Business, Economics and Jobs

Can Sony get its mojo back?

Gaming fans play Sony's PlayStation 3's Hitman Absolution on the third day of the E3 videogame extravaganza in Los Angeles on June7, 2012 in California.


Frederic J. Brown

OSAKA, Japan — Is Sony the victim of forces beyond its control, or a corporate icon felled by complacency?

The truth probably lies somewhere between the two. The company has had to contend with natural disasters in Japan and Thailand since last March, while its profits have been dented by the yen's seemingly unstoppable rise against the dollar and other currencies.

Japan's economy grew more than expected in the January-March quarter, thanks mainly to domestic demand created by investment in the post-disaster recovery effort and government incentives to buy fuel-efficient cars. Of greater concern, though, is the precarious state of the euro zone, traditionally a huge market for Japanese exporters.

Business sentiment among major Japanese manufacturers was slightly brighter for April-June, according to a report published on Monday, but policymakers have signalled that the European debt crisis — and the resulting "safe haven" flows to the yen — will continue to affect profits.

"The yen's rise, if prolonged, could hurt corporate sentiment and put downward pressure on the economy," Sayuri Shirai, a member of the Bank of Japan board, warned in a speech last weekend.

The government refused to comment on speculation that it was poised to intervene in the markets again to weaken the currency — a move that would buoy exporters such as Sony. The consensus, though, is that the finance ministry will sit tight unless the yen strengthens to a new record of 75 to the dollar.

But Europe's debt problems and turmoil in the currency markets only partly explain the problems plaguing Sony as it attempts to reverse a decline that last week saw its share price dip below 1,000 yen ($12.60) for the first time in 31 years.

More from GlobalPost: Myanmar ready for business?

The grim news from the Tokyo Stock Exchange came after the consumer electronics and entertainment giant reported a record annual loss of 457 billion yen ($5.7 billion), the worst year in its 66-year history.

Under its new president, Kazuo Hirai, the firm has vowed to return to profit during the current fiscal year — after four straight years of losses — led by sales of game consoles, smartphones and tablet PCs.

Before that can happen, though, it will have to endure yet another period of painful restructuring and, harder still, rediscover its innovative edge, the absence of which has made its recent fall from grace all the more unedifying.

The company is to shed 10,000 jobs — or 6 percent of its global workforce — over the next 12 months, including those working in businesses, such as chemicals, that analysts say Sony should have never tinkered with in the first place.

In an attempt to prove that the pain is being felt throughout Sony's ranks, seven executives, including Hirai and the chairman, Howard Stringer, have agreed to forego performance-based bonuses thought to be worth around 224 million yen ($2.8 million).

There was nothing Sony could do about the damage to factories and supply lines after the tsunami in northeast Japan last March, and the Thai floods that followed. The strong yen, meanwhile, eats into its profits when they are repatriated.

Sony's culpability lies in its poor performance in the midst of competition from foreign competitors such as Apple and Samsung, according to Yasunori Tateishi, author of "Farewell, Our Sony."

More from GlobalPost: Panasonic posts record annual loss

Tateishi believes Sony has overextended its reach into non-core businesses, and allowed empire-building to cloud its focus on the products that helped cement its leading position in consumer electronics in the late 1970s and 1980s. "Having so many faces is Sony's biggest problem," Tateishi said. "It's increasingly unclear what kind of company it is."

He cited the managerial confusion that followed Sony's ultimately disastrous acquisition of Columbia Pictures in the mid-1990s. No one at the firm's headquarters properly understood how Hollywood or the entertainment business worked, he said, resulting in an unhappy arrangement that created tension between executives in Japan and the US.

The creation of Sony Pictures was part of a strategy to marry its hardware and software, with mixed results. One solution often suggested by seasoned Sony watchers is to sell off non-core businesses and return to what it does best — consumer electronics with a focus on high-end products. "Past chief executive officers left that problem unattended," Tateishi said. "Sometimes, Sony's entertainment business does well, sometimes its electronics business does well, but we have never seen the two flourishing at the same time."

The task of reviving Sony's fortunes now falls to Hirai, who replaced Stringer as president last month.

Under his "one Sony" mantra, Hirai speaks with conviction about the need for Sony to change its ways. He has vowed to offload unprofitable non-core sectors, although he is adamant that the TV business, which hasn't been profitable for eight years, will stay. It is, he says, "part of the company's DNA."

GlobalPost in-depth series: After the tsunami

"We have heard a multitude of investor voices calling for change. Sony will change," Hirai said soon after his appointment. "Sony has always been an entrepreneurial company. That spirit has not changed."

Many analysts disagree. They barely recognize Sony as the company that once epitomized Japanese innovation with Walkmen and Trinitron TVs. While Sony has vacillated and, under Stringer, focused on cost-cutting and overdue organizational changes, its rivals have been playing catch-up.

The South Korean electronics firm Samsung is now the world leader in high-end TVs, and Sony has not come close to producing a music player to rival Apple's iPod. That's a legacy of infighting between Sony engineers and developers, which Stringer had limited success remedying during his time as CEO.

Hirai, who led Sony's gaming business, said the firm would concentrate on games, cameras and camcorders, and smartphones and tablets. Yuji Fujimori, an analyst at Barclays Capital, believes Hirai is at least sincere about implementing change. "Good managers are people who work hard to improve the company, not come up with good products," he said. "In a huge company like Sony, it's very unlikely that the management themselves come up with the good products. Rather, the president's role is to do business. Once Hirai knows what he wants to do, I think he will act very quickly."

It's not as if Hirai is having to start over with a blank canvas. Sony's PlayStation hardware and software has brought the company profits; its technological prowess, too, can sometimes be overlooked in the media's preoccupation with hit products.

"Sony make[s] the thinnest smart phone in the world. It has good display and image processing technology, and good camera technology," Fujimori said. "It now has plenty of elements with which it can differentiate itself from its competitors."

The roots of Sony's problems may lie in something as simple as hiring policy, according to Kunitake Ando, a former president of the firm. In an interview with Nikkeibp magazine, recently quoted in the Japan Times, he recalled the days when Sony "used to be filled with eccentric and odd employees," but had replaced them with graduates from elite universities. "There are many employees who take advantage of the Sony brand and swagger around despite having made no contribution," he said.

Such warnings are nothing new to Sony. The interview in question was conducted eight years ago.

Related Stories