Could this be the beginning of the end game at Sony – at least for the troubled phase now embroiling the once-sexy consumer electronics and entertainment giant?
As mentioned earlier, Sony stunned investors on Thursday afternoon Tokyo time with an announcement that it would post a Y260bn ($2.9bn) annual operating loss – its biggest ever – and cited sliding demand, a stronger yen and costs to restructure its electronics operations. The group was expecting an operating profit of Y200bn ($2.24bn) only last October but Sony made an operating loss during the peak Christmas trading period and slashed its sales forecast by 14 per cent to Y7,700bn ($8.65bn)
Few, however, have blamed the management – not least Sony’s larger-than-life chief executive, Sir Howard Stringer.
On Thursday evening Tokyo time, at a briefing attended by Sir Howard, Sony explained more about its predicament and restructuring plans. The company is now beefing up a restructuring plan outlined last month, more than doubling a cost-cutting target for the year to March 2010 to Y250bn. At the same time, reports Reuters, Sony will keep investing aggressively in strategic fields such as the development of auto-use batteries, a promising area as the use of hybrid and electric vehicles grows.
“While these are extremely challenging times, we must be fully prepared to embrace the opportunities that await us once these dark economic clouds begin to part,” Sir Howard told the briefing.
That statement in itself could be ominous for investors. With export markets collapsing, the yen on a relentless upward trajectory and widespread predictions of deepening economic gloom, we’re wondering when, exactly, Sir Howard might see those “dark economic clouds” begin to part.
But perhaps the stressed-out chief executive has more on his mind than selling consumer electronics and movies. As noted earlier, tensions within the company have escalated over Sir Howard’s radical restructuring plans, announced in December. As the FT noted this week, the dispute centres on whether, as Sir Howard believes, Sony should cut its production costs – including workforce – for “hardware” such as televisions and rely more on sales of software built into its gadgets . Or whether, as what some Sir Howard supporters call “the old guard” within Sony, the company should stick to doing what it always has done and try to weather the economic turmoil intact.
The pro-Sir Howard camp has portrayed the conflict as a noble campaign against the ossified forces of tradition – some even evoking the old “cultural differences” line used so often against foreign executives in Japan. The critics – and they are growing in number – say Sir Howard has had enough time to defeat the “enemy within” and has failed to do so.
He may have made some progress now. On Thursday, Sony said it would end TV production and design at one plant in Japan and consolidate those operations into another factory, while cutting headcount by 30 percent in operations related to TV design worldwide.
“We simply have no alternative but to dramatically change the fundamental ways we view our business as well as the way we create, manufacture and distribute our products,” Stringer said.
Indeed. But analysts on Thursday night were saying still more radical action was needed to streamline a sprawling structure that encompasses movies, LCD televisions, insurance and PlayStation game consoles. And, in Lex’s view, Sony’s response so far has been “predictable”: fire a load of staff and raise the cost-cutting target, although to an amount that still falls short of forecast losses.
Of course, it notes, junking unprofitable products is “hardly an option when that covers almost all of Sony’s portfolio”:
More focus on truly covetable products is the answer; the formula, for example, works for Apple, which has reported record fourth quarter results. Sony, however, is running out of time. For one, it is burning through cash. There is net debt of around $5.5bn on the balance sheet, and maturing debts will be costly to refinance. Going to the equity markets, however, would be expensive.
The real problem, in the view of a growing chorus of critics, begins at the top.
Sony’s share price is about one quarter of its 2000 peak, and half where it was five months ago. In fact, it has underperformed the sector ever since Sir Howard Stringer took control of the company in mid-2005, when he promised to “reinvent” the company and said he would not “hestitate to take tough decisions”.
So, concludes Lex, “after three and a half years in the job, Sir Howard’s time may be running out, too.”
Related links:
Sony’ shokku’: the sequel – FT Alphaville
Sony: Watch this space – FT Alphaville