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Sony Tunes Out TVs as Hirai Sees Future in Imaging, Portables

April 12 (Bloomberg) -- Pelham Smithers, managing director of Pelham Smithers Associates, talks about Sony Corp.'s restructuring plan. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

Sony Corp. (6758) Chief Executive Officer Kazuo Hirai plans to win back customers from Apple Inc. (AAPL) by concentrating on mobile devices, games and digital imaging. TVs aren’t on his list.

Hirai is falling back on products that made Sony a trendsetter in the 1980s before competition with Apple and Samsung Electronics Co. (005930) pushed it into four consecutive losses, culminating in yesterday’s announcement the company will eliminate 10,000 jobs. Sony also will take a one-time charge of 75 billion yen ($926 million) as restructuring costs this fiscal year.

The emphasis on three “core businesses” comes after Sony lost 714 billion yen on TVs in the past eight years as demand for its Bravia models slumped. Hirai will cut costs at the TV operations and reduce the number of models in an effort to reach the same profitability target set by former CEO Howard Stringer in 2005.

“The market’s expectation about Sony is for the company to again become a creator of the Walkman,” said Yuuki Sakurai, chief executive officer at Fukoku Capital Management, which oversees $7.4 billion in Tokyo. “That’s a tough goal as the times have changed.”

‘Various Contingencies’

Sony wants to “revitalize and grow” its electronics business under Hirai’s new management plan, according to the statement. The initiatives include bolstering the digital imaging, games and mobile businesses; turning around the TV division; expanding in emerging markets; creating new businesses and accelerating innovation; and realigning the business portfolio.

Asked what the company would do if the TV business didn’t return to profit by the targeted March 2014, Hirai said it’s “natural for us to consider various contingencies.” Sony is the world’s third-largest TV maker.

“We naturally need to consider what to do when the business turns profitable as we planned and what to do otherwise, not to mention we also need to consider courses of action to take in each cases,” Hirai said.

Hirai, who took the top job this month after earning a reputation for turning around the PlayStation game business, said in February it was “very difficult to imagine Sony getting out of the TV business.”

Apple TV

Cupertino, California-based Apple, maker of the iPod and iPhone, will debut a TV within a year, Brian White, an analyst at Topeka Capital Markets, wrote earlier this month.

Sony plans to strengthen the three segments so they generate 70 percent of revenue and 85 percent operating profit at the electronics operations in the year ending March 2015, the company said yesterday.

“The previous announcement he made near the end of last month was TV is very much at the center of staking his reputation on turning their business around, and all of a sudden he’s talking about mobile devices,” said Nick Dillon, a London- based analyst at Ovum.

“There’s definitely some wiggle room there should he want to go the other way.”

Sony rose 0.9 percent to close at 1,528 yen in Tokyo yesterday, before the announcement. That extended its gain this year to 11 percent after slumping 53 percent in 2011. Sony, worth more than $120 billion in 2000, is now valued at $19 billion, compared with $584 billion for Apple and $164 billion for Samsung.

Delaying Targets

Japan’s biggest consumer-electronics exporter plans to raise operating-profit margin to 5 percent, have a return on capital of 10 percent, cut fixed costs at its TV operations 60 percent and consider an alliance on batteries for electric cars, it said. In 2009, Sony announced a push back on the target.

“I wonder if Sony will accomplish the target figures as Sony doesn’t tell how to reach them,” said Yoshihiro Okumura, who helps manage the equivalent of $365 million at Chiba-Gin Asset Management Co. in Tokyo. “The management might be too optimistic on its sales and profits, so more and more investors doubt the ability of Sony’s management.”

The job cuts announced yesterday will include employees expected to be transferred outside of the group as part of the sale of businesses and other realignments, Sony said.

The company has cut 66,500 jobs in four restructuring plans since 1999, according to Keita Sanekata, a spokesman for the company. It had 168,200 employees as of March 2011, according to data compiled by Bloomberg.

Job Cuts

Sony will consider selling or forming alliances in businesses that are losing money, have small room for growth or have little synergy with its core electronics operation, Hirai said yesterday. Two months ago, Hirai appointed Tadashi Saito chief strategy officer to assist him on decisions such as acquisitions.

Last month, Sony agreed to sell Sony Chemical & Information Device Corp. to the Development Bank of Japan. The two companies plan to reach a formal agreement in May and complete the sale this year, they said March 22 without specifying the value of the deal.

“I still can’t see anything positive in this plan,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm. “I’m not convinced the company has a logical plan to achieve its goal of raising the operating profit margin.”

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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