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Kazuo Hirai, President and Group CEO of Sony Computer Entertainment, is interviewed during the Electronic Entertainment Expo, or E3, in Los Angeles June 7, 2011.
Credit: Reuters/Mario Anzuoni
By Isabel Reynolds
TOKYO |
Wed Nov 2, 2011 12:21am EDT
TOKYO (Reuters) - Sony Corp's heir apparent will make a rare appearance at the Japanese firm's earnings conference on Wednesday, raising hopes the once-stellar brand is at last getting to grips with its struggling TV business and can challenge smartphone rivals.
Kazuo Hirai, who heads Sony's consumer businesses and is seen as the most likely candidate to succeed Welsh-born Howard Stringer as president, needs to earn his stripes by guiding the company through a much-needed change.
The top priority is to rid Sony of crippling losses in its TV business, something Sony said in August it was tackling, and convince investors that its plans to shift focus to the mobile business will revive profits.
"Their past strategy didn't work out, so now they are having to go back to the drawing board and start again," said Yuuki Sakurai, CEO of Fukoku Asset Management in Tokyo.
"To be honest, they seem to be drifting."
Once a symbol of Japan's high-tech might, Sony is struggling to come up with hit devices and finds itself outmaneuvered in TVs and mobile devices by Samsung Electronics Co, which is the top TV brand worldwide and also surged past Apple Inc in smartphones in the third quarter.
The company is touting the potential for offering its plethora of content, including music from Beyonce and Adele across tablets, TVs, PCs and now smartphones, which are finally being integrated under the Sony brand after it decided to buy out Ericsson's share of their joint venture.
"People always look to Sony for a surprise, but these days they are usually disappointed," Sakurai said.
"Their brand is still strong, but the content is becoming harder to define," he said, noting that strong profits in its banking and insurance businesses were covering for the weakness in the rest of the company.
Under Stringer, who said in March he was happy to stay in his job for another year but was unsure about his plans beyond that, Sony has succeeded in restructuring to some extent.
It has sold off TV factories in Spain, Slovakia and Mexico in the past few years and outsources more than half of its production to companies including Hon Hai Precision Industry, the contract electronics maker that also counts Apple as its key customer.
It retains four TV plants of its own -- in Japan, Brazil, China and Malaysia.
But it has seen its share of the flat-panel television market eroded by Samsung and a host of nimbler Asian players.
Worse, it is heading for its eighth straight year of losses in the TV business, a handicap it shares with Japanese peer Panasonic Corp, partly due to Sony's sourcing of LCD panels from relatively expensive joint ventures, rather than the open market.
The maker of PlayStation games machines and Bravia TVs is expected to report 40 billion yen ($513 million) in July-September operating profit on Wednesday, which would be down 42 percent from a year ago, the average forecast by analysts polled by Thomson Reuters I/B/E/S shows.
Sony shares have dropped around 60 percent since Stringer became chairman on June 22, 2005, while Samsung shares have nearly doubled during the same period.
The stock was trading down 2.5 percent in Tokyo on Wednesday, versus a 1.8 percent fall in the wider market.
FIXING MISTAKES
Sony has begun to backtrack on the strategic mis-steps that led to its TV losses, although the pace of change appears slow compared with Panasonic, which on Monday announced deeper and faster cuts than expected, while slashing its TV sales forecast by a quarter.
For a start, Sony is effectively stopping production of its own LCD panels. In April, it backed out of a plan to raise its stake in a panel joint venture with domestic panel-maker Sharp Corp.
In September, it merged its small-panel business with those of Toshiba Corp and Hitachi Ltd into the largely government-owned Japan Display, while sources say Sony is now hurrying to disentangle itself from S-LCD, its flat-screen venture with Samsung.
"Sony adheres to a basic agreement that it will buy S-LCD panels at production cost with an added premium," said Goldman Sachs analyst Takashi Watanabe in a research note. "Since market prices of panels have fallen below production costs, it makes sense for Sony to buy Taiwan-made panels."
Chief Financial Officer Masaru Kato warned in an interview in October that no major announcement on TV restructuring was planned.
But JPMorgan analyst Yoshiharu Izumi said he had some expectations for Wednesday's briefing.
"While the market thinks the company is sitting on its hands in the TV business, we think the announcement could confirm that Sony is taking steps to boost profitability."
Sony's shares have tumbled 46 percent since the beginning of the year, versus a 14 fall in the broader market.
(Additional reporting by Tim Kelly; Editing by Miyoung Kim)
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