Hirai remakes Sony in first year as CEO, now must win consumers

Sony will likely meet its goal of making a profit this fiscal year, rebounding from a record loss

In his first year as Sony CEO, Kazuo Hirai has remade the company, cutting thousands of jobs, selling off large businesses and core properties, and moving divisions around the world.

Now comes the hard part, selling electronics.

Hirai officially took the helm on April 1 last year, after Sony closed the books on its worst fiscal year since its founding in 1946. The company booked a nearly US$6 billion loss for the twelve months ending March 31, and said many signature products were struggling, including its Bravia TVs, Vaio PCs, Cyber-shot digital cameras and PlayStation game consoles.

He laid out his agenda in a press conference at Tokyo headquarters less than two weeks later. The normally easygoing Hirai often raised a fist for emphasis, nearly shouting as he faced a standing-room only crowd and promised to return the firm to greatness, as well as profitability.

Hirai faced a skeptical audience in the Japanese press, which had relentlessly criticized the firm in the wake of its record loss with headlines like "Sayonara Sony." He said he would refocus on the hit products that built its legacy, cutting away non-core businesses under the slogan "One Sony."

A year later, the headlines are better.

Sony's flagship smartphone and tablet, the Xperia Z and Xperia Tablet Z, have had strong reviews at home and abroad. The Nikkei business newspaper ran a story called the "Rebirth of Xperia," while Japanese tech publisher Ascii's review was titled "The strong appeal of the truly 'One Sony' Xperia Tablet Z."

Both devices feature screens and specs that can compete with top models from Apple and Samsung, and the tablet is both thinner and lighter. Hirai has said he was involved in the design of both.

Sony launched a major advertising campaign in Japan to coincide with the tablet's launch earlier this month, including free rentals to travelers on the country's high-speed bullet trains. It has also invited analysts to touch-and-try events with the new devices.

Hirai has set a goal of winning the number three spot in global smartphone sales, and in the fourth quarter of last year Sony came close, boosted by new Xperia handsets. Sony had a 4.5 percent market share in units shipped during the quarter according to researcher IDC, leaving it just behind Huawei as the fourth largest manufacturer. Both lag Apple and Samsung, which have half the market.

Analysts are cautiously optimistic.

"Sony did the best they could with the Xperia Z, but it is different from products like the Walkman because it is not something that didn't exist previously," said Yasuo Nakane, who covers Sony at Deutsche Bank in Tokyo.

Last August, Hirai moved the mobile division from Europe, where it had sat as a legacy of the Sony Ericsson Mobile joint venture, to company headquarters in Tokyo. The company now launches its Android phones and tablets under the Xperia brand, but it also sells Vaio tablets that run Windows and older tablets under a "Sony Tablet" line.

"Sony needs to align its mobile and computer divisions more closely. It needs a slightly more combined product strategy," said Mito Securities analyst Keita Wakabayashi.

In its PlayStation franchise, Sony has cut sales targets for its handheld consoles after disappointing holiday sales, even as it gears up for the release of its PlayStation 4 game console later this year. The company is still trying to find a successful strategy to incorporate its online game, music and video services, which it hopes to kick start with the PS 4.

Hirai has promised a small overall profit of about US$200 million in his first year as CEO, and will likely meet his goal. Sony's electronics division is unlikely to generate a profit on its own, but its financial and entertainment divisions are still strong.

The company will also book billions of dollars in one-time income after selling off major assets including its New York headquarters, a building complex in Tokyo, and stock holdings. Sony watchers have generally praised the sale of the assets, which have generated strong investment returns over their original prices.

As part of his restructuring plan announced last April, Hirai said he would cut 10,000 jobs and divest non-core businesses. Over the past year he has overseen deals at a dizzying pace. The company finalized the sale of its chemical product business, and it later announced a broad early retirement program and the closure of a Japanese factory.

A month after his speech, Sony announced it would pull out of an LCD venture formed with domestic peer Sharp in 2009 to make screens for large TVs at a Japanese factory. Hirai has repeatedly promised Sony won't give up on its loss-making TVs, calling them a "fundamental platform" and managing them personally even as CEO.

But the company is clearly moving toward outsourcing key components to its rivals, at least in the near-term. Foxconn took a major share in the same Sharp factory a few months later, and a separate Sony joint venture for LCD screens is now run entirely by Samsung.

"Sony's TVs are in better shape, but they're still in the red, especially given the tough business environment," said Wakabayashi.

Sony does have a deal with Panasonic to jointly develop large-screen OLED screens for future TVs. It has matched rivals with its 4K or Ultra HD TVs, and gone further with a 4K camcorder and a content delivery service.

"Hirai has made progress in optimizing the balance sheet and its business portfolio, this is a positive," said Nakane.

"The true test will come next fiscal year, because Sony can't keep selling assets forever."

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