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Should Sony forget about smartphones?

A Sony Xperia Z2 smartphone and compatible devices, manufactured by Sony Corp, are displayed for sale inside a Bouygues Telecom store, operated by Bouygues SA in Paris, France, on Thursday, July 3, 2014.
Bloomberg via Getty Images
A Sony Xperia Z2 smartphone and compatible devices, manufactured by Sony Corp, are displayed for sale inside a Bouygues Telecom store, operated by Bouygues SA in Paris, France, on Thursday, July 3, 2014.

Sony warned about the outlook for its smartphone division when it released quarterly earnings on Thursday, raising the question of whether the firm should just cut its losses in the highly competitive sector.

Sony doubled its operating profit to 69.8 billion yen ($679 million) from April to June, from 35.5 billion yen a year earlier, boosted by its games and networks division and a one-off asset sale. But it also cut its smartphone sales target by 14 percent.

Sony executives have previously said the company wanted to focus on expanding its smartphone business because many of its strongest businesses – such as cameras, videogames and movies – have presence on mobile devices. A downgrade of its smartphone sales forecast signals a blow to these original plans, analysts say.

Read MoreSony warns on smartphones after profit surges

"It was naive to assume that smartphones would ever be an element of Sony's salvation," said Steve Durose, senior director and head of APAC TMT Ratings at Fitch Ratings at Fitch Ratings.

"Sony's not going to make a profit in smartphones this year. There are 7 or 8 players in that 2-5 percent market share that Sony is in in the smartphone market and they are all struggling to make money," he added.

Once considered the pioneer in electronics innovation, Sony has fallen from grace in recent years as it has failed to drive new products and innovate in the same way rivals Apple and Samsung have.

Read MoreFor gaming's big three, the real battle begins

But in more recent times the firm has attempted to turn around its fortunes, by unloading its failing PC division and spinning off its TV division into a separate company.

Restructuring its TV business seemed to pay off this quarter, as Sony reported it was on track to break a 10-year streak of annual losses there, although it did move to trim its TV sales forecast for the year.

But Fitch Ratings' Durose said Sony's mistake is that it is refusing to let go of the businesses it has not been successful in, and needs to streamline even further.

"We've been saying for some time that apart from PCs which they've got out of, Sony's still doing all of the things they were doing five years ago – there is still a lack of will to take hard decisions that need to be made," he said.

"If they can't make money in smartphones, if they can't make TVs profitable, then the company will have to decide whether it's worth staying in those in those businesses," he added.

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Durose added that he was not convinced that Sony was turning its TV business around.

"Sales are up 10 percent year on year but they have downgraded their full-year forecasts for unit sales and there's potential for further weakness there. Another thing to consider is how much [it will] cost going through restructuring – probably quite a lot. Next year will be proof whether Sony can turn round its TV business. We're not too optimistic," he said.

However, Lewis Ward, research director at IDC, told CNBC Asia's "Rundown" there was still potential for Sony to gain greater market share in the highly-saturated smartphone market.

Read MoreSony says restructuring to end this year, targets profit surge

"In terms of smartphone business, it's [a] very challenging business so I'm not surprised that Sony isn't doing better," said Ward.

"I still think they've got some room to take those Sony Ericsson assets and bring them together and get them all pointed in the right direction ," he added.

Sony acquired Ericsson AB's 50 percent stake in its 10-year old mobile phone venture in 2012.

One of Sony's key competitors – Samsung Electronics – also flagged concerns over its handset business on Thursday, undercut by Chinese rivals like Xiaomi.

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