Monday, October 6, 2003		Feature

IT was 25 years ago when Sony Corp founder Masaru Ibuka complained that his cassette player was too heavy to take on business trips and asked the company’s engineers to create a smaller, portable player with headphones.

Those engineers presented Ibuka with a modified version of the "Pressman", a tape recorder that Sony had launched in 1977, but they altered the machine to be a playback-only device. Ibuka loved his new toy and so was born the Walkman.

Early company leaders like Ibuka and former chief executive Akio Morita pushed Sony from a tiny transistor radio maker to the world’s largest consumer electronics company, but April’s "Sony Shock" revealed that staying at the top might be more difficult.

Sony stunned investors with an unforeseen quarterly loss of almost $1 billion. The main culprit was its mainstay electronics division, plagued by mounting inventory, an aging product lineup and heavy costs.

What was once Sony’s shining star became its dimmest bulb. "Sony used to be an innovator, a trend setter, but in recent years, it has become a market follower," said Standard & Poor’s analyst John Yang. "Sony extended too fast towards other businesses... it was supposed to focus on its core competencies."

Sony has earmarked 280 billion yen ($2.5 billion) for restructuring the electronics division over three years ending in March 2006, but has delayed an announcement of its strategy until October.

So what’s on the chopping block? In May, Chief Executive Nobuyuki Idei pointed to Sony’s manufacturing base in Japan, which accounts for roughly 50 per cent of its costs but only 30 per cent of revenues. In particular, Sony could target two domestic factories producing bulky cathode-ray tube televisions.

TV repairs needed

For years, Sony dominated the television industry with its Trinitron brand. Analysts, though, say it became too enamoured with its own technology to spot demand shifting to flat TVs, a market with growth prospects not seen since the move from black-and-white sets to colour monitors.

Sony ranked fifth in the global market share with 8.1 per cent for liquid crystal display (LCD) TVs in 2002, according to research firm DisplaySearch.

It plans to roll out 12 new flat-TV models this year. It is also talking with Samsung about a possible alliance to supply Sony with a steady stream of price-competitive LCD panels.

Still, things won’t get easier with formative rivals—Dell, Gateway and Canon—eyeing a piece of the flat-screen TV market. All three are relative newcomers to consumer electronics, but the phenomenal success of Apple’s iPod music player proved that a product can "out-cool" Sony in its own backyard.

For Sony, regaining prominence in mainstay product areas such as televisions and audio players will be vital to meeting a target for an operating profit margin of 10 per cent by 2006/07. Its margin in 2002/03 was 2.5 per cent. — Reuters