Can Kazuo Hirai save Sony?

Kazuo Hirai Sony

Sony’s newly-installed CEO Kazuo Hirai has outlined an ambitious restructuring plan for struggling electronics giant Sony: The company will eliminate some 10,000 jobs and take a one-time restructuring charge approaching $1 billion (¥75 billion, or about $926 million) to revitalize its business. The plan calls for Sony to focus on three core businesses — mobile devices, games, and digital imaging — and implement a streamlined management structure that will enable the company to respond more nimbly (and with more accountability) to market pressures.

The changes couldn’t come soon enough for investors, who have been frustrated by former CEO Howard Stringer’s tenure. This is the man who admitted in a 2011 interview that he spent years as Sony’s CEO without realizing many of his instructions were simply being ignored by some of Sony’s internal operating groups. But can Hirai — the man who took the PlayStation to the mainstream — return Sony to the prominence it enjoyed in the 1980s and 1990s?

Sony Will Change

Kaz’s Plan

Howard Stringer spent five years trying to align Sony behind a “four-screen” plan, where the company’s product line would be built open four core product lines: televisions, phones, tablets, and PCs. After five years of work, Stringer’s four-screen plan was finally pronounced ready for battle in November 2011 — and, three months later, Sony announced Stringer would be departing as CEO.

Hirai’s restructuring plan abandons “four screens” in favor of a “One Sony” strategy. Hand-in-hand with that, it will also adopt a “One Management” philosophy that aims to streamline corporate governance and make each of Sony’s myriad divisions more directly accountable to the CEO. Under Hirai’s new management structure, Sony’s CFO and Chief Strategy Officer will report directly to him, along with the heads of broad entertainment, electronics, and financial services groups. Within electronics, four groups get their own chiefs, while Sony Computer Entertainment (Hirai’s former fiefdom), Sony Network Entertainment and the company’s home entertainment and sound groups will report directly to Hirai. This last includes Sony’s struggling television business.

Sony Music Entertainment Japan will also report directly to Hirai, while Sony’s other major entertainment businesses (Sony Pictures, Sony Music Entertainment, and Sony/ATV Music Publishing) will report to new Sony Corporation of America CEO Michael Lynton as of June 27 — Lynton formerly headed up Sony Pictures.

So how does Hirai see Sony returning to profitability? The first move is straight from the new-CEO handbook: lower costs. As part of the restructuring, plan, Sony plans to cut 10,000 jobs, or about six percent of its global workforce. Those job cuts are the bulk of the $926 million Sony expects to spend to implement the plan, but Hirai believes the long-term cost savings will benefit Sony.

Sony is also looking to spin its expensive small- and mid-sized LCD production off into joint ventures, letting partners shoulder some of the costs for producing the flat screens that are part-and-parcel of almost every electronic device today. LCDs are now a commodity item, and Sony needs to reduce the amount of money it puts into manufacturing them. Sony is also working to transfer some of its chemical products business (it just did an unspecified deal with the Development Bank of Japan), and says it’s exploring industry alliances for electric vehicle batteries and other forms of energy storage. After all, Sony is one of the biggest battery-makers on the planet.

Sony Sales / Operating Income forecast FY2014

Sony is also banking on seeing sales revenue increase through 2014 — which may be a difficult for a company that has seen overall declines in sales revenue every year since 2007. What’s more, Hirai believes that the bulk of that revenue will come from Sony’s electronics business, with its entertainment and financial services businesses accounting for a smaller slice of the pie. Today, Sony’s electronics business accounts for 60 percent of Sony’s sales; by the 2014 fiscal year, Sony anticipates that figure will be 70 percent, with electronics generating 85 percent of the company’s overall operating income.

Sony Entertainment Television Indian Idol

Sony believes part of that sales momentum will come from focusing on new markets with emerging middle-classes: notably, India and Mexico. Sony already has strong presences in both markets, where it accounts for 30 percent of the television market and 15 percent of the notebook computer market. Sony also accounts for a stunning 60 percent of the home audio market in India, and Sony’s position in India is bolstered not only by a solid supply chain and retail presence, but also by running several widely-viewed television channels. Sony is literally a household name.

What about televisions?

Sony’s television business has been losing money for the last eight years, but Hirai’s plan has the division returning to profitability within two years by making its products more competitive but, primarily, by reducing costs. Hirai anticipates fixed costs for its television business will be down by 60 percent by the end of the 2013 fiscal year, with a corresponding operating cost reduction of 30 percent.

Sony Television Cost Reduction Targets

If these changes seem dramatic, it’s because they are. A good portion of the savings will come from backing out of its joint venture with Samsung to make LCD flat panels — that move was made last December with Stringer still in the CEO chair. The move had Sony paying a higher price for panels it was producing itself than it would have been paying on the open market, which in turn made Sony televisions more expensive than competing products. Backing out of the joint venture gives Sony flexibility on procuring LCD panels for its televisions, but, of course, Sony is surrendering control of the manufacturing process — a potentially dangerous move for a company that prides itself on quality. But, like it or not, LCD panels are now commodity items rather than exotic technology — even Samsung is spinning off its LCD business before it becomes an albatross around its neck.

For technological innovation, Sony is betting on OLED and its own Crystal LED technology to fuel sales; however, for the time being, both technologies target high-end products and likely won’t be hitting mainstream price points in the two-year timeframe Hirai has set to turn around Sony’s TV business. Otherwise, Sony is banking on three moves. First, it will evolve the resolution and sound quality of LCD TVs. Second, it will “address regional needs,” which basically boils down to making specific products for specific markets — again, hard to do for a company looking to reduce the number of models it offers by 40 percent. Third, Sony hopes consumers will be swayed by unique Sony technologies that make their televisions part of their lives: That means not only enhanced network services like Sony Bravia TV (and perhaps Google TV) that bring Sony Pictures content like The Smurfs in to people’s homes, but also integrating with Sony mobile products.

Sony Television Differentiation points

Can it work? From a cost-cutting perspective, Sony can certainly improve its television business on paper by sourcing less-expensive LCD panels and concentrating its resources on fewer models. This is a variation on the “more wood behind fewer arrows” approach that historically aims to reduce brand dilution. However, it’s not clear how these changes will prevent Sony from becoming just another TV maker in a sea of low-cost TV makers: Samsung, Vizio, Toshiba, and Sharp aren’t going to taking a holiday while Sony tries to retool its TV business — and none of them have had tremendous success differentiating their products with unique technology. In fact, the major threat on that front might be a company that isn’t even in the television business yet: Apple is widely expected to enter the television market this year.

It’s also notable Hirai sees Sony’s electronics business as having three core components: digital imaging, gaming, and mobile. Televisions didn’t make the cut.

Professional imaging technology and 4K HD

An interesting aspect of Sony’s core business in digital imaging is that the company sees itself expanding its range of professional devices (high-definition cameras used to shoot broadcast television and movies, for example, including 3D cameras). To be sure, Sony will keep making digital still cameras and interchangeable lens cameras, but the consumer market for point-and-shoot cameras is shrinking rapidly as buyers embrace camera-equipped smartphones.

Sony is looking to zag instead of zig here: Instead of trying to reduce costs or potentially sell off its digital imaging business, Sony wants to expand it into new areas. It will pump up its presence in broadcast and professional cameras, but also expanding the range of products supporting 4K high definition for high-end consumers. 4K high-definition expands on the idea of 1080p: instead of 1,080 vertical pixels, 4K high-definition has roughly 4,000 horizontal pixels (standards vary), with different vertical pixels depending on aspect ratio. Yes, eventually Sony and other companies will be explaining to consumers how 1080p high definition is such poor quality, and for a real cinematic experience folks need 4K televisions. Sound familiar? Sony is already a huge presence in movie and television production, as well as 3D movie-making: it may not sell many of these products compared to PlayStations, but they represent significant revenue.

And Sony wants to expand its medical peripherals business. Right now it makes things like monitors, printers, cameras, and recorders designed for hospitals and clinics, but the company wants to leverage its expertise in image sensors, lenses, and image processing to move into endoscopes (a field dominated by scandal-rocked Olympus — some rumors have had the two companies exploring a deal) as well as getting into medical diagnostic gear. Sony bought Micronics last September and just closed a deal for iCyt, makers of diagnostic equipement and cellular analysis systems, respectively.

Can Sony make it in mobile?

Mobile technology did make the cut as one of Sony’s three core electronics businesses — a move that comes on the heels of Sony’s buyout of Sony-Ericsson. As the smartphone revolution has swept up consumers, Sony has been a non-player, and, despite some valiant efforts, Sony-Ericsson never established itself as a major player in smartphones.

Sony anticipates it can ignite a mobile business by combining its existing entertainment businesses (like movies and music) with expertise from its gaming and digital imaging business to create a winning smartphone platform. Sony’s new Xperia Sola can be viewed as an early manifestation: It sports an 854-by-480-pixel display, 5-megapixel camera, and a unique “floating touch” display that lets users manipulate the touch screen without actually touching it (handy when your fingers are covered in peanut butter or something, we suppose). Unfortunately, it also runs a disappointing Android 2.3 — Sony says Android 4 Ice Cream Sandwich will be along someday.

Another indicator is Sony’s PlayStation Suite, which will make Sony downloadable games and content available to “PlayStation Certified” devices. Initially, that will include some Nvidia Tegra-powered Android smartphones and tablets. Sony obviously wants its own devices to be consumers’ first choice for mobile gaming and entertainment, but a willingness to expand the ecosystem could be a smart move — especially since Sony doesn’t control the Android platform.

Xperia Sola

Sony thinks the idea will pay off — although it’s a little vague on specifics. If Sony adds up its own mobile sales (which, incidentally, includes PCs like Vaio notebooks) and combines it with those from Sony Ericsson for the 2011 fiscal year, it comes up with something like ¥1.1 trillion yen. Sony believes it can achieve sales of ¥1.8 trillion (about $22.3 billion) by the end of its 2014 fiscal year, but will only say it that will represent a substantial “improvement” in operating income from its mobile group — which is nice, considering it’s currently operating at a loss.

Sony will find this challenging. The PC business is seeing steady erosion from smartphones and tablets, so like every other consumer PC maker, Sony will see PC-related revenue decline. So far, the “tablet” market is still largely the “iPad” market. Amazon’s Kindle Fire is seeing some success (largely as a media playback device), and Samsung’s Galaxy Note may be catching on, but they still just represent footnotes in Apple’s market. So far, there hasn’t been a credible iPad challenger, and it’s not like Sony hasn’t been trying.

Another hurdle is that, so far, the marketplace for Android smartphones and tablets has proven to be a race to the bottom, with device makers fighting each other to make the least expensive Android devices they can. Consumers also don’t seem to be embracing paid content and services for Android. So far, the Android economy is defined by “freemium” apps and services supported by advertising.

The success of the Amazon Kindle Fire (and, to an extent, Netflix for Android) may indicate there is a market for Android devices that provide access to vertical entertainment ecosystems. And, of all the technology companies in the world, Sony is well-positioned to provide that. But it’s not clear Sony can make that proposition work for mobile when it has largely failed to make it work for PCs, televisions, or anything besides the PlayStation 3.

Can it work?

Hirai’s plan to turn around Sony’s business is nothing if not ambitious. His moves to reduce Sony’s fixed and operational costs will certainly help the company’s bottom line in the long run, even if the initial price is painful. But these aren’t Sony’s first job cuts: The company has axed over 65,000 employees in four separate restructuring plans since 1999.

Sony may be able to generate significant sales revenue in emerging markets like India and Mexico, particularly by producing products tailored to local tastes. However, it’s not clear how Sony is going to generate far stronger global sales in the course of the next three fiscal years.

The apparent answer from Hirai is through more-focused, highly-innovative products. However, if Sony is capable of producing more-focused, highly-innovative products, why hasn’t it already done so? In the last decade, Sony has been presented with many consumer market opportunities, including the transition to HDTV, mobile technology like smartphones and tablets, and cloud-based entertainment and content services. Sony hasn’t been absent from these markets, but it has largely failed to distinguish itself as a market leader in any of them. Even Harai’s mighty PlayStation gaming empire has had tremors, first with high costs putting off adoption of the PS3, then a major security breach sullying the Sony brand.

Bottom line: without a higher operating profit margin, Hirai’s restructuring moves amount to buying time hoping serendipity will bring Sony another Walkman or PlayStation.


More days gone: Sony moves zombie exclusive ‘Days Gone’ to April

Sony has delayed the PlayStation 4 exclusive Days Gone to April. It was previously bumped from a 2018 release window into February, 2019, but Sony Bend apparently needs more time to add polish.

Key settings you need to change on your Sony Xperia XZ3

The first thing you need to do when you buy a new phone is dig into the settings and customize it to your liking. We’ve got step-by-step instructions for tweaking key settings on your Sony Xperia XZ3 right here.

Sony crammed 28x zoom, 4K into a $450 camera that weighs as much as a smartphone

The Sony HX99 is a tiny compact camera that mixes 4K and fast burst speeds with a 28x optical zoom. The travel zoom camera upgrades the processor over the earlier model for better video and super-long-burst captures.
Movies & TV

‘Venom’ devours the box office competition with monstrous second weekend

Sony Pictures anti-superhero movie Venom won the weekend box office for the second straight week, beating musical drama A Star is Born, as well as three new releases that made it into the weekend's top ten movies.

Apple’s latest feature ensures MacOS apps are safer than ever

MacOS is mythically known for being more immune to viruses than Windows, but that doesn't mean there isn't room to make it safer. Apple is using an app notarization feature to protect users from downloading malicious apps.

There’s now proof that quantum computing is superior to the classical variety

For the first time in computer science history, researchers have tangibly demonstrated how a quantum computer is better than a classical computer. A quantum computer was able to solve a math problem that a classical PC cannot.
Product Review

Dell’s G3 Gaming laptop knows what gamers want, and what they can live without

Compromise and budget gaming laptops go hand-in-hand, but with the G3, Dell has figured out how to balance what gamers want with what they can live without.

In 2018, the rivalry between AMD and Intel has become more interesting than ever

When it comes to selecting a CPU for your PC, there's no shortage of chips for you to choose from. With Ryzen, Threadripper, and Core i9 CPUs though, the AMD vs. Intel argument is muddier than ever.

Will Apple introduce a new MacBook at its Oct. 30 event? Here's everything we know

Whether it's called the MacBook Air or just the MacBook, Apple is highly rumored to introduce a new, affordable laptop in 2018. We discuss reports about upgrading displays, processors, sign-in features, and more.

Apple CEO demands Bloomberg retract its Chinese surveillance story

Apple CEO Tim Cook is calling on Bloomberg to retract a story alleging that Apple had purchased compromised servers that allowed the Chinese government to spy on Apple. Apple's investigation found no truth to the story.
Product Review

Amid a new fleet of budget laptops, the ZenBook 13 sails where others sink

It’s never been truer that you don’t need to spend over a thousand bucks to buy a good laptop. The ZenBook 13 takes we’ve always loved about its predecessor and makes enough small refinements to keep it ahead of its competitors.

Protect your digital identity with these four easy steps to online anonymity

You don't have to be a secret agent or a notorious hacktivist to care about anonymity. Consult this guide to learn tips, tricks, and best practices for staying anonymous and keeping your online activity private

Gaming on a laptop has never been better. These are your best options

Gaming desktops are powerful, but they tie you down to your desk. For those of us who prefer a more mobile experience, here are the best gaming laptops on the market, ranging from budget machines to maxed-out, wallet-emptying PCs.

How does Samsung's new 2-in-1 stack up against the tried-and-true Surface Pro 6?

We're the stacking Surface Pro 6 and Galaxy Book 2 up against each other in this head-to-head. Both of these devices share a similar form factor and design, but be it LTE connectivity or difference in pricing, each offers up its own pros…