Can Sony Turn Things Round?

Sony's fortunes continue to decline. Most observers now expect to see major restructuring and personnel cuts beginning in the near future.

Sony tries to catch up with other preceding rivals (Photo: Sharp's LCD TV LC-65GE1)

 In the first quarter of fiscal 2005, the company suffered a \15.3 billion operating loss on a consolidated basis. It has also downgraded its full-term sales forecast to 7,250.0 billion yen, 200.0 billion yen short of the initial target, and its operating income forecast to 130.0 billion yen, down 30.0 billion yen.
The particularly grave thing is that there is no sign of better times in the mainstay electronics division, including the television business. The division posted a first quarter operating loss of 36.3 billion yen, and this seems to have weighed down overall corporate performance.
Fiscal 2005 will bring a lull in revenues for Sony. In fiscal 2004, the movie division posted operating income of 63.9 billion yen on the back of its hit Spider-Man 2. However, the promising next-generation PlayStation 3 (PS3) game console likely will not be marketed before spring 2006, and will make no contribution to the games division until fiscal 2006. Until then, the main story will continue to be the underperformance of the electronics division, which resists all attempts at improvement. At worst, it cannot be ruled out that this division will suffer a third straight term of losses.

Left Behind by Sharp and Matsushita in Thin-Screen TVs

 Sony has steadily lost market share in each of the three new products on which electronics makers are pinning their hopes, digital cameras, DVD recorders and thin-screen TVs. Most worryingly, it saw first quarter revenues decline 20.5% year on year in the TV division. Few companies are getting rich these days from cathode-ray tube TVs, of course, but Sony has announced that resources in its thin-screen TV business would be focused on LCD models. As a result, sales of plasma TVs have decreased sharply, even as waves of downward price pressure reach the LCD TV market too.
  To prop up the television business, Sony has brought a liquid crystal panel joint venture with Samsung Electronics of South Korea fully onstream, and launched its SXRD rear-projection model using parts jointly designed with Japanese, US and European companies. However, it still lacks a decisive weapon in its attempts to strike back at Sharp and Matsushita Electric Industrial. Says a Sony employee: "If earnings continue to deteriorate, that alone will justify restructuring."

Job Cuts to Underpin New Business Plan

Many Sony executives agree that major personnel cuts are likely in the new business plan to be drawn up by Chairman Howard Stringer in September. A 10% cut in its global workforce, would mean a saving of fixed costs from 15,000 jobs.

Electronics quarter in Akihabara, Tokyo, where shops compete in discounting home electronics

 

 The new business plan is also likely to influence the race to succeed the present president. In June 2005, Sony shifted to a troika system of top management, with Stringer as chairman, Ryoji Chubachi as president, and Katsumi Ihara as executive deputy president. However, many observers see Stringer, a foreigner, as a "relief pitcher" whose main role will be the dirty work of forcing through restructuring. The man who particularly interests Sony-watchers is Ihara. Before the shift to the new management system in April, he headed the Home Electronics Network Company, which oversees TV operations. If Ihara can turn around the electronics division, he will be well-placed to become next president.

 By contrast, Stringer is close to former executive deputy president Ken Kutaragi, who launched the games division. Currently Kutaragi heads subsidiary Sony Computer Entertainment, but if PS3 is a hit next spring, there is strong likelihood that he will return to the top management of the parent company. The fact remains: whoever leads Sony, the future will remain bleak as long as the problems in the core electronics business go unresolved.