Once in crisis, Sony adjusts to digital age

BERLIN: When Howard Stringer took the helm at Sony three years ago, the Japanese company was in crisis. The consumer electronics business that had produced the transistor radio, the Trinitron TV and the Walkman, was losing money. Sony had been overtaken by Samsung of Korea, which had correctly anticipated the huge consumer demand for flat-panel TVs.

By January 2006, Sony had so few new products to brag about that Stringer had to call the actor Tom Hanks on stage during his keynote speech to the Consumer Electronics Show in Las Vegas to help him buy time as he promoted the Sony Reader, a hand-held digital book reader.

"I clutched that Reader for an hour and sold it and sold it and sold it," Stringer said at the Internationale Funkausstellung in Berlin, the largest consumer electronics convention in Europe. "It was all I had."

Almost three years later, Sony's digital distress appears to be a thing of the past. At the IFA, which ends Wednesday, Sony showed off an array of products defined by superlatives: the EX1, the first high-definition wireless home entertainment system; the ZX1, the thinnest LCD TV in the world; and the Z4500 line of LCD TVs that process screens four times as fast as a conventional LCD TVs.

"We have spent a lot of time over the last three years adjusting our business for the digital age," Stringer said. "We are now making more money than we have ever made before. Our core businesses are working for us."

Samsung remains a formidable competitor, and will stay atop the TV business by expanding its line of larger, expensive LCDs - going head to head with Sony in its strongest segment, Jongwoo Park, the president of Samsung's digital media business, which includes TVs, said during an interview at the IFA.

"I am well aware Sony is aggressively trying to build market share," Park said. "But we are going to stay on top because we can use the power of our market share."

Sony also faces other challenges. In mobile phones, Sony Ericsson, the 50-50 joint venture, remained a distant No.5 in cellphones with an 8.2 percent market share in the second quarter, according to Strategy Analytics. In gaming, Sony lost the equivalent of $1.14 billion during its last financial year, but the business has since become profitable, Stringer said, as sales of PlayStation3 games offset losses on the hardware.

Under Stringer, Sony has invested heavily in software development, as consumer electronics and computing merge. In the year through March, Sony added 17,500 employees, many of them software engineers in Eastern Europe, India, California and Asia, Fujio Nishida, president of Sony Europe, said. Since 2005, Sony has cut 10,000 employees as it closed 11 old-generation TV factories.

"Howard was evangelizing internally within Sony for a stronger emphasis on software, how software adds value to devices," a former Sony U.S. executive, who did not want his name used because he was uncomfortable commenting on a former employer, said. "In every meeting I was in, he was trying to change some of the hardware culture."

Most importantly, Stringer has reduced the insular mentality that had balkanized Sony's electronics, movie, gaming, music and mobile businesses, said a former senior Sony Europe executive, who also did not want to publicly comment on his former employee. "I used to have to force people to sit down and talk with each other," said the former manager.

Stringer, one industry expert said, is seeking to deliver on the reform goals set by his mentor and predecessor, Nobuyuki Idei, who in the 1990s initiated the push into software and promoted Stringer to head Sony's U.S. operations.

"Sony over the past few years has been investing significantly in software and raising the user experience, working to tie together its broad family of products," said Ross Rubin, an analyst at NPD, a research company based in Port Washington, New York. "Sony's brand trust still remains far ahead of Samsung as a purchase motivator, but Samsung has certainly been very aggressive about building its brands."

Stringer's cross-marketing initiatives will be seen in the upcoming James Bond film, "Quantum of Solace," scheduled for release Nov. 3. Sony Pictures shot the film in high-definition, with scenes showcasing new Sony electronics. Joint marketing campaigns are being timed at Sony sales outlets and electronics product launches.

In February, Sony also won the battle to define the high-definition TV standard when a consortium backed by Toshiba abandoned the HD-DVD format, leaving the Sony Blu-Ray disc as sole survivor. The string of victories has brightened the mood at Sony, Nishida said.

"By the end of 2010, our goal is to be the market leader in TVs," Nishida said.

Some of Stringer's changes have been more radical. Sony now makes LCD TV panels in a 50-50 joint venture with Samsung in Tangjeong, South Korea. A second LCD factory near Osaka, a joint venture with Sharp in which Sony will own 34 percent, is to open by the end of 2009.

The turnaround is also evident in the company's financial results after three years of cost cutting, layoffs and restructuring under Stringer, an affable, Welsh-born former president of CBS in the United States with dual U.S. and British citizenship.

In the year that ended March 31, Sony's profit tripled to ¥369.4 billion, or $3.4 billion, as sales rose 6.9 percent to ¥8.87 trillion. In consumer electronics, which make up about two-thirds of Sony's sales, operating income more than doubled to ¥356 billion.

In tandem with a financial recovery, Sony is bidding to recapture the title of TV innovator, beating Samsung to market with the first ultra-thin TV screen made from organic light-emitting diodes. OLEDs are made of carbon-based evanescent film that eliminate the need for back lighting and shrink the entire panel to just five millimeters thick, the width of three credit cards.

Samsung, the industrial giant that is also the world's largest computer chip maker, remains a formidable obstacle to Sony's comeback bid.

In the second quarter, Samsung was the global TV leader by revenue for the 10th quarter in a row, with a 22.8 percent market share.

Sony was No.2 with 12.5 percent, according to DisplaySearch, a research firm in Austin, Texas.

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