Sony is still a manufacturing giant, but a troubled one, and its recent struggles to cut costs and match more nimble international competitors typify a lumbering Japanese electronics industry that is famous far more for its past products than its current ones.
Experts say that Sony now needs a transformation. That’s the chief challenge facing incoming CEO Kazuo Hirai, who takes over from Howard Stringer on April 1 and is charged with reviving a company that has lost money four years in a row.
Such a turnaround will require many steps — paring of product lines; outsourcing; jobs cuts — that Japan’s major manufacturers often say they cannot take, due to cultural expectations for lifetime employment. It also requires recapturing the gift for innovation, something that came easier for Sony when it was young and streamlined, not sprawling. Sony, whose Walkman became a cultural icon in the 1980s, hasn’t developed a touchstone product in years.
“Sony is like a metaphor for Japan” because it has been slow to adapt since the collapse of the economic bubble here two decades ago, said Osamu Katayama, who has written three books about the company. “Sony started out as a very entrepreneurial company. But they were not willing to make major changes because change is always accompanies by pain. As a result, they are no longer a special company.”
Hirai takes over during a dismal period for Sony. Some of that pain is temporary: Last year hackers sabotaged the PlayStation gaming network, disrupting service and stealing personal information from account holders. An earthquake in Japan and flooding in Thailand damaged factories and interrupted supply lines. The company was also hamstrung by a record-strong yen, which raised the prices of Sony’s products abroad.
But even with supply lines restored and the yen weakening, Sony faces fundamental problems, analysts say, as it tries to regain the ground it has lost to Apple and Samsung.
Sony no longer makes a profit on some of its most iconic products, including televisions, where it has taken losses for eight years in a row because global competitors use similar technology and far cheaper labor. Sony was also years too late to develop flat-panel models, losing a market share it hasn’t been able to recover. (Sony now makes the bulk of its money by selling life insurance through its financial business arm, Sony Life.)
Sony is also slowed by its own size, analysts say — typical of corporations here that emerged in this country’s post-World War II manufacturing boom. That bulk can be seen in Sony’s awkward attempt to marry its products and content. Though the company, for instance, made digital music players and laptops, and though it operated a recording business and a motion picture studio, its engineers were slow to weave it all together, as Apple did seamlessly with its iPod and iTunes.
The entertainment business itself has become a stable money-maker for Sony in recent years, with motion picture blockbuster series like “Men in Black” and “Spider-Man” and top-selling artists such as Adele and Taylor Swift. Movies and music together accounted for 14.7 percent of Sony’s sales in the past fiscal year ended March 31, 2011.
It’s consumer electronics, however, that hold the company back. Those products account for roughly half of Sony’s total sales. And through the first three quarters of this year, those very products produced 118 billion yen (or $1.4 billion) in losses.
With Hirai set to take over, Sony is trying to consolidate and wring profits from the core of its business. The company this week announced a rare organizational shake-up in its top levels aimed at improving “rapid” decision-making among executives. Sony also identified three “pillars” of its electronics business — digital imaging, games and mobile — with promises to concentrate resources in these areas. Those changes, analysts said, perhaps indicated that Sony was ready for the “painful” steps that Hirai, 51, has said are necessary.
It’s not the first time Sony has taken aim at major change. Stringer, appointed as Sony’s top executive in 2005, spent years trying to reduce product lines, shutter factories and integrate divisions that acted like separate fiefdoms.
“I said to senior staff and the strategists: ‘Look at the numbers. We have no choice but to restart this engine,’” Stringer said in a 2007 interview with BusinessWeek. “We’ve got to close factories, get rid of some unprofitable businesses, a hard thing to do in Japan.”
Analysts say he was able to do only some of what he wanted. Stringer eliminated thousands of jobs, and outsourced some factory production, slimming the supply chain. He also dissolved the company’s partnership with Ericsson in a struggling mobile phone venture.
Stringer’s cost-cutting, though, faced resistance from executives in Japan, who before the 2008 economic crisis felt that Sony could thrive without layoffs. Even after the financial shock Stringer made few changes to operations in Japan. Some 50,000 of the company’s 168,000 employees remain in Japan, where labor costs are among the world’s highest.
Sony was founded in 1946 (as the Tokyo Telecommunications Engineering Corporation) and headquartered in a burned out department store. During the next decades, Sony created products that people wanted — before consumers even knew they wanted them. Televisions and camcorders and Walkmans.
But the company has struggled for years to find another hit. It pitched the digital Walkman as an iPod competitor, but the device had a clunky interface and used proprietary audio files, not the standard MP3s. It released its first tablet almost 11
2 years after Apple released its iPad. Sony’s latest attempt at a hit is the PlayStation Vita, a handheld device designed specifically for gamers — even at a time when more and more people are playing games on their mobile phones.
Sony has forecast that it will post a loss of 220 billion yen, or roughly $2.7 billion, for its fiscal year ending Friday. The company, worth $100 billion in 2000, has lost four-fifths of its value. It makes everything from cameras to rice cookers, but it is also facing a domestic market — with an aging and shrinking population — that is buying less and less.
“I have a very strong sense of crisis about the environment surrounding us,” Hirai said in a news conference in early February. “We cannot be afraid to make painful choices for the future of Sony. Our rivals and the operating environment won’t wait for us.”
Special correspondent Ayako Mie contributed to this report.