Sony Corp. Struggles Will Continue

We believe Sony Corp. (SNE) will continue to struggle as it faces competition from other innovative digital products and from low-cost Asian manufacturers as the consumer market slows.

Sony posted lackluster Q3 results, hurt by sluggish sales in its core electronics segment due to the ongoing recession. Strong yen, weak consumer demand, sliding consumer spending, and an intensifying price competition are eating into its profits. SNE trimmed its forecast for fiscal 2008 and expects to record its first net loss in 14 years with much lower operating income.

We therefore maintain a Sell recommendation on Sony shares with a 6-month price target of $16.50. This reflects a price-to-sales multiple of approximately 0.2x our expected fiscal 2009 revenue per share, which we believe is a reasonable valuation for a company in Sony’s position.

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