Sonos' Business Depends on Continued Expansion of Voice Speaker Market, Says SEC Filing
Sonos’ business success depends on “the continued growth of the voice-enabled speaker market, and our ability to establish and maintain market share,” the company said in its annual report filed with the SEC Tuesday. Sonos, which announced recently it bought voice platform company Snips (see 1911210045) for $37.5 million, said now it's “increasingly focused our product roadmap on voice-enabled speakers.” The company has introduced three voice-enabled speakers since October 2017: One, Beam and Move.
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If the market for voice-enabled speakers doesn’t grow, or grows in unpredictable ways, revenue could fall short of expectations, “since we incur substantial costs to introduce new products in advance of anticipated sales,” said the company. Even if the voice-enabled speaker market grows, the company needs to bring to market “innovative and compelling products and partner with other businesses that enable us to capitalize on new technologies,” it said, some of which develop and sell voice-enabled speakers of their own.
Voice control partners could disable their integration with Sonos “or begin charging us for their integration with our voice-enabled products,” the company noted, saying its agreement with Amazon allows the tech giant to disable Alexa integration in its voice-enabled products “with limited notice.”
If partner competitors, such as Amazon and Apple, continue to compete with Sonos more directly in the future, they would be able to promote their products more prominently than Sonos, while refusing to promote its speakers, said the company. “Any reduction in our ability to place and promote our products, or increased competition for available shelf or website placement, especially during peak retail periods, such as the holiday shopping season, would require us to increase our marketing expenditures and to seek other distribution channels to promote our products,” it said.
China-based Inventec remains Sonos’ key manufacturer for most production, though the company has begun to diversify its supply chain through contract manufacturing in Malaysia to mitigate the impact of Section 301 tariffs imposed by the Trump administration. Sonos is “highly dependent on a key contract manufacturer to manufacture our products and our efforts to diversify manufacturers may not be successful,” it listed as a risk factor.
Sonos cited May tariffs on accessories that were increased to 25 percent and tariffs on “most remaining imports” imposed at 15 percent on Sept. 15. The company forecast a resulting $30 million profit hit resulting from tariffs for FY 2020, on the November earnings call. If additional tariffs are imposed, or existing tariffs increased, the company could be forced “to raise prices or make changes to our operations,” it said.