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Sony CEO wields axe, sets turnaround targets

Sony CEO wields axe, sets turnaround targets

By Reuters | Updated: 5 June 2012 16:20 IST

Highlights

Hirai, who took over from Howard Stringer this month, is under pressure to turn around an ailing consumer electronics giant.

Less than a fortnight into his job as CEO, Kazuo Hirai sketched out a strategy to revive Sony Corp: a major push into smartphones, growth in games and cameras, and big cost cuts in a TV business that has not made a profit in 8 years.

The Sony veteran, in his first public briefing as CEO, also targeted new business in medical equipment and electric car batteries, and set a target for group sales of 8.5 trillion yen in two years, with an operating margin of more than 5 percent.

Hirai, who took over from Howard Stringer this month, is under pressure to turn around an ailing consumer electronics giant hobbled by TV losses and trampled by today's gadget leaders Apple and Samsung Electronics.

"I am determined to transform and revive Sony. This is our only chance to change," Hirai told a packed news conference at Sony's Tokyo headquarters, close to where the company established its first factory 65 years ago.

Hirai came armed with a slew of numerical targets aimed at easing investor concern over mounting losses. Sony expects to have slumped to a record $6.4 billion loss in the year just ended.

For video story - http://tinyurl.com/7gmky8g

For a graphic on Sony earnings - http://r.reuters.com/vah46s

For a graphic on Sony staff details - http://r.reuters.com/kam57s

Sony and Japan's two other major TV makers, Sharp Corp and Panasonic Corp, have been battered by weak demand, fierce competition and a profit-sapping strong yen that threatens the viability of Japan's once-mighty television industry.

The three firms expect a combined annual loss of $21 billion - more than Sony's entire market value, which has slumped by close to a fifth in the past month. Samsung is 10 times more valuable, while Apple, which Sony executives considered buying in the early 1990s, is worth 30 Sony's.

"Sony's fundamental problem is that it has lost its competitiveness," said Hideyuki Suzuki, general manager of research at SBI Securities.

Hirai confirmed media reports that Sony will cut 10,000 jobs - 6 percent of its global workforce - and take a 75 billion yen restructuring charge this business year. The cuts follow two rounds of layoffs during Stringer's six-year tenure.

"We cannot shy away from difficult decisions," he said.

Hub devices
Hirai, who previously revived the PlayStation video gaming unit, said he wanted to make Sony a leading player in mobile phones, which would be a "hub device" for the mobile business. He aims to treble revenue to 1.8 trillion yen over the next three business years.

Sony recently bought out Ericsson's half of their smartphone venture for $1.5 billion to shore up its position in an increasingly crowded market where Apple and Samsung lead. It has since launched its first smartphones, the Xperia series, under the Sony brand.

Sony will also look to increase sales of cameras and other digital imaging devices by a third to 1.5 trillion yen and raise revenue at the games division by around a fifth to 1 trillion yen over three years.

In February, Hirai had outlined a vision to widen the PlayStation gaming console online network to integrate all Sony devices, replacing the three online content delivery platforms it currently operates.

For the television business, which has racked up $10 billion in losses in 8 years, Hirai aims to cut fixed costs by 60 percent and operating costs by 30 percent over two years. Sony will offer fewer models. Hirai pointed to possible cooperation with other TV makers in the next generation of flat screens.

A Sony executive previously told Reuters that Sony may forge a grand alliance with Sharp and Panasonic, combining their set making divisions with the backing of a Japanese government eager to safeguard jobs.

There is a precedent in Japan Display, a company two thirds owned by the taxpayer that combines Sony's small LCD operations with those of Toshiba Corp and Hitachi Ltd.

"We are looking at a number of possibilities, but there are other parties to consider. At this moment, there's not anything I can share," Hirai said when asked about such an alliance.

Not aggressive enough
Investors said they had hoped for more meat on the bones of Hirai's plans.

"I can't make out a growth story here. It's good they've announced numerical targets, but you can't tell how they're going to achieve them," said Kikuchi Makoto, CEO of Myojo Asset Management.

"It doesn't feel like an aggressive makeover," said Tetsuro Ii, president of Commons Asset Management, who oversees $33 million of assets and doesn't hold Sony stock. "You can't really see the roadmap for how they're going to revive the electronics business, nor how they're going to create new value."

Eyeing new opportunities in the fast-growing medical business, Sony is targeting annual sales of 50 billion yen in 2014/15, eventually doubling to around $1.2 billion, and is scouting for acquisitions and other strategic investments. It will also look for potential partners to make batteries for electric vehicles.

"Expanding in medical and electric vehicles is good because these businesses have better margins and they're areas that Japan is good at," said Michael On, managing director at Beyond Asset Management.

Sony is one of several potential partners that have been linked with disgraced medical equipment maker Olympus Corp, which has a 70 percent share of the global market for diagnostic endoscopes and needs to shore up its finances after a $1.7 billion accounting fraud.

"It appears Sony is trying to expand into new businesses where it's more likely to compete better with the likes of Samsung," said Lee Sun-Tae, analyst at NH Investment & Securities in Seoul. "Sony has already lost its dominance in its traditional markets such as TVs and it won't be easy for them to fight back and regain market share in these areas."

Sony shares closed 0.9 percent higher at 1,528 yen on Thursday ahead of the briefing. The benchmark Nikkei average ended up 0.7 percent.

In Germany, Sony securities traded nearly 2 percent higher.

Copyright Thomson Reuters 2012

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Further reading: Apple, Hirai, Howard Stringer, Samsung

Sony CEO wields axe, sets turnaround targets

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