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Sony now is a shadow of its former self

Last Updated 05 February 2012, 13:30 IST

Sony expected to post a fourth consecutive annual loss in the year ending in March, estimating a net loss of $2.9 b.

When Kazuo Hirai first joined the Sony family in 1984, the proud electronics maker was the definition of cutting edge.

The Sony Walkman, the world’s first portable music player, had been a global hit and game-changer for five years. Sony had just introduced the compact disc, and its Trinitron colour televisions had become an industry standard. Shortly thereafter, Sony, flush with cash, acquired Columbia Pictures and CBS Records, declaring that it would build the ultimate electronics and entertainment company.

The Sony of today, of which Hirai is to take the helm, is a shadow of its former self, mirroring a decline in the wider Japanese consumer electronics industry. Sony has long lost its dominance in portable music players, unable to translate its Walkman success into the digital era. Its TV business, which has not been able to recover from a delay in developing flat-panel models, has not posted a profit in years.

The company warned that it expected to post a fourth consecutive annual loss in the year ending in March, estimating a net loss of 220 billion yen, ($2.9 billion) as sluggish sales in markets overseas and a series of natural disasters weighed on its bottom line.

“I hold a very severe sense of crisis,” Hirai said at a news conference recently, after being chosen to succeed Sony’s President and Chief Executive, Howard Stringer, in April. “Without a faster sense of speed, Sony cannot win.”

Staging a turnaround at Sony will be a daunting task. Unlike Apple, which is highly profitable, in part because it outsources much of its manufacturing and hires a relatively small work force at home in the United States, Sony has long protected employment in Japan and been slow to outsource production.

Stringer has started to change some of that. He pushed aggressively to cut costs, to streamline Sony’s sprawling businesses and to outsource more of the company’s manufacturing. In December, Sony sold its stake in a flat-panel screen venture with Samsung Electronics, a move that is expected to expand Sony’s outsourcing options further.

Stringer has also tried to better combine the company’s hardware business with its music, movie and video game offerings, by investing in platforms like the popular PlayStation Network, which lets users download content onto Sony gadgets.

Sony has also become more assertive in the increasingly important mobile market. It bought back Ericsson’s share in a cumbersome mobile phone joint venture, and is putting new emphasis on its well-received Xperia smartphone line, which uses Google’s Android platform.

Sony also hopes that its PlayStation Vita hand-held video game console, which goes on sale in the US this month, can become the leading platform for downloading games and other content.

But the global economic crisis, which hurt Japanese exports and caused a severe recession in Japan, has hindered a Sony comeback. The earthquake and tsunami in Japan last March disrupted production at 10 Sony plants in the northern part of the country and severed vital supply chains. Severe flooding in Thailand, a manufacturing hub, also curtailed production last year, and a stubbornly strong yen continues to hurt Sony’s competitiveness overseas.

Those problems knocked Sony to a net loss of 159 billion yen (about $2.1 billion) in the last three months of 2011. The company’s Chief Financial Officer, Masaru Kato, said Sony was aiming to return to profitability in the next fiscal year.

Stringer, who is set to become Chairman of Sony’s Board, remains upbeat. “The stage is set for recovery. The worst is nearly over,” he said. “We are shifting gears, and when you shift gears, you can go faster.”

Hirai, who is credited with resuscitating Sony’s struggling video game unit, said he would focus on bolstering the company’s core strengths, like digital cameras and video games. He also wants to increase investment in mobile technology and focus on rebuilding the company’s television business, and said he would abandon unprofitable product lines.

Of those goals, a turnaround in the television unit, which has lost money for years, may be Sony’s toughest challenge. Sony has long suffered at the hands of rivals like Samsung and LG Electronics of South Korea, which use their production prowess to flood global markets with far cheaper models. But asked whether Sony might abandon its TV business altogether, Hirai was adamant: The company will not abandon a product still so central to home entertainment, he said. “Sony will not retreat so easily.”

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(Published 05 February 2012, 13:30 IST)

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