SONY IN 2012: NEW LEADERSHIP, NEW DEALS AND MORE PROBLEMS

SONY LOSES A RECORD $5.8 BILLION IN FISCAL 2011

In May 2012, Jiji Press reported: “Sony Corp. said it logged a record group net loss of 456.66 billion yen ($5.8 billion) in the fiscal year ending in March 2012, due to the poor performance of its television operations, the effects of the strong yen and widespread flooding in Thailand. The loss also stemmed from appraisal losses on deferred tax assets in the United States. However, it was smaller than the 520 billion yen loss projected by the electronics maker last month. The company had a net loss of 259.59 billion yen in the previous year. The company recorded an operating loss of 67.29 billion yen, down from the previous year's profit of 199.82 billion yen, as sales fell 9.6 percent to 6.49 trillion yen. [Source: Jiji Press, May 11, 2012]

“In June 2012, Malcolm Foster of Associated Press wrote: “Sony's stock price fell below 1,000 yen for the first time since 1980 in a symptom of weak global markets and the company's decline after huge success with the Walkman three decades ago. Sony's shares dipped to 990 yen on the Tokyo Stock Exchange and closed at 996 yen.The company said it was first time that its stock price had traded below 1,000 yen since August 1980---the year after it introduced the iconic Walkman portable cassette player to the world in 1979. The stock had peaked at 16,950 yen in March 2000. [Source: Malcolm Foster, Associated Press, June 4, 2012]

“Battered by competition from Apple Inc. and Samsung Electronics Co., Sony has lost money for four straight years---and for eight years in its core television business. A strong yen, which erodes overseas income, and natural disasters at home and in Thailand, a key manufacturing hub, have added to its woes. [Ibid]

“Hiroko Tabuchi wrote in the New York Times: “The losses underscore---the grave challenges facing Kazuo Hirai, who succeeded Howard Stringer at Sony’s helm this month. Once a much-emulated and coveted darling of the technology industry, Sony is a shadow of its former self, its problems mirroring a wider decline in the Japanese consumer electronics industry. But the fall has been most spectacular at Sony, which has long lost its dominance in portable music players, unable to translate its Walkman success into the modern era. Sony’s television business, which has not been able to recover from a delay in developing flat-panel models and has more recently been badly hurt by price competition from rivals, has not posted a profit in years. [Source: Hiroko Tabuchi, New York Times, April 10, 2012]

“2011 has been a painful year for Sony, with much of its troubles caused by misfortune. It was forced to halt production at 10 factories in the aftermath of Japan’s earthquake and tsunami in March, including a Blu-ray disc plant completely overrun by waves. A few weeks later, a massive computer hacking attack that compromised more than 100 million accounts on the PlayStation Network exposed embarrassing weaknesses in the company’s online defenses, forcing the company to shutter the popular video game service for more than a month. [Source: Hiroko Tabuchi, New York Times, November 2, 2011]

“In August, rioters in Britain set fire to a north London warehouse containing CDs and DVDs, burning it to the ground. More recently, devastating floods in Thailand submerged a digital camera factory and forced Sony to halt production at a semiconductor plant because of supply shortages. All the while, the punishing strength of the yen against the dollar and euro has weighed on Sony’s earnings, making its products less competitive globally and eroding its overseas earnings. The yen soared to a post-World War II record in October 2011, prompting the Japanese government to intervene in currency markets to try to tame its rise. [Ibid]

Sony Comeback in 2012?

Malcolm Foster of Associated Press wrote: “The company is aiming for a comeback under Kazuo Hirai, appointed president earlier this year, who has headed the gaming division and built his career in the U.S. Sony forecast a return to profit for the fiscal year through March 2013 at 30 billion yen ($375 million), banking on the growing smartphone and tablet businesses. Sony also plans to cut 10,000 jobs, or about 6 percent of its global work force. [Source: Malcolm Foster, Associated Press, June 4, 2012]

“Jiji Press reported: “For the current year that started last month, Sony expects to log a net profit of 30 billion yen, its first profit in five years. The company expects to see the operating loss in its TV operations narrow to 80 billion yen from 208 billion yen. It expects to post an operating profit of 180 billion yen. Sales are expected to rise 14 percent to 7.4 trillion yen as the company took full control of its mobile phone operations earlier this year. [Source: Jiji Press, May 11, 2012]

“Despite losses in that division, Hirai remains committed to TVs, and promised to cut costs to turn a profit in the division in the next two years. Sony also plans to seek new growth in emerging markets such as India and Mexico. [Ibid]

“Yu Toda and Etsuo Kono wrote in the Yomiuri Shimbun: “Under the current turnaround plan, Sony has abandoned the expansion strategy it set in November 2009 under its midterm business plan. The strategy had called for obtaining a 20 percent share in the global TV market and sales of 40 million units by the end of fiscal 2013. Sony has lowered the sales target to 20 million units for fiscal 2011. [Source: Yu Toda and Etsuo Kono, Yomiuri Shimbun, November 4, 2011]

Changes and Cuts at Sony in 2012

In April 2012, the Yomiuri Shimbun reported: “Sony Corp. has announced a new management plan including about 10,000 job cuts and reinforcement of its strengths in the electronic sector with TVs, games and cell phones, but there is no assurance it can bounce back from the company's worst deficit ever.The new focus is a major shift from Sony's past strategy, with the TV sector as the main profit-earning pillar. The company aims to rejuvenate the TV business by drastically reducing its number of models. [Source: Yomiuri Shimbun, April 14, 2012]

“President Kazuo Hirai proclaimed loudly, "Now is the time for Sony to change" at the beginning of his explanation of the new management strategy. "Rebuilding our electronics sector is our top priority and greatest duty," he said, emphasizing the company's mission to reestablish itself as a leader in the category. [Ibid]

“Once known for its innovative technology, Sony started to focus on the "soft" technology sector, such as movies, after Nobuyuki Idei, who formerly worked in sales, assumed the presidency in 1995. The firm then tended to turn away from its prior emphasis on manufacturing activities, an analyst said. In the TV field, Sony was a late adopter in moving from cathode-ray tube TVs to liquid crystal display TVs. In the field of mobile music players, Sony products are far behind Apple Inc.'s iPod series. [Ibid]

“Previous President Howard Stringer, who hailed from the entertainment industry, reduced funding for research and development. Sources say many engineers left the company during the Stringer presidency. Hirai emphasized Sony would review the company's R&D arrangement thoroughly. However, Hirai failed to present a clear vision for how to bolster the R&D field. Sony has long been unable to introduce hit products like the Walkman series and the Trinitrom TV lineup. "We will develop and market innovative products that symbolize Sony's revival," Hirai stressed, but was unable to communicate what kind of products the company is planning. [Ibid]

“To rehabilitate the company, Sony has set a target of increasing sales in the electronic field for the year ending in March 2015 to 6 trillion yen and the operating profit to 300 billion yen. It will appropriate 70 percent of the total development budget to three core business fields: digital imaging, games and mobile technology. Sony still has a competitive edge in game consoles and image sensors used for digital cameras, but Apple and Samsung Electronics Co. have major shares in the mobile field such as cell phones and tablet devices. Sony plans to regain lost ground in the mobile field. [Ibid]

“Meanwhile, Sony will lay off about 10,000 employees, 30 to 40 percent of them in Japan. It will sell or withdraw sections and subsidiary companies' sections that have less synergy with core businesses or have proved unprofitable. However, with decisive products for its revival still unknown, the company may fall into a spiral of "diminishing equilibrium," an analyst said. [Ibid]

“In the ailing TV business, Sony revealed it will seek business alliances with other companies with organic electro luminescence TVs and other next-generation TVs. Hirai said the turnaround for the TV business is in sight. However, price and technology wars have been intensifying in the TV business, with heavy competition from foreign companies, including those in South Korea. If Sony sticks to maintaining its brand image and cannot steer completely away from the TV business, the new management strategy of "selection and concentration" will likely prove insufficient. [Ibid]

“The New York Times reported: “Hirai has rebuffed suggestions that Sony’s insistence on making many of its own televisions and other gadgets, instead of outsourcing to less-expensive manufacturers, was a strategy the company could now ill afford. Sony still makes some televisions in high-cost Japan.” TVs remain a core Sony business, and their manufacture continues to require high-level technological expertise,” Mr. Hirai said. “It is Sony’s DNA,” he said. “If we outsource everything overseas, we will lose that.” [Ibid]

Challenges for Sony in 2012

Hiroko Tabuchi wrote in the New York Times: “One important challenge will be how much Sony will be able to reduce its bloated work force.It employs 168,200 people worldwide, most of them in Japan, where cuts are difficult under strict labor law and deep-rooted expectations for lifetime employment. A top executive involved with Sony’s last round of cuts, in 2008, which sought to eliminate 16,000 jobs, said he had been surprised to find that many of those supposedly taken off the company payroll had eventually bounced back to positions at the company or at subsidiaries. [Source: Hiroko Tabuchi, New York Times, April 10, 2012]

“Chief financial officer Masaru Kato said that any job cuts would include positions from a liquid crystal display unit and small chemical business, which are being spun off from Sony. But the Nikkei business daily, which first reported the larger job-cut figure, said that jobs were likely to go from Sony’s money-losing TV business. [Ibid]

“Another challenge will be reaping the benefits of a long-elusive strategy at Sony of bringing together its entertainment properties---which include the music of the late Michael Jackson, the blockbuster Spiderman movie franchise and popular video game titles like Gran Turismo---and its electronics. Company executives have long said that strategy would help differentiate Sony gadgets in an increasingly commoditized industry. [Ibid]

“But Sony has stumbled on its online networks, the crucial link between its software and hardware offerings, falling far behind companies like Apple in offering content over the Internet. [Ibid] Analysts also point out that Sony needs to focus its resources on its strengths, like its entertainment and video games units, and abandon areas, like televisions, in which it is no longer competitive. But Mr. Hirai has previously denied that Sony would go so far, saying the company was not prepared to give up on such a central and time-honored business. [Ibid]

Sony to Cut Workforce by 10,000

In April 2012, Reuters and the Financial Times reported: “Sony is preparing to cut its workforce by 10,000, or six per cent of its global headcount, as part of a restructuring initiated by its new chief executive that has seen it sell two divisions and drastically scale back its television production plans. It will be the third significant round of staff reductions at the Japanese electronics and entertainment group since 2005. [Source: Jonathan Soble, Financial Times, Reuters, April 10, 2012]

“Roughly half the cuts are the result of deals that have already been made public---Sony’s sale last month of a chemicals subsidiary to the Development Bank of Japan, a state-backed lender; and its decision last year to spin off production of small liquid crystal displays into a joint venture with Hitachi and Toshiba. Together, the two businesses employ about 5,000 people; the jobs themselves will mostly remain after the sales, but the workers will no longer be on Sony’s payroll. [Ibid]

“The rest of the reductions are expected to come from Sony’s chronically unprofitable television division, which is undergoing an overhaul that analysts say will be crucial to restoring the company’s financial health. Stringer implemented two major rounds of job cuts during his seven years as chief executive---10,000 positions were eliminated over two years beginning in 2005 and a further 8,000 as the global financial crisis deepened in 2008. [Ibid]

Hirai Takes Over Sony

Kazuo Hirai took over as president and chief executive of Sony in April 2012. After taking over the position he said one of his main goals will to be make the company's sluggish TV business profitable in two years. "We will start by further improving the functions and performance of hot-selling liquid-crystal display models to differentiate them from other companies' products in terms of resolution and sound quality...The TV business is still an important field for the company, as it greatly contributes to sales. Sony cannot easily quit it, because the TV business, in a sense, also represents Sony's commitment to customers." [Source: Yomiuri Shimbun, February 11, 2012]

“The Yomiuri Shimbun reported: “Hirai also indicated his desire to expand smartphone development and medical-related businesses. He said Sony's smartphone development will accelerate as it will take sole ownership of its joint venture with Sweden's Ericsson. The company will develop models incorporating Sony's strengths, such as cameras and games, he added. Hirai also said Sony's image processing and other technologies--where it enjoys competitive advantages--can be effectively used in medical-related business. [Ibid]

“Hirai, who has spent a long time in the company's entertainment division, stressed that Sony is "a company that makes things." "We will continue to value our manufacturing technology and make products in Japan," he said, showing his determination to maintain domestic production as much as possible even under the yen's historic appreciation. [Ibid]

“At an inaugural news conference, Hirai, 51, acknowledged that Sony's worsening performance is serious. "Japan's electronics industry is sluggish, and Sony is no exception. We feel a serious sense of crisis," Hirai said. Sony has already taken a step in the right direction in reducing costs for procuring display panels by dissolving its joint venture with Samsung. But Shiro Mikoshiba, a senior analyst at Nomura Holdings Inc., pointed out Sony's review of its procurement costs is not enough to rebuild the company. "The company needs to undergo drastic organizational restructuring by slashing its sales workforce, as well as its research and development section," he said. [Source: Yu Toda, Yomiuri Shimbun, February 4, 2012]

“Hirai also expressed his intention to concentrate the firm's investment in its camera, game and smartphone businesses, while further promoting structural reforms for its TV business. He also plans to develop its medical business as one of Sony's core businesses. Hirai said the firm will conduct a strict review of other money-losing products and businesses, and will consider collaborations with other companies. [Ibid]

“As for Hirai as a person, the Yomiuri Shimbun reported: “Hirai, who has spent about 20 years living in the United States since he was a child, speaks fluent, native-level English. His dashing appearance while presenting new products at overseas news conferences gives the impression that he is "cool." However, he is also a hot-blooded man. When he was president of one of Sony's game industry subsidiaries, he often held meetings with young employees and engaged in thorough discussions until everyone present was fully satisfied. After meetings, he often went out for drinks with employees. [Ibid]

“When appointed to the post of executive deputy president last year, Hirai made a swift decision to dissolve the joint venture with Samsung for LCD panels, and people around him highly praised his leadership. Though he was involved in the game division for a long time and has a little experience handling Sony's TV business, he emphasized the importance of rationality when carrying out reforms. [Ibid]

“Stringer speaks very highly of Hirai's personality, strong will and leadership. Hirai's ability to make a swift judgment and take actions will be put to test, observers say. Hirai, whose wife, son and daughter currently live in the United States, enjoys cycling on his days off. [Ibid]

Sony, Panasonic in Talks to Create Organic El TVs

In May 2012, Yomiuri Shimbun reported: “Sony Corp. and Panasonic Corp. are in talks to form an alliance for developing organic electroluminescence televisions. The two electronics giants are considering whether to accept investment from the government-backed Innovation Network Corporation of Japan to form an alliance and develop an iconic national brand to help them catch up to their South Korean rivals, according to sources close to the firms. [Ibid]

“Organic EL TVs are expected to become the standard for next-generation flat-screen televisions because they can display higher-definition images and consume less electricity than liquid crystal TVs. In 2007, Sony became the first company to sell organic EL TVs when it put 11-inch TVs on the market. With some organic panels as thin as 3 millimeters, the TVs were said to be a symbol of Sony's revival as an advanced-technology developer. Panasonic is planning to release 55-inch organic EL TVs by the end of fiscal 2015. However, both companies are lagging behind their South Korean rivals. Samsung Electronics Co. and LG Electronics Inc. have announced plans to release 55-inch organic EL TVs by the end of 2012. [Ibid]

“The performance of both Sony and Panasonic has been deteriorating because of poor results from their flat-panel television division. Through the envisioned collaboration, they could reduce capital spending and accelerate efforts to develop organic EL TVs, according to the sources. Sony is in talks with Taiwan liquid crystal display panel maker AU Optronics Corp. with the aim of forming an alliance to produce organic EL TVs. The two companies have already begun developing prototypes. If Sony and Panasonic agree to form an alliance, they might be able to begin the joint production of organic EL TVs in Taiwan, the sources said. However, a Panasonic executive suggested the negotiations may be difficult and complex. "First of all, it's necessary to develop technology that can give us an edge," he said. [Ibid]

“In January 2012, Sony announced that was discontining production of TV sets with organic electroluminescence (EL) display panels. Though Sony will continue selling organic EL monitors for its corporate clients, it will concentrate its home-use TV production business on liquid-crystal display models. The move comes as South Korean makers are aiming to strengthen sales of their large-screen organic EL TV sets, and underlines the difficulties domestic manufacturers are facing in the TV production market. [Source: Yomiuri Shimbun, January 8, 2011]

“The display panels of organic EL TVs are composed of electroluminescent organic materials that emit light when activated. Organic EL TV sets do not require a backlight behind the screen, unlike LCD panels. As a result, organic EL panels are thinner and consume less electricity. Since organic EL screens can reproduce colors more precisely than previous models, users can enjoy a picture with a higher resolution than that of LCD and plasma-screen TVs. [Ibid]

“Though Sony's organic EL TVs were relatively expensive--with a small unit priced at 200,000 yen--Sony received numerous orders for the products when they were first released. Sony had been the nation's only manufacturer of organic EL TVs. But the company had minimized capital investment in the area partly because of its poor business performance.As a result, the company lagged behind South Korean rivals in terms of price competitiveness and enlarging sizes of organic TV products. [Ibid]

“Sony discontinued domestic sales of the organic-screen TVs in 2010, but continued to export them to the United States and Europe. The company said it would continue its sales, research and development of organic EL panels for monitors used by broadcasting companies and other corporate clients, but will withdraw from the market for home-use models of organic TVs. [Ibid]

EU Approves Sony's Acquisition of Part of EMI

In April 2012, Associated Press reported: “The European Union's competition regulator approved a deal by Sony/ATV and other investors to buy part of the famous British music company EMI Group Ltd. Sony/ATV, a joint venture between Sony Corp. and the Michael Jackson estate, and several investment funds including United Arab Emirates-based Mubadala Development Co. jointly offered $2.2 billion in November for EMI Music's publishing businesses. EMI's publishing arm manages the rights to songs of popular artists such as Amy Winehouse, Regina Spektor and Rihanna. [Source: Gabriele Steinhauser, Associated Press, April 19, 2012]

“Universal Music Group has a pending deal to buy the rest of EMI, which became famous for recording The Beatles and is also home to Coldplay and Katy Perry. EMI was put up for sale by Citigroup last summer, after the bank foreclosed on private-equity firm Terra Firma, which bought the music company in 2007. To get approval for the deal from the European Commission, the Sony-led investor group promised to sell the publishing rights to several music catalogues as well as the works of 12 artists, including Ozzy Osbourne, Robbie Williams, and Ben Harper. During its review of the deal, the Commission found that without the sale of those rights, Sony/ATV would have been able to control the online licensing of Anglo-American chart hits in Europe. [Ibid]

“Sony/ATV chairman and CEO Marty Bandier, who spent 17 years building up EMI's publishing assets earlier in his career, hailed the approval. But he acknowledged that other regions including the U.S. also had to sign off on the purchase. "Today is not only an important milestone on the path to final approval, but a very special day for me, personally," he said in a statement. [Ibid]

“The combined publishing assets of Sony/ATV and EMI would also be No. 1 in the world with a 31 percent market share, according to The New York Times, which cited a document presented to investors in January. Rivals such Warner Music and smaller independent music labels have warned that the deal would make Sony and Universal Music overly dominant players in the music industry. The combination of Universal and EMI would create the top recorded music company by far with about a 40 percent market share in the U.S. [Ibid]

Sony Likely to Form Tie-up with Olympus

In June 2012, the Yomiuri Shimbun reported: “Sony Corp. has become a likely candidate to form a tie-up with scandal-tainted Olympus Corp. after Panasonic Corp., which also showed interest in a business alliance with Olympus, got cold feet about the investment, sources said. Olympus, which is undergoing corporate restructuring, is likely to receive an investment of about 50 billion yen ($636 million) mainly from Sony. If the two-way alliance is realized, Sony will become Olympus' largest shareholder with an about 10 percent stake in the company. [Source: Yomiuri Shimbun, June 23, 2012]

“Olympus also has been in investment negotiations with such companies as Fujifilm Holdings Corp. and Terumo Corp. Sony and Panasonic manufacture image sensors, an essential component of endoscopes, in which Olympus enjoys the largest global market share. Olympus, therefore, is believed to have thought an alliance with Sony or Panasonic would be the most suitable for its medical business. Panasonic posted its biggest-ever group net loss in fiscal 2011 due to slumping sales of flat-panel TVs, the company's main product. Since Panasonic plans to prioritize energy- and environment-related businesses, the company apparently now feels it is not the time to invest in Olympus. If it fails to reach an agreement with Sony, Olympus may start negotiations with Terumo or other firms. [Ibid]

Sony Ericsson Officially Becomes Sony

In February 2012, Sony announced that it bought out Ericsson's 50 percent stake in Sony Ericsson. As a result, of the transaction, Sony Ericsson becomes a wholly-owned subsidiary of Sony and will renamed to Sony Mobile Communications. Anton Shilov of Xbit wrote: “Sony will further integrate the mobile phone business as a vital element of its electronics business, with the aim of accelerating convergence between Sony’s lineup of network enabled consumer electronics products, including smart phones, tablets, TVs and PCs. [Source: Anton Shilov, Xbit, February 15, 2012]

“During the past ten years the mobile market has shifted focus from simple mobile phones to rich smartphones that include access to Internet services and content.The transaction gives Sony an opportunity to rapidly integrate smartphones into its broad array of network-connected consumer electronics devices---including tablets, televisions and personal computers - for the benefit of consumers and the growth of its business. The transaction also provides Sony with a broad intellectual property (IP) cross-licensing agreement covering all products and services of Sony as well as ownership of five essential patent families relating to wireless handset technology. [Ibid]

“Sony Ericsson has been losing market share for some time now and it will continue to as the popularity of higher-end feature phones is declining while the popularity of Xperia smartphones remains low. Sony also has dropping market shares in its media player, consumer camera and some other businesses, where application-specific smartphones could help to fight back the revenue from smartphones like Apple iPhone. In general, under Sony's roof the former SE will have better ability to compete than as a joint-venture. [Ibid]

Sony Sells LCD Venture Stake to Samsung for $940 Million

In December 2011, Reuters reported: “Sony Corp has agreed to sell its nearly 50 percent stake in an LCD joint venture with Samsung Electronics to the South Korean company for $940 million, as it struggles to reduce huge losses at its TV business. The seven-year-old venture cut its capital by 15 percent in July and industry sources had said Sony was negotiating an exit, aiming to switch to cheaper outsourcing for flat screens for its TVs while Samsung pushes ahead with next-generation displays. [Source: Reiji Murai and Hyunjoo Jin, Reuters, December 26, 2009]

“In terms of direction it is a positive (for Sony)," said Keita Wakabayashi, an analyst at Mito Securities in Tokyo, about the deal. "But if they are making a loss on the sale, one could ask why they didn't make this decision sooner. Their biggest problem is that they are not making a profit even though they don't have many plants," he said. "Sony may shift to Taiwanese LCD makers should they offer cheaper prices," Song Myung-sup, an analyst at HI Investment & Securities, said in Seoul. [Ibid]

“Launched in 2004, Sony's panel venture with Samsung, S-LCD, was established to secure stable supplies for Sony's flat-screen TVs at a time of shortages. The venture expanded its production facilities in line with growing demand for LCD televisions. Sony invested 130 billion yen in the project and received around half of the venture's LCD output. [Ibid]

“Once a symbol of Japan's high-tech might, Sony has sold off TV factories in Spain, Slovakia and Mexico in the past few years and outsources more than half of its production to companies including Hon Hai Precision Industry, the contract electronics maker that also counts iPhone maker Apple Inc as a key customer. Sony retains four TV plants of its own -- in Japan, Brazil, China and Malaysia. [Ibid]

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2009 Jeffrey Hays

Last updated October 2012

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