Sony 2015 Annual Report Download - page 10

technology or know-how. Sony’s reputation may be harmed by the actions or activities of a joint venture that
uses the Sony brand. Sony may also be required to provide additional funding or debt guarantees to a joint
venture, or to buy-out a joint venture partner, sell its share or dissolve a joint venture, whether as a result of
financial performance, or otherwise. Moreover, if the value of any of Sony’s investments in an affiliate
accounted for under the equity method declines below the carrying value of Sony’s investment, and such
decrease is judged to be other than temporary, Sony will be required to record an impairment loss, and the loss
may increase if Sony is unable to dispose of such investments due to contractual or other reasons.
Sony may not be able to recoup the capital expenditures or investments it makes to increase production
capacity.
Sony continues to invest in production facilities and equipment in its electronics businesses, including
image sensor fabrication facilities to meet the demand for image sensors, particularly for use in smartphones. For
example, in March 2014, Sony acquired semiconductor fabrication equipment and certain related assets for
7.5 billion yen from Renesas Electronic Corporation, and established Sony Semiconductor Corporation
Yamagata Technology Center. Also, in the fiscal year ended March 31, 2016, Sony signed an agreement with
Toshiba Corporation to acquire semiconductor fabrication facilities, equipment and related assets for 19.0 billion
yen, of which 16.7 billion yen were acquired by March 2016. Sony invested approximately 205 billion yen of
capital in the fiscal year ended March 31, 2016 and expects to invest approximately 70 billion yen of capital in
the fiscal year ending March 31, 2017, in order to increase image sensor production capacity. However, if market
changes and corresponding declines in demand result in a mismatch between sales volume and anticipated
production volumes, or if unit sales prices decline due to market oversupply, Sony may not be able to recover its
capital expenditures or investments, in part or in full, or the recovery of these capital expenditures or investments
may take longer than expected. In particular, with respect to image sensors, much of Sony’s sales depends on
smartphones, and it is possible that Sony will not be able to achieve its expected sales volume, based on factors
such as consumer demand and the competitive environment in the smartphone market, or the business decisions,
operating results, or financial condition of Sony’s major customers. As a result of these factors, the carrying
value of the related assets may be subject to an impairment charge, which may adversely affect Sony’s
profitability.
Sony’s sales and profitability may be affected by the operating performance of wholesalers, retailers and other
resellers.
Sony is dependent for distribution of its products on wholesalers, retailers and other resellers, many of
whom also distribute competitors’ products. For example, Sony Mobile Communications Inc. is dependent on
cellular network carriers’ distribution channels for distribution of its smartphone products in many countries. The
operating results and financial condition of many wholesalers, retailers and other resellers have been adversely
impacted by competition from online retailers and weak economic conditions.
Sony invests in programs to incentivize wholesalers, retailers, and other resellers to position and promote
Sony’s products, but there is no assurance that these programs will provide a significant return or incremental
revenue by persuading consumers to buy Sony products instead of competitors’ products. In some cases, Sony’s
smartphones sold through cellular network carriers are subsidized by the carriers. There is no assurance that such
subsidies will be continued at all or in the same amounts upon renewal of Sony’s agreements with these carriers
or in agreements Sony enters into with new carriers.
Sony also sells many of its products directly to consumers through its online and retail stores. Some
wholesalers and retailers may perceive Sony’s direct sales as conflicting with their business interests as distributors
and resellers of Sony’s products. Such a perception could discourage resellers from investing resources in the
distribution and sale of Sony’s products or lead them to limit or cease distribution of those products.
Sony’s operating results and financial condition may be adversely affected if the financial condition of these
wholesalers, retailers, and other resellers weakens, if they stop distributing Sony’s products, or if uncertainty
regarding demand for Sony’s products or other factors cause them to reduce their ordering, marketing,
subsidizing, and distribution of Sony’s products.
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