Commentary: This Time, Sony Better Finish The Job

Will its second round of restructuring go far enough?

Back in 1999, Sony Corp. (SNE ) seemed to be the pacesetter for restructuring in Japan's electronics sector. Managers closed or merged 18 plants, reorganized divisions, and promised to trim Sony's global workforce by 10%. Four years later, though, it's clear that Sony didn't move as far or as fast as it should have: The company is still struggling with overcapacity, too many product lines, and sagging profits. CEO Nobuyuki Idei "failed to finish restructuring Sony," says Hitoshi Kuriyama, an analyst at Merrill Lynch (MER ) Japan.

Get ready for Restructuring Sony: The Sequel. On Oct. 28, Idei is expected to unveil details of a $3 billion plan to consolidate its production and overhaul Sony's electronics operations by 2006. Although Sony refuses to reveal much more, analysts say the new strategy will include a 10% to 12% reduction in its global workforce of 160,000. The priority, Idei has said, will be to ramp up profits and woo consumers with hot new products. "We aim to boost our operating margin to over 10% in three years," he told reporters last summer. That's a big jump from the less-than -1% margins Sony gets for its electronic gear today.

The problem is that the latest restructuring still may not go far enough. Today, the electronics division has more than 100 product lines, but only a few -- such as camcorders and Cyber-shot digital cameras -- dominate their markets. Sony President Kunitake Ando has hinted that Trinitron cathode ray tubes used in PC monitors and TVs are among the first products likely to bite the dust. Fine -- Sony held on to CRTs far too long. But it needs to go much further and completely reorganize its electronics division. Some -- including ING Financial Markets analyst Richard Chu -- say the VAIO PCs should be eliminated, though that's unlikely to happen. And even though the Trinitron will probably be replaced by TVs with liquid crystal diode screens, there's no guarantee Sony can catch up with Sharp Corp., which controls more than half of the global market in LCD-TVs. Indeed, it may even have trouble matching the 17% share of Samsung Electronics -- with which Sony is negotiating a joint venture to make the TVs. "Sony has been a disappointment for some time, so expectations are low," says Chu.

The big hope for a Sony revival is a cutting-edge microprocessor that is expected to be the heart of future Sony products. The company is investing billions in the chip, which is to power the next PlayStation game console. PS3, Sony says, will act as a home-entertainment hub for downloading movies, music, and games from the Internet. The only hitch is that the new PlayStation won't be making its debut until 2005. In the meantime, Idei may want to rewrite the script for this remake one more time.

By Irene M. Kunii

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