Sony gets beaten by Apple, Samsung innovation; sees $2.9 bn loss

Tokyo: Japan’s ailing electronics giant, Sony Corp, warned investors on Thursday it was heading for a worse-than-expected $2.9 billion annual loss, revealing the daunting task ahead for its incoming chief executive, Kazuo Hirai.

The company, overtaken by more innovative rivals such as Apple and Samsung over the past decade, gave the forecast in its third-quarter results, surprising a market that had been expecting a full-year loss of barely half that amount.

Sony said it expected to make a loss of 220 billion yen for the year to March, its fourth straight year of red ink, including a hefty $1.2 billion operating loss for the third quarter and a steep slide in sales at its troubled TV unit.

“It won’t be easy for Sony to regain its lost ground under new leadership, as its overall competitiveness has sharply weakened,” said Kim Young-Chan, analyst at Shinhan Investment Corp in Seoul.

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“It’s got structural problems that will take years to fix.

“It’s not just Sony but Japanese IT firms have similar problems. They are failing to innovate and produce industry-leading products in almost every major area from TVs to displays, tablets and smartphones.”

The market had been expecting a net loss of 132.8 billion yen for the full year to March, according to Thomson Reuters data.

Sony kept its annual LCD TV sales forecast unchanged at 20 million on Thursday, but cut its forecasts for digital camera and PlayStation 3 hardware sales.

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The company is installing Hirai, a company veteran, to stop the rot in its troubled TV business and to rekindle the innovative spirit that had made it a king of the global consumer electronics industry in the 1980s and into 1990s.

Hirai, who revived Sony’s PlayStation gaming business, was named on Wednesday to take over from Howard Stringer effective 1 April.

Sony shares closed down 2.6 percent ahead of the results in a market that rose 0.8 percent.

There is unlikely to be a honeymoon period for Hirai, who is under immediate pressure to sort out Sony’s ailing TV business after it fell behind South Korean rivals such as Samsung Electronics in a market where prices are tumbling.

Above all, Hirai will strive to recapture the innovative flair that led Sony to dream up the Walkman personal music-player in the 1980s and the PlayStation in the 1990s, and regain ground lost since then to Apple Inc and Samsung whose iPhones, iPods and Galaxy gadgets are snapped up by consumers.

Some analysts believe 51-year-old Hirai - tall, urbane and a fluent English speaker - can rekindle the flame, saying he has a good grasp of the overall business and is likely to know how to break down its silos and integrate its divisions.

Others are not so sure.

“The biggest issue is top management … There needs to be a vision for the products, for innovation,” said a former Sony executive who felt that a new management mindset was needed.

He told Reuters he believed Sony would ultimately shut the TV business unless it came up with fresh ideas to revive it. “There is still a chance in home electronics, but I imagine the day may come when they will pull the plug on TVs,” he said.

Hirai, who made his name hauling the wayward PlayStation division back into the black two years ago, sketched out his priorities in a statement on Wednesday night.

He said Sony needed to drive growth of its core electronics businesses, such as digital imaging, games and mobile devices, turn around its TV business and accelerate innovation.

Hirai’s predecessor, Welsh-born Stringer, a former journalist who ran U.S. broadcaster CBS, had been brought in as a rare foreign CEO in Japan to shake things up, but many analysts see his major achievement as cost-cutting.

Sony’s shares have lost nearly two-thirds of their value since Stringer, who turns 70 this month, took the helm as CEO and chairman in 2005.

Stringer sold off TV factories in Spain, Slovakia and Mexico and outsourced more than half of its production to other companies, including Hon Hai Precision Industry the contract electronics maker whose key customer is Apple.

Recently, Sony exited an LCD panel joint venture with Samsung, enabling it to obtain screens for its TVs more cheaply. It also agreed to buy out Ericsson’s half of their smartphone venture for $1.5 billion to shore up its position in a market where Apple and Samsung have become leaders.

Hirai was effectively anointed as Stringer’s successor last March when he was promoted to head Sony’s consumer products and services businesses, which produce the bulk of Sony’s $85 billion in annual sales.

“They’ve been grooming him for a while,” said Dan Ernst, Hudson Square analyst. “I think he will carry on the plan for Sony - as difficult as it is.”

That plan means turning around a business that many believe has lost its innovative edge.

A chief concept in the strategy hinges on merging Sony’s robust roster of entertainment properties - including singers Kelly Clarkson and Michael Jackson, and the “Spider-Man” and “Men in Black” film franchises - with its Vaio, Bravia and other electronics brands, in an effort to boost sales.

The last year has been brutal for many Japanese companies, hit by a strong yen that hurt exports, and two natural disasters - the March earthquake in Japan and record floods in Thailand.

Reuters