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Last Updated: Tuesday, 28 October, 2003, 11:36 GMT
How Sony lost its way
Analysis
By Jeremy Scott-Joynt
BBC News Online business reporter

Sony Chief Executive Nobuyuki Idei
Sony's chief says the company needs to rediscover its fire
That it should come to this.

Sony, perhaps the ultimate in iconic consumer brands and the first Japanese gadget-maker to become a byword for quality rather than price, is up the financial creek.

The first three months of 2003 brought a stunning loss, dubbed by investors the "April Shock" and the trigger for a 25% slide in the company's share price in just two days.

Since then things have been little better, with the figures for July-September showing sales up just 0.4% and profits down 25%.

And now, after much trailing in the Japanese press, comes the solution: a 13% cull in the firm's 155,000-strong global headcount, a deal with South Korean arch-rival Samsung to make flat screens in Korea, plans to ditch the financial services arm, and a tightening of belts across the board.

Flagging

What went wrong at Sony is at least in part open to conjecture.

Chairman Idei is not just talking the talk but he is walking the walk
John Yang, Standard & Poors

But analysts tend to agree on one thing: Sony, despite its high-stepping past, has been getting a little stale.

While its computers and - in some markets - mobile phones are selling reasonably well (the latter through an initially troubled joint venture with Sweden's Ericsson), the consumer audio-visual market has been more of a struggle.

Even the PlayStation 2, the crowned king of the massive global games console market, has seen sales flag in recent months.

And the entertainment division the company bought from Columbia with such fanfare in the 1980s has recently been notorious for a string of expensive box-office flops such as the Ben Affleck-Jennifer Lopez vehicle Gigli.

Perhaps Sony has even got a little too comfortable, and in the process less fleet-footed about serving up what customers really want rather than what Sony thinks they will buy.

Chief Executive Nobuyuki Idei said as much at a conference earlier this month in Japan.

Sony, he said, was "lacking a sense of urgency".

Rivals

That sense, he said, was what had driven Samsung - one of the biggest thorns in the company's side despite their freshly-minted joint venture - following the Asian currency meltdown in 1997.

Sony's Aibo robot dog
Even if you make good sales and innovate - like Sony does all the time - you just don't have that leeway of profit
Seijiro Takeshita, Mizuho International
Samsung is now seeing profits rise comfortably, and its mobile phone and audiovisual lineup is making it one of Sony's key challengers.

The South Korean challenger is a good example of the root of Sony's troubles.

In the decade and a half following its invention of the Walkman - and thus the whole field of personal consumer electronics - the company's brand was a guarantor of quality in a world where that promise was difficult for competitors in the same price bracket to match.

That is no longer true, as has been demonstrated not only by Samsung and fellow South Korean firm LG, but also home-turf competitors such as Matsushita, owner of the Panasonic and Technics brands.

In an unfortunate bit of timing, Matsushita - which has grabbed half the global DVD player market - reported profits for the six months to September up 31.5% to 23bn yen.

Seeking direction

In comparison, Sony's profits for the same period were down 66% to 34bn yen.

"They're playing a losing game," Mizuho International Director Seijiro Takeshita told the BBC, citing the ever-tightening competition.

On cameras, cathode-ray TVs and other audio-visual (AV) products, "even if you make good sales and innovate - like Sony does all the time - you just don't have that leeway of profit."

"The first image you have of Sony is of brand management, particularly in these AV products," he says.

So they need to move further towards software and entertainment products he says - although they need to start getting them right.

But that is no longer enough.

"Until now we were always able to know what Sony would do in five or 10 years' time.

"I'm pretty sure they don't even know now themselves."


WATCH AND LISTEN
Business Correspondent Jenny Scott
"Prices are falling, which is great for us, but not so great for companies like Sony"



SEE ALSO:
Sony plans massive job cuts
28 Oct 03  |  Business
Japan plans mobile phone pay plan
27 Oct 03  |  Business
Job cull fears at Sony
20 Oct 03  |  Business
Sony profits plunge 98%
24 Jul 03  |  Business
PlayStation fights falling sales
24 Jul 03  |  Technology
Sony shares plunge 15%
28 Apr 03  |  Business


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