Sony CEO Stringer Picks a New Team

Howard Stringer announces a major reshuffling of management, including an expansion of his own role. Will the shakeup reinvigorate Sony?

Five weeks after pledging to carry out tougher reforms, Sony (SNE) Chief Executive Officer Howard Stringer has reshuffled his management team. On Feb. 27, Stringer announced he would take charge of the Japanese company's struggling core electronics group, adding the title of president to his existing roles as chairman and CEO. He will also reorganize Sony's divisions and replace his top lieutenants with four young executives who have held posts outside of Japan and are "familiar with the digital world," Stringer told journalists at the company's headquarters in Tokyo.

To make way for Stringer's expanded role, his top deputy, Ryoji Chubachi, will step down as president and become vice-chairman. The change, which goes into effect in April, gives Stringer more control to push through the kind of painful restructuring Sony needs to become profitable. Just last month, Stringer stressed the need to move away from traditional Japanese consensus-building to speedier, top-down decision-making. "I'll have to spend more time in Tokyo, and I'm very happy to do that," said Stringer, who now spends two weeks every month in Japan.

But the Welsh-born American executive will likely leave the heavy lifting to his new team. They will need to streamline manufacturing and come up with new Internet services that link the tech giant's gizmos to its vast digital library of music, movies, and TV shows. Though Stringer put those things at the top of his to-do list when he took over three years ago, his efforts have been hampered by divisive rivalries and strong resistance from the company's old guard of hardware engineers. "This group is very network-centric and very open-minded," Stringer said.

A Push for Internet Services

Stringer didn't reveal many details about the strategy. But the point man for his push into Internet services will be Kazuo "Kaz" Hirai. As the head of Sony's video-game business, the 48-year-old Hirai has spent the past two years expanding network services for the PlayStation 3 and PlayStation Portable consoles. Last week, Sony said more than 20 million PS3 users have connected their machines to the Net and signed up for the PlayStation Network, which features online games, video downloads, news, and a social-networking service.

Hirai's new assignment puts him in charge of a newly created networked products and services group. That will include Vaio computers, Walkman media players, and software and online services along with his gaming portfolio. He will also head a lab that's expected to develop new wireless mobile gizmos. Analysts expect him to broaden the PlayStation Network or beef up similar services for other products. Those services will "provide the kind of sustained product differentiation over time that will enable us to restore attractive [profit] margins to our business," Stringer said.

Still, it's uncertain whether the shakeup will reinvigorate Sony. In recent years the inventor of the Walkman portable music player has fallen behind more nimble tech rivals. The Walkman is no match for the Apple (AAPL) iPod, and its efforts to sell digital music have paled in comparison to the iTunes online store. Its PlayStation gaming machines trail Nintendo's (7974.T) Wii and portable DS consoles. And its Bravia flat-panel TVs consistently finish behind Korea's Samsung Electronics in sales rankings.

The economic downturn has only made Stringer's task more complicated. In December, Sony announced that it would slash costs, cut 16,000 jobs, and close a half-dozen of the 57 factories worldwide where it makes camera chips, DVD recorders, and flat-screen TVs. Last month, Stringer ordered his management team to squeeze more savings out of the divisions, and warned the company expects to report its first operating loss in 14 years, a reversal from previous predictions for gains.

TV Outsourcing

On Feb. 27, Stringer said his team had found ways to cut more than $3 billion from the company's administrative and other fixed costs for the next fiscal year beginning in April. He didn't say how, but the reorganization offers some hints. Stringer has already suggested that he wants to hire contract manufacturers to make more of Sony's TVs. That could help turn around the television unit, which accounts for 10% of Sony's overall sales but hasn't made a profit since it launched the Bravia brand of flat-panel TVs in 2005. In the three years ended in March 2008 the division lost a total of $2.3 billion, and Goldman Sachs (GS) predicts it will lose a further $1.1 billion this fiscal year.

Under the new chain of command, Sony's TV business will be folded into the consumer products group, alongside digital cameras and video cameras. The group will be run by Hiroshi Yoshioka, who has a reputation as a hard-charging cost-cutter. His deputy, Yoshihisa "Bob" Ishida, is a no-nonsense manager who has led Sony's Vaio computer business. The duo might try Sony's laptop outsourcing business model on TVs.

Sony could do that by hiring one or more manufacturers in Taiwan or China to make small and midsize sets. Wistron, Qisda, AmTRAN Technology, TPV Technology, and Foxconn International, a subsidiary of Taiwan's Hon Hai Precision Industry, have all made LCD TVs for Sony in the past but only in small volumes—less than 8% of Sony's overall TV production last year, estimates market researcher iSuppli. "The big question," says Macquarie Securities analyst David Gibson, "is 'Will Sony outsource all of its TVs?'"

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