Sony counting on core devices, video content services to win back electronic leadership

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Sony Corp on Thursday unveiled its mid-term corporate strategy through fiscal year 2010 with a pledge to focus on realizing profitability in TV and game businesses by investing more resources into its core devices and mobilizing video content services through its online network. As potentially profitable markets, the group will bring more products and content services to BRIC countries (Brazil, Russia, India, China).

“When Sony is united, Sony is unbeatable”, said Howard Stringer, chairman and CEO of Sony, stressing the achievement of the group’s 2005 revitalization plan as a result of financial and organizational restructuring. The company achieved a 5.4% increase in electronics segment operating margin in FY 2007. He added, “We must continue to remain focused on profitability.”

Sony has rebounded from a bottom in 2005 by exiting or downsizing 15 product categories, reducing 10,000 global workers and shutting down 11 manufacturing sites, reducing annual expenses by 200 billion yen.

Stringer said the success of Sony’s Blu-ray disk in the DVD format competition had “positive implications for hardware, software and game businesses.” Sony expects a big synergy effect of the connectivity between products and video services as an interactive entertainment business.

In the autumn, Sony will start a U.S. streaming service that uses the Internet to deliver feature films and TV shows directly to Bravia TVs, without using satellite or cable distribution systems. Stringer called it an industry first. That service will start with “Hancock” from Sony Pictures, which is becoming available before it comes out in DVDs, Stringer said.

Meanwhile, Ryoji Chubachi, president and CEO of Sony’s electronics division, said Sony will strengthen its core businesses such as television, computers, digital camera and videos, mobile phones, Blu-ray related products and semiconductors/component technologies. The new corporate strategy aims at creating 1 trillion yen in revenue in these businesses.

Kazuo Hirai, representative director of Sony Computer Entertainment Inc (SEC), said SEC will aim to realize profitability in the game business by FY2008 by launching an online community service “PlayStation Home” and 3D graphic information service “Life with PlayStation.” For cost reduction, SEC will work on downsizing of chips and reduction of the number of components as well as introducing new game titles.

Sony said it will double revenues in BRIC countries to 2 trillion yen by FY2010 where the company will market its electronics products and video services.

Outlining its financial strategy, Sony will try to annually keep 5% operating margin as the baseline and to target annual ROE (return on equity) of 10% by end of FY2010. The company sees ROIC (return on invested capital） as a fundamental framework for capital investment evaluation over its businesses. Stringer said, “It is important to demonstrate in the market that we are disciplined and focused.”

To achieve the new mid-term corporate strategy, Sony will invest 1.8 trillion yen into its core businesses: entertainment and network services, LCD and OLED panel production, imaging devices and other core component development, and system LSIs for video games.

Asked about the development of innovative products with an eye to Apple Computer’s products, Stringer said that Sony’s products, such as the OLED display, which was commercialized by the company for the first time in the world, are “as exciting as iPhone and iPod.”

Chubachi explained that Sony is eager to accept open source technologies by saying, “We no longer develop products within a closed environment. Although we will develop our own technologies in the competitive area, in non-competitive areas such as Linux, we will need open technologies more. This will be good for efficient and speedy product development.”