Bombshells at Sony

Given the glacial pace of decision-making at the Japanese electronics giant, these were bombshells. Whether they will satisfy shareholders is a different question.
Given the glacial pace of decision-making at the Japanese electronics giant, these were bombshells. Whether they will satisfy shareholders is a different question.
  • 10,000 jobs and R&D funding to be slashed
  • US$520 Billion loss posted last financial year
  • Hints that Sony may ditch TV manufacturing as Apple enters market
  • Looking to compete on smart phones with Samsung and HTC

KAZUO Hirai came out swinging.

Swinging the axe.

Sony's new chief executive, who took over from Welsh-born Sir Howard Stringer this month, said he would cut 10,000 jobs and slash research and development spending on everything but mobile devices, cameras and gaming consoles.

He may even, he hinted, ditch the company's historic television manufacturing business.

Given the glacial pace of decision-making at the Japanese electronics giant, these were bombshells. Whether they will satisfy shareholders is a different question.

Analysts noted that despite the blizzard of revenue targets, profit goals and restructuring promises in Mr Hirai's coming out presentation yesterday, the company's operational future remains thinly sketched, and difficult.

Meanwhile, Apple's entry to the TV market looms, and it probably won't be good news for incumbents.

What is for sure is that Sony is about to post its biggest-ever loss, which it estimated earlier this week at US$520 billion for the financial year just ended.

Spiralling costs in consumer electronics and disappointing sales, notably of its Bravia flat-screen TVs, mean Sir Howard's promise of a 5 per cent operating margin was as elusive at the end of his reign as it was throughout. Mr Hirai promised it again yesterday.

"We have heard a multitude of investor voices calling for change," he told a packed news conference at Sony's Tokyo headquarters, close to the company's first factory established 65 years ago.

"Sony will change. I will definitely change Sony and revive it.

"Sony has always been an entrepreneurial company. That spirit has not changed... We can't turn away from making painful decisions, because if we are scared of the pain, we won't be able to change."

Mr Hirai was elevated to the top job a year before Sir Howard had been expected to retire, thanks to his success at the helm of Sony's computer and video games division.

The son of a wealthy banker, Mr Hirai was well travelled even before going into business, and his stint working for Sony in New York means he is a keen internationalist. Nonetheless, he is Japanese, and investors hope this will make it easier for him to impose reform on a conservative corporation that is a pillar of the country's establishment.

Ben Keen, the chief analyst at technology research firm Screen Digest, said Mr Hirai's slimming plan is overdue.

"The obvious and most interesting contrast is Sony versus Apple and the biggest difference that Apple exhibits is this: focus. Apple is incredibly focused. It will only work on a very few products and it will only bring a very few to market. Sony is a very broad company and it has tried to do too much, tried to cover too many bases. It needs to narrow its products down, narrow down its research and development effort and pick some key products."

Sony must look across at Apple and wince. Sony invented the personal music player in the Eighties, when every teenager seemed to have a Walkman, but then Steve Jobs came along and unveiled the iPod and the Japanese firm has been playing catch-up ever since.

By the time Sony had cracked digital music players, Mr Jobs was finalising his revolutionary iPhone.

Mr Hirai promised that, now it has taken control of its smartphone business that used be run as a separate joint venture with Ericsson, there will be much closer integration of the company's phones, tablets and Vaio laptops.

The question is whether it can differentiate itself from a host of new competitors, from South Korea's Samsung to HTC of China, who have reputations for cutting-edge tech, have cheaper labour costs and aren't hobbled by a strong currency, as Sony is by the yen.

When he set out his priorities for Sony yesterday, what was not on the list was more telling than what was. Investment will be concentrated in three areas: mobile, gaming and "imaging", which covers cameras and video cameras.

Televisions were not on that list of "core" businesses, and Mr Hirai came close to saying the division must "shape up or ship out".

Asked what he would do if the TV business does not return to profitability by 2014, after what would then be a decade of losses, Mr Hirai said: "We naturally need to consider what to do when the business turns profitable as we planned and what to do otherwise, not to mention we also need to consider courses of action to take in each case."

The company has cut 66,500 jobs in four restructuring plans since 1999, but it still had 168,200 employees as of March 2011, according to data compiled by Bloomberg. The bulk of the new cuts will fall in the TV division, but analysts pointed out that the headline figure is not as dramatic as it may first appear.

The 10,000 figure includes previously announced measures, such as the spin-off of a chemicals business that accounts for 3,000 jobs.

Sony's axe-wielding new boss is only two weeks into the job, of course. Sony shares barely moved yesterday. Investors will wait to see how heavy the axe will really fall.

Topics:  apple electronics television

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