The company can't rely only on gamers.

Photographer: Johannes Eisele/AFP/Getty Images

Is Sony Really Back?

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The exact moment of any corporate turnaround is almost impossible to pinpoint. But if Sony's latest numbers truly do signal the revival of the Japanese icon -- the company just posted its best quarterly profit in seven years -- then the transformation may have begun last April, when Kenichiro Yoshida was promoted to chief financial officer.

It’s probably best not to get too carried away by today’s numbers, which prompted an 18 percent surge in Sony stock, the biggest intraday gain in nearly a decade. If I had 100 yen for every time an analyst declared the tech giant was “back” over the last 15 years, I’d be retiring early. But bullish projections of a $171 million operating profit for the year suggest there's a chance posterity may one day view Yoshida and Sony CEO Kazuo Hirai as the tag-team that resurrected one of Japan's most fabled names.

How have they done it? While Hirai smartly boosted investments in the company’s unglamorous chip unit to build more modules for phones, tablet computers and automobiles, Yoshida began the hard work of cutting off a number of dead limbs within the sprawling company. Yoshida got Sony out of the money-losing personal computer business and prompted a shock $1.7 billion writedown in smartphone operations that at the time enraged investors. He nimbly harnessed the weak yen to maximize profits in segments that rely on domestic production. Also, he was instrumental in stemming the bleeding from last year's cyber-attack disaster. In the three months ended Dec. 31, preliminary operating income more than doubled to $1.5 billion, the highest since the same period of 2007.

Above all, Yoshida instilled a new realism at Sony, which long strove to sell consumers every possible gadget in their homes. The Sony of tomorrow is one that focuses on what it does well: entertainment, its PlayStation network and its devices unit, which supplies the image sensors that go into cameras on its Xperia smartphones and Apple’s iPhones. (Those humble sensors contributed greatly to this week's earnings surprise.)

Largely thanks to Yoshida's practicality, the focus at Sony can now begin to shift from cost-cutting and cyber-attacks to what’s next. But here’s where deep questions remain. Today’s stock surge shows how hungry investors have been for any sign of good news at Sony. As I and many others have written before, though, the company still lacks a game-changing invention that can truly unlock growth -- another Walkman. Fourteen years on, Sony has yet to come up with a globally-viable answer to the iPod, never mind an iPhone like those Apple sold at a rate of 30,000 per hour last quarter.

As its PlayStation 4 wins over gamers, Sony is hoping to establish a lucrative, Apple-like ecosystem built around the technology. The idea is to steadily upgrade the physical console and get fans to sign up for the PlayStation Network services, which includes games, music and movies, thus creating a loyal community of customers who will make continuous contributions to the bottom line. But this iTunes model ultimately won't work unless Sony can come up with splashy new hardware that appeals to consumers more broadly, growing its franchise beyond game enthusiasts. Sony sold a respectable 6.4 million PS4's between October and December, but there's a limit to growth in an age when smartphones and tablets dominate. And Sony's phones are hardly in Apple's league.

Hirai, in other words, is still facing the same creative void that comedian Mike Myers recently mocked on "Saturday Night Live." While Yoshida has stabilized the company and positioned it for new growth, the onus falls on Hirai to transform Sony more fundamentally: dismantling a too-hierarchical corporate structure where good ideas go to die and empowering in-house designers to invent breakthrough products. The new realism at Sony is welcome. A true revival, though, is going to require inspiration.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net