PSVR is more than just another hit product. Market players have the sense that it could be for Sony what the iPhone was for Apple — the key to creating a new market. This is what gives it the potential to be a game changer.
Gradual growth is expected to continue in the smartphone market, where 1.4 billion handsets are sold a year. But the view is gaining ground that hardware sales growth is slowing, particularly for the iPhone. Virtual reality, on the other hand, is seen expanding beyond games, into industrial applications such as construction and medicine. Some predict that the market will balloon to 8 trillion yen by 2020.
Apple and Samsung Electronics hold 40% of the global smartphone market between them, with China’s Huawei Technologies and Xiaomi in hot pursuit. Sony has turned its focus to the high-value-added Xperia line in a bid to bring its mobile business into the black this fiscal year. But its market share is low, and it is no longer chasing after scale. This is the same strategy the company has adopted with businesses that were once major profit drivers, such as digital cameras and flat-screen televisions.
Though the worst is over for Sony, which is no longer hemorrhaging red ink, the PlayStation 4 is its only real growth product. The company will need to use virtual reality to boost sales of the PS4 — which is required to use the PSVR — as well as create demand outside the video game market.
At a crossroads
Sony’s management is of course aware of this. President Kazuo Hirai talked about a paradigm shift at a shareholders meeting Friday, explaining that the company is actively going through a process of trial and error to ensure growth after restructuring.
Apple, too, is getting desperate as the iPhone’s growth prospects shrink. The U.S. company held its Worldwide Developers Conference in San Francisco the same week as Sony’s meeting, showing off new features for such devices as the Apple Watch.
Going back to the “fantasy” of Sony surpassing Apple mentioned earlier, the two companies were actually roughly neck and neck in the summer of 2005, with market caps of around $35 billion, data from QUICK-FactSet shows. More than a decade later, Apple’s market cap has soared to more than $500 billion, the highest in the world and 15 times Sony’s, which has moved little.
But signs of a shift are starting to appear. While Apple’s market cap has fallen nearly 10% this year, Sony’s has jumped nearly 20% in dollar terms, though its yen-denominated market cap has remained roughly flat. Closing the gap will not be easy, but this year — the first of the VR era — will be one of Sony’s few chances to do so.