Ace Production Cut to Just 10% of Original Plan
While Sonos (Nasdaq: SONO) claims to have most of its app problems behind it, multiple reports are emerging that suggest it may have an even bigger problem – the introduction of its Ace premium headphone has flopped. If these reports are true, then Sonos may indeed be staring into the jaws of the one monster that can truly terrify it – growing consumer resistance to its new products.
See more on this troubling turn of events for Sonos
As regular Strata-gee readers are likely aware, for several quarters now, Sonos has been excitedly talking about a new product introduction in a “multi-billion dollar segment” that will generate $100 million in additive revenues for the brand. It was an open secret that this was going to be their entry into the headphones category.
As recently as its second-quarter earnings, about which I issued a full report, the company was still banking on the rollout of a new product in a new category (Ace) which was still expected to contribute $100 million in revenues this fiscal year. This is an estimate they repeated over and over and never revised, even as the product launch slipped to the third quarter. Yet, as I reported, even analysts began to display skepticism based on reports that consumers are holding back on spending on discretionary items.
Sonos Was Relying on Ace to Turn Its Fortunes Around
Ace was going to be an important product for Sonos as the company’s revenues have been declining for several quarters now. Sonos was increasingly desperate to offer consumers a “shiny new thing” to pump up their numbers.
Then the app debacle hit, and a beloved consumer brand was loved no more. As I noted in my report on Sonos’ third-quarter results – the negativity surrounding the app truly spoiled the launch of Ace. Now, we are learning that Ace’s problems may run even deeper than a weak launch.
‘Sonos Struggles to Sell Ace Headphones’
The most damning report comes from Mark Gurman of Bloomberg News who reports that “Sonos struggles to sell Ace headphones.” At the same time it was “trying to crawl out of the massive hole it created when the audio company prematurely launched a revised app,” sales of the Ace headphones have been dramatically disappointing. Gorman adds that while the company “hoped” the app would facilitate a new generation of products, instead “…the glitchy app plunged the company into crisis.”
That is pretty much how I saw it as well. However, the Ace launch was not a total failure. There was an initial buy-in, as I mentioned in the Q3 results, which finally showed a modest 6.4% year-over-year growth, likely thanks to Ace. Yet the “app disaster” as I put it in my previous post, was stealing the limelight from Ace and shrouded the company in a persistent black cloud of turmoil from which it has yet to extract itself.
Report – Ace Missed Its Projected Performance by 90%
I suspect that Gorman’s source is someone connected with the manufacturing partner for Sonos. He reports that Sonos had expected to build somewhere between 900,000 – 1,000,000 units per year…or about 2,500 headphones per day. Instead, Gorman says, that number is more like 250 units per day, which adds up to an annual production rate of between 90,000-to-100,000 per year.
If accurate, this means that the company is coming in at about 10% of its original forecast – off 90%! So much for generating $100 million from Ace this year (or any year at this rate) – if this rate continues, it’ll be more like a $10 million product line. For some smaller companies, $10 million would be a nice number. But for a company like Sonos with $1.6 billion in revenues last year, it’s only a little more than ½% of revenues – not meaningful and certainly not enough to move the needle. Also, it won’t be enough to save the company which saw revenues decline $100 million in 2023 as compared to the previous year.
Sonos Considers Scrambling to Build Another Step-Up Headphone
What should Sonos do about this poor Ace sales performance? According to the report, the company is contemplating dropping the price of the current Ace and then launching a new higher-end model (perhaps the Ace Ultra?). The thinking is that Sonos will cut the price of the current Ace model by $50 to $400 – and then launch a new step-up model at $450.
Apparently, the secret codename for this project is “Roundhouse.” There are no details yet on just what the step-up features would be to justify the extra expense. There is also no indication as to whether consumers would feel that two Sonos headphones, one at $400 and another at $450 make any sense. It sounds to me like Sonos is grasping at straws.
Bloomberg is also reporting that the company had planned to launch a set-top box this year – something along the lines of an Apple TV or Roku-type device. But the company has apparently decided to delay that launch until next year.
Trying to Stop the Leak in Sales, Sonos Launches New Arc Ultra & Sub4
However, the company has decided to roll out additional new products, pulling out all of the stops to try and turn around its declining sales. As part of this effort, last week Sonos announced the Arc Ultra, a new “premium” soundbar that is said to feature its Sound Motion technology. Arc Ultra will be available at the end of October and sells for $999 MSRP.
Sonos has also launched the new Sub4, the latest subwoofer model in its lineup. Sub4, the company says, has “a refreshed design and internals that elevate your favorite movies, hit shows and more with rumbling bass.” In the Sub4 are two drivers both facing inward to create a force-cancelling effect for lower distortion. Like Arc Ultra, Sub4 will be available at the end of October for $799 MSRP.
App Will Soon Reach 90% of Its Former Capability
Let’s not forget the wounded app. Sonos says that the latest update to its redesigned – and much maligned – app will bring back “90% of the new app’s missing features, with further additions on the way…” It’s incredible to think that it’s taken the company months, to restore 90% of the functionality of its own app.
We’ve worked tirelessly to resolve the most critical app issues and most requested legacy features. We have reached a level of quality that gives us the confidence to launch our extraordinary new products. As we laid out in our 3/10 commitments we will continue to improve the software regularly, and are determined to make the Sonos experience better than it’s ever been.
Patrick Spence, Sonos CEO
CEO Spence may be pulling back on the control stick, but this plane looks like it is still speeding nose down.
See more on Sonos by visiting sonos.com.
Joe Hart says
I have never had anyone ask for a Sonos headphone. No other dealer I’ve talked to has ever had a customer ask for a Sonos headphone. I suspect the broken app has led to fewer new customers buying into the platform. Rushing a broken app to market to enable a product that has limited appeal is a real problem.
I can’t believe the CEO still has a job
Ted says
Hi Joe,
I’ve heard that same comment from a few dealers. I’ve seen some indication on various Sonos-related online discussion boards and social media that some consumers have purchased one – apparently directly from the company. But it seems like a muted reaction to Ace as compared to past Sonos product launches.
Ted
Keith says
When your CEO is only known for his work at BlackBerry, and your company is failing – maybe there is where your answer lies.
Personally, I own 14 Sonos devices, all of which have been rendered useless since May. The dreaded software update. I’m still waiting for a response from customer service on all six of my tickets. Sonos has a clear problem. And they’re ignoring it.
I think those of us who already own Sonos products know better than to buy anything additional. So Patrick Spence must be banking on new customers filling the void. Until every home in the United States and abroad has Sonos products that don’t work. Only then will his task of CEO be complete.
It is all utter nonsense. This is just the free market ostracizing a crap brand.