Rarely has the dark side of Japan's recent monetary policy been more evident than during Tuesday's stock market bloodbath at Sony.
CEO Kazuo Hirai thought the time was right for the company's first share sale in 26 years. He and CFO Kenichiro Yoshida had been getting rave reviews for cutting costs, dumping money-losing businesses like personal computers, and generating more revenue from smartphones and PlayStation games. Sony's stock doubled over the last year as comeback stories filled Japan's financial pages.
Buoyed by the positive buzz, Hirai decided the company would raise $3.6 billion by selling common stock and convertible bonds. But investors didn't react according to plan: The announcement sent Sony shares down 8.3 percent, the most since Sept. 18.
The plunge speaks to financial markets' dearth of trust in Sony. Investors believe, with good reason, that Hirai's turnaround efforts still can't be considered a success; it's been years, after all, since Sony wowed the world a sexy new product.
Sony's plunging stock price also confirms that any good fortune Sony has recently enjoyed is due more to Prime Minister Shinzo Abe's yen devaluation -- the currency has dropped 34 percent since late 2012 -- than Hirai's management.
I'm among the commentators who have praised Hirai in recent months. Even more than his efforts to overhaul Sony's TVs, sharpen its smartphone lineup and relocate staff to save money, I've been impressed by his mentoring of programmers. Hirai now devotes sizeable chunks of time to brainstorming with young designers, engineers and innovators in hopes of dreaming up products that could have Apple and Samsung looking over their shoulders.
But Hirai's reputation now deserves to take a hit for organizing a clumsy, poorly-rationalized foray into capital markets. Hirai should have noticed that, with China slowing, Europe reeling and Japan mired in a deflationary mindset, conditions were poor for a share sale. He also should have noticed that upstart Chinese technology companies are gaining traction in the developing world, where Sony's premium-priced wares have earned little attention.
Even Hirai's alleged goal for raising cash -- he apparently wanted to increase production of image sensors used in smartphones -- strains credulity. The scale of the offering, says Yasuaki Kogure of SBI Asset Management, "doesn’t correspond to the kind of growth we see" in that sector. The tactless mismatch between Sony's ambitions and market realities raises new questions about Hirai's leadership.
Markets might have shown more faith in Hirai if not for the company's decades-long track record of broken promises. A string of previous company leaders, from Howard Stringer to Nobuyuki Idei to Kunitake Ando, have pledged bold restructuring and a return to Sony's innovative roots, all to no avail.
Hirai has accumulated some goodwill over the last three years, but much of it has just been squandered. Hirai, deluded by the weak yen's artificial boosting of corporate profits, may have figured Sony's heavy lifting was done. But as markets punish Sony for its CEO's hubris, it's clear nothing could be further from the truth.
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