Like Japan as a whole, Sony needs a resurgence. The electronics giant has been humbled. It has seen upstarts like Apple and Samsung Electronics claim markets it once dominated. It has lost its innovative edge, and its brand is tarnished. Prime Minister Shinzo Abe's hopes of revitalising the economy could rub off. But even Sony's turnaround plan under newish Chief Executive Kazuo Hirai seems depressingly familiar.
Sony has lost about half its market value over the past 10 years, and the company is now worth about $17 billion. Samsung and Apple are worth about 12 and 25 times as much, respectively. And that's after a weak yen and aggressive central bank easing have goosed the market. Sony's stock is up nearly 50 per cent since January.
The company needs more than that to rediscover its former strength. A glance around in most big cities is unlikely to reveal many passers-by using a Sony phone or tablet. Instead of developing the gadgets of the future, the company has spent the past decade thinking about the past and itself. Apple and Samsung, primarily, have claimed the lead in innovation and quality. That's a sad result for a company that invented the Walkman and was once atop the world in consumer electronics and miniaturisation.
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Over-diversification is also to blame. Forays into areas like chip production, finance, music and movie production absorbed capital and management time and made the company unwieldy. These ventures also encouraged the company to push its own standards rather than signing up for global norms. Its digital Walkmans, for example, couldn't play ubiquitous MP3 tracks for years. This may have discouraged piracy, but it made the devices unappealing to consumers.
Third, Sony is essentially a hardware company in an increasingly software-dominated world. Despite its desirable devices, Apple's biggest strength may be in the development of new code. Sony has occasionally shown the knack - its PS2 is the best selling video game console of all time. But the PS3 sold only about half as many. The omens aren't good for the next generation either.
So, in addition to Abenomics nationally, Sony needs some Haraism at the corporate level if it's going to re-emerge. The CEO's plan to focus on digital imaging, games and mobile devices is a good start. Buying out Ericsson from the two companies' mobile phone venture offers particular promise. Sony's new Xperia Z smartphone has been a surprise hit, selling out in Japan.
And the company's movie and music divisions are profitable. They probably generated about $11.5 billion of revenue in the past fiscal year. Put this on the same multiple that Parlophone was sold for earlier this year, and these divisions might be worth about $18 billion. If so, that means investors are attaching minimal value to the rest of Sony's operations, giving Hirai scope to make things a lot better.
Unfortunately, history suggests Sony investors shouldn't get their hopes up. Former boss Howard Stringer, who took the reins in 2005, also suggested the company trim down its operations and make its different divisions work better together. The global crisis of 2008 and the tsunami and the Fukushima nuclear disaster in 2011 didn't help Stringer. Hirai may have better luck with the backdrop and he's also Japanese, which still counts for something in a Japanese multinational. But something radical like selling off Sony's entertainment business could still be a step too far.
Further, electronics is a difficult industry in which to mount a comeback. Competition is cut-throat, and operating margins rarely exceed single digits. Rivals like Samsung are willing to take heavy losses, to gain or retain market share. That could mean that Sony's goal of a five per cent margin will be difficult to achieve.
Sony's best hope is probably the development of new devices - much as the Walkman powered the company's success back in the day. Its new health-gadget joint venture with Olympus is one potential bright spot. Or Sony could yet show that it hasn't forgotten how to create new mobile gadgets that people want above any others. That could, though, be said of a lot of firms - Blackberry, Google's Motorola and Nokia, for instance - searching for renewed life. Abenomics and a weaker yen may smooth Sony's path. But as in so much of corporate Japan, the products and culture that could help the company leave its lost decade behind remain elusive.
