Sony chief executive outlines long-term profit strategy
Group grapples with question of where it will find its next big source of growth
With Sony closing in on its highest profit in two decades, Kazuo Hirai, its chief executive, said he will aim to do what his predecessors have consistently failed to do in the past: making sure the profitability sticks.
Analysts say Mr Hirai faces a challenge as he tries to position the Japanese entertainment and electronics group to capture new markets for autonomous cars, robotics and internet of things, while ensuring volatility in its film and electronics businesses do not jeopardise its recovery.
Investors have so far backed Mr Hirai’s turnround strategy with Sony’s shares rising 36 per cent over the past 12 months. In the final year of its three-year business plan through March 2018, the company expects its operating profit to hit ¥500bn ($4.5bn), which would mark its best income since the 1997-98 fiscal year.
“The operating profit target of ¥500bn for fiscal 2017 will mark our highest level in 20 years, but not once have we been able to sustain this profit level over several years in Sony’s 71-year history,” Mr Hirai said at a news conference in Tokyo on Tuesday.
“For Sony to be able to continue generating high profits, each of our group’s divisions needs to strengthen their efforts to build new businesses rather than maintaining the status quo,” he added.
Despite stemming losses from its television, smartphone and other electronics businesses, however, Sony has yet to restore its ailing movie studio after a dismal run at the box office which has left it trailing its Hollywood rivals.
Earlier this month, Mr Hirai named Tony Vinciquerra, a former 21st Century Fox executive, as the chairman and chief executive of Sony Pictures Entertainment, which includes Sony’s movie studio, television production business and global television networks unit.
The film business will aim to achieve an operating profit margin of 3.8 per cent in the current financial year, well below the 7-8 per cent margin Sony had originally targeted when it released its three-year plan in 2015.
To rebuild its film business, Mr Hirai said the company will aim to make better use of its intellectual property portfolio such as Spider-Man, which will be released this summer as a co-production with Walt Disney’s Marvel Studios, while continuing cuts in production and marketing costs.
Following a decade-long restructuring phase, Mr Hirai also said it was time to start capturing a bigger market share in certain regions for its TV and other electronics businesses. In the smartphone business, for example, Sony has said it will aim to increase sales volume by 13 per cent this year.
Analysts are concerned such a move may hurt margins.
“We see the first signs of risks re-emerging,” Jefferies analyst Atul Goyal wrote in a client note. “Why must Sony target higher volumes? If it needs higher volumes to stay profitable, then that is not a good sign.”
Atsushi Osanai, a former Sony employee who is now professor at Waseda Business School, said Sony’s turnround up till now had been a textbook case of offloading unprofitable businesses and focusing on higher-end products rather than pursuing scale — standard management strategy for restoring margins.
Mr Hirai has said Sony will aim to find new growth by expanding the sale of its image sensors in smartphone cameras to cars and strengthening its medical business.
“It is not only stable management that is required from Sony’s president but people have hopes that Sony would do something fun every now and then,” Mr Osanai said. “Mr Hirai may be venturing into an area that will require something different from his previous management style.”