Business Channel 2006-10-23&25

The trouble with Sony. It's not a Hitchcock film, but the last few months have been a thriller 1 for the world's No.2 consumer electronics firm, with battery recalls, product delays, and analyst 2 and market disappointment. The creator of the Walkman hopes to rebound 3 under foreign CEO Howard Stringer, but brand analyst Martin Roll says Sony has lost its way.

Sony definitely has a myth, but of late, the last couple of years they have been overrun by realign the iPods, the Samsungs, a lot of different competitors in different industries. And it seems like they have lost the touch in terms of design and innovation. They used to be a trendsetter, and now they have become a trend follower 4.

Some say Stringer inherited in June 2005 a bloated conglomerate 5 still reeling from its infamous 6 SONY shock. It needed job cuts, a paring of its diverse businesses, and a leader to do this quickly. An obvious detour 7 has been the recall of nearly ten million PC batteries due to safety concerns, which will cost 430 million dollars, and combines with one and a half billion in losses at Sony's game unit to force a 62% cut in earnings 8 forecast.

Much depends on the next generation PlayStation 3, which will compete with Microsoft's X-Box 360, and Nintendo's upcoming Wii unit from next month in Japan and the US, but miss the crucial Christmas season in Europe due to a delay. Fitch analyst Tatsuya Mizuno says the delay and a PS3 price cut even before the product reaches Japanese shelves shows management's confusion.

On the game hardware side, they need high prices to recoup start-up investment, but on the software side, they want low prices to attract and lock in customers. In my view, Sony tried to compromise between the two, but the price cut was a half-baked approach.

Earlier this month, Fitch downgraded Sony's debt rating, saying the company, renowned 9 for innovation, had not brought such products to market for some time. Solutions for the blue-blue chip aren't easy, but Mizuho's Koichi Hariya says less emphasis on the electronics division, responsible for 70% of revenues, may help.

I believe for the middle- to long-term, the only course for Sony to take is putting less emphasis on electronics manufacturing, which is happening in the global economy, and should be the approach for Sony.

Sony's market value is about 40 billion dollars. That's down about 7% since early September, and less than half rival Samsung Electronics, which was smaller only five years ago. While no one solely 10 blames Howard Stringer, many have asked what he intends to do to stem the bleeding, and put the once proud leader back in front.

Dan Sloan, Reuters, Tokyo.

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1. Hitchcock--British director known for his suspense 11 films, including The 39 Steps (1935), Strangers on a Train (1951), and Psycho (1960).

2. thriller--noun. an exciting, suspenseful 12 play or story, esp. a mystery story.

3. of late--Recently; lately

4. pare--verb. to remove (an outer coating, layer, or part) by cutting

5. recoup--verb. to regain 13 or recover; to get back the equivalent of

6. half-baked--adj. not completed; insufficiently planned or prepared; unrealistic