Hitting the Right Notes at Sony

Almost a year after Howard Stringer became CEO, the giant shows signs of a turnaround. But it'll take a lot more to keep it humming

Certain jobs seem suited only for the foolhardy: raising the Titanic, being shot out of a cannon, saving Sony (SNE). So when Sir Howard Stringer took over as CEO of the struggling Japanese consumer-electronics giant in March, few outsiders felt he had much chance of quickly reversing Sony's fortunes.

No more. Suddenly, Sony seems to be on a roll. Just four months after the introduction of the new Bravia liquid-crystal-display TV, Sony has become the third-best selling LCD brand in the world, researcher iSuppli said on Jan. 5.


  Sony even appears to have emerged with no major business fallout from a public-relations nightmare caused by an aggressive copy-protection scheme attached to several CDs at its Sony BMG Music Entertainment unit (see BW Online, 12/2/05, "For Sony, a Pain in the Image").

Meantime, both Sony's PlayStation 2 and its PlayStation Portable (PSP) game machines outsold Microsoft's new Xbox 360 game console over the important holiday shopping season. The feat is even more amazing considering that the PS2, at more than five years old, is considered long in the tooth, while the newly minted Xbox 360 was released on Nov. 22 -- and it flew off shelves.

Investors applaud the improvement. Sony's stock price on the Nikkei soared 30% over the past three months, outpacing Japanese rivals such as Pioneer, Sharp, and Matsushita Electric Industrial (MC), owner of the Panasonic brand. In U.S. depositary receipts, Sony stands at $42 a share, up 27% from $33 three months ago. "There's a very good feeling in the company now," Stringer said during a Jan. 5 interview at the Consumer Electronics Show (CES) in Las Vegas. "You certainly couldn't declare a victory by any means, but I think so far, so good."


  Analysts are inclined to agree. While it's early in the game, Stringer's impact is being felt inside Sony -- and investors are taking note, says Pacific Crest Securities analyst Evan Wilson. "This is going to take two years to play out with the restructuring that's planned, but I think you've got to give the guy an early nod and say he has done a good job," Wilson says.

What's behind the revival? Stringer is undertaking an aggressive reorganization of the venerable company, bringing in loyal executives from U.S. operations to lead the change. He's trying to reinvent Sony's brand to make it more relevant to digital-age consumers. And he's seeking to focus advertising, aiming to offer great campaigns akin to rival Apple Computer's (AAPL) eye-catching, toe-tapping ads for the best-selling iPod lineup.

"The worst thing that can happen to you," Stringer says, "is for things to go too well too soon. I'm slightly nervous because I don't want Sony to fall back into any form of complacency."


  With perhaps the most challenging year in Sony's history just beginning, that's not likely to happen soon. Two technologies central for reviving the company's long-term fortunes are set to debut. The PlayStation 3 could come as early as March, while the Sony-backed Blu-ray high-definition DVD standard will go head-to-head with Toshiba's HD DVD for consumers' hearts in April (see BW Online, 10/6/05, "Daggers Drawn Over DVDs").

Toshiba threw down the gauntlet at CES by announcing it will sell an entry-level player for less than $500 -- half the price of Blu-ray players announced by companies in that camp. Stringer says he's confident Blu-ray will prevail, since it has more manufacturers and about 90% of the content that will be made available to next-generation players. "I'm not feeling frightened," he says. "It's great to make an announcement, but if you don't have many players, or very many DVDs [to sell], who cares?"

Nonetheless, the competition could be disastrous for Sony. Consumers may sit out purchases of next-generation DVD players altogether as they wait for the dust to settle and one technology to prevail, says analyst Richard Doherty at researcher Envisioneering Group.


  Blu-ray is crucial to reviving Sony, which is expected to lose $86 million in the 12 months ending Mar. 31, its first annual loss in more than a decade. Sony stands to make millions in royalties if Blu-ray takes off, and it's one of the technologies considered central to the success of the PS3.

Stringer, a 63-year-old Welshman, seems to handle the challenges with aplomb. Sony BMG, a joint venture of Sony and Bertelsmann of Germany, in December settled a consolidated class action brought by consumers incensed over the company's use of copyright-protection software (see BW Online, 12/30/05, "Sony BMG Ends a Legal Nightmare". Some 5.7 million Sony BMG CDs were shipped with antipiracy technology that embedded itself in computers, leaving the machines vulnerable to threats.

As part of the settlement, Sony BMG agreed to set up rigorous oversight of future attempts to protect copyrights. Stringer says such safeguards reflect the new reality of doing business in a world where content transmitted in bits and bytes can easily be pirated. "We'll just have to tread very, very carefully," he says. "We have to walk the line at Sony between the needs of technology and the consumer, and the rights of the artist, which we feel very strongly about."


  With a strong sense of humor as his shield -- he's constantly cracking jokes -- Stringer has charmed friend and foe alike. Hideki "Dick" Komiyama, who has led Sony's U.S. electronics business to a solid profit for several years, now has to revive Sony Electronic's business in Europe, Asia, and the rest of the world.

Komiyama says Stringer has charmed engineers in China, executives in Japan, and movie stars in Hollywood. "Howard's personality and his character and the way he communicates have been good for the company," says Komiyama.

In September, Stringer pledged to cut 10,000 jobs, or 6.6% of Sony's workforce, by March, 2008, and trim 200 billion yen of costs through a three-year restructuring plan. It includes closing 11 factories and reducing the number of new electronics products by 20% (see BW Online, 9/22/05, "Sony's Stringer Strikes -- Deep Enough?"). Stringer says Sony will have its first major meeting to discuss its progress at the Sony Open golf tournament in Hawaii next week.

It may be too early to declare that Stringer has saved Sony, but early successes indicate he may be just the man for the job.

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