May 10, 2012 at 2:10 PM ET
After posting a record annual loss and its worst fiscal year ever, Sony offered investors a light at the end of the tunnel, predicting a profitable 2013. Under new president and CEO Kazou Hirai, the company has announced cost-cutting moves including a workforce reduction of 10,000 or 6 percent of its work force. What Sony needs even more than lower overhead is people who can create the kinds of innovations that made it famous decades ago.
Sony announced a $5.7 billion loss for the fiscal year and a $3.2 billion loss for the quarter. Year over year, sales dropped 18.5 percent in its core consumer products and services unit. The company blamed lower prices and unit sales for its TVs and PlayStation game consoles. Sales of digital cameras and PCs suffered because of manufacturing disruptions caused by the earthquake and flooding Japan experienced last year.
Natural disasters are the least of the company's problems, though. Sony was a brilliant hardware company that managed to completely miss a fundamental shift in how people consume media. Its greatest hits — the Walkman, Trinitron TV displays, camcorder, PlayStation — are from an analog era.
"The basic problem is they missed the Internet," said Michael Cusumano, a professor at MIT's Sloan School of Management who has consulted for Sony. "They missed the connectivity of these different devices." Consumers today want to access digital content — music, movies, video games — across a network of devices and platforms. Sony "created organization of silos around these products," Cusumano said.
Hirai will have to break down those entrenched silos and get a traditionally hardware-driven company to think of itself as part of the digital ecosystem that now drives consumer electronic spending.
One place to do this is in television. The company plans to overhaul its money-losing TV business, concentrating on its high-end Bravia line and next-generation technologies beyond LCD. "The reality is a lot of the market from a volume standpoint is commodity and they don't play well there," said Danielle Levitas, senior consumer technology analyst at research company IDC.
"The strongest part of the TV market is in higher-end, more premium products and that is clearly a segment where they continue to maintain some level of brand loyalty," Stephen Baker, vice president of industry analysis at research firm The NPD Group, said via email. "Their challenge in TVs is to make great products that are competitive and cutting edge and their failure to keep up there has left them in the position they are currently in.
"I think what's going to be critical for them long term is really delivering on that premium experience," said Levitas.
Analysts say it's likely that premium experience could be some kind of interconnected media system, with the PlayStation3 — and whatever console will ultimately succeed it — as the hub. Sony alluded to this possibility in a statement last month, saying it plans to "enhance the integration of televisions with Sony's mobile products, with content such as movies and music, and with other assets across the Sony Group."
Another channel it can exploit is mobile. "Sony’s focus on tablets and smartphones is entirely logical regardless of the competitive level of the categories," said Baker. "Great engineering continues to be a key component for successful products in that space."
Earlier this year, Sony acquired the half of mobile phone company Sony Ericsson it didn't already own and renamed it Sony Mobile Communications. Analysts predict mobile gaming will grow significantly due to casual gamers who won't invest the time and money in hours-long multiplayer games but want something to do while in line at the grocery store or waiting for the bus.
"In terms of where mobile gaming has been going and clearly will go… it has to come much closer with the smartphone space," Levitas said. "That's an area to keep a hopeful, watchful eye on."
Creating hardware that lets users play, read, listen and watch wherever and however they want to will be the best — some say the only — way for Sony to differentiate itself as it executes its turnaround. "They've been making progress on it. It's just that it takes them too long," Cusumano said. "Fundamentally they still are a great hardware company."
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