By: Dipin Sehdev

Masimo has been struggling to navigate a complex landscape with its consumer audio division, Sound United. This division, home to iconic brands like Bowers & Wilkins, Denon, and Marantz, has faced significant challenges in recent times, leading to uncertainty about its future.

A Rocky Road for Sound United

Masimo bought Sound United in 2022 for $1 billion. Recent financial reports paint a concerning picture. Sound United has experienced declining revenue and significant losses, raising questions about its long-term viability. The company's decision to potentially classify the division as a "discontinued operation" suggests a serious strategic shift.

In the three months ending September 28, 2024, Sound United recorded a revenue decline to US$161.4 million, down from $171.5 million in the same period in 2023. This represents a year-over-year decrease of approximately 6%. The business, which sells Bowers & Wilkins, Denon, and Marantz sound systems, reported a net loss of $12.9 million during this quarter.

For the nine months ended September 28, 2024, Sound United's revenue fell to $465.6 million, a decline of 17% compared to the $562.1 million generated in the prior year. The net loss for this period amounted to $31.3 million.

Earlier this year, rumors swirled that Apple might acquire Masimo, potentially signaling a bright future for Sound United. However, these speculations have since faded, leaving the division's fate uncertain.

The Power of Iconic Brands

It's important to acknowledge the rich heritage and enduring appeal of brands like Bowers & Wilkins, Denon, and Marantz. These brands have consistently delivered exceptional audio experiences, captivating audiophiles and music enthusiasts alike. Their innovative products and commitment to quality have solidified their positions as industry leaders.

• Bowers & Wilkins: Founded in 1966, Bowers & Wilkins is known for its high-performance audio products, including speakers, headphones, and home theater systems.
• Denon: Established in 1910, Denon is one of the oldest audio brands in the world, renowned for its high-quality audio components, including amplifiers, receivers, and players.
• Marantz: Founded in 1953, Marantz is a leading manufacturer of high-end audio and video components, known for its rich sound and elegant design.

A Potential New Chapter

As the audio industry continues to evolve, there's always the possibility of new opportunities emerging. Recent acquisitions, such as Bose's purchase of McIntosh Group, demonstrate the ongoing interest in high-quality audio equipment. It's conceivable that a similar scenario could unfold for Sound United, potentially leading to a new chapter for these iconic brands.

A Deeper Dive into the Financials

To gain a clearer understanding of Sound United's financial performance, it's essential to delve deeper into the numbers.

• Revenue Decline: The consistent decline in revenue is a significant concern. This could be attributed to various factors, including increased competition, changing consumer preferences, and economic challenges.
• Net Losses: The persistent net losses indicate that Sound United is struggling to control costs and generate sufficient revenue to cover its expenses.
• Strategic Review: Masimo's decision to initiate a strategic review of Sound United suggests that the company is exploring various options, including a potential sale or spin-off.
• Impact on Masimo: The underperformance of Sound United could negatively impact Masimo's overall financial performance. However, it's important to note that Masimo's core medical technology business remains strong.

The Future of Sound United

While the future of Sound United remains uncertain, it's crucial to maintain a positive outlook. These brands have the potential to thrive under the right leadership and strategic direction. As industry observers, we hope to see a resolution that ensures the continued success of these iconic brands.

Potential Scenarios

Several potential scenarios could unfold for Sound United:

1. Sale: Masimo may decide to sell Sound United to a strategic buyer who can provide the necessary resources and expertise to revitalize the business.
2. Spin-off: Sound United could be spun off as an independent company, allowing it to focus on its core business and pursue growth opportunities.
3. Discontinuation: In the worst-case scenario, Masimo may decide to discontinue Sound United, potentially leading to the sale or closure of its various brands.

Direct from Micah Young

When asked about the future of Sound United, Micah Young, Executive Vice President & Chief Financial Officer at Masimo, stated, "We will continue to update the market on the work of the management team, in partnership with the board's Business Review Committee. We expect to provide the next update in January 2025. With regard to our strategic review process, the board has not made a final determination of the manner in which the consumer business will be separated. If, among other things, the board anticipates treating the consumer business as a discontinued operation. Upon those decisions being finalized, further, we would exclude the results for our non-GAAP earnings, and no longer provide guidance for this segment if it still remains with the company into the first quarter of 2025."

Conclusion

The future of Sound United hangs in the balance. While the company's iconic brands have a strong legacy, the challenges it faces are significant. As we await further developments, it's clear that the audio industry is closely watching this situation.