Is Sony a bellwether for Japan Inc.?

Posted by: Kenji Hall on January 23, 2009

A day after Sony revealed new forecasts for a $2.9 billion annual operating loss—its first in 14 years, and a significant revision from the previous profit outlook—its stock led Japanese stocks lower. The worry for investors is that the problems Sony faces aren’t unique to the Japanese tech giant. Sony fell 7% by the day’s close, while the benchmark Nikkei index was off 3.8%.

Analysts did nothing to discourage the selling. After Sony’s earnings forecast revision and CEO Howard Stringer’s pledges to ram through more reforms, Credit Suisse analyst Koya Tabata wrote a note to investors titled “Nothing Changes.” Goldman Sachs’s Yuji Fujimori predicts Sony will continue to lose money through the fiscal year ending March 2010 and said that the Stringer has to show “progress with concrete measures” before the company’s shares will see any sustained rebound.

Clearly, some of factors that are weighing on Sony are causing similar pain for other big Japanese exporters. Sony makes about 80% of its revenues overseas, so it’s one of the most vulnerable to a yen rise. (The stronger the yen, the smaller overseas earnings get when converted to yen.) Others such as Panasonic and Sharp, which make TVs and other high-tech gizmos and parts at factories in Japan, are struggling, as are automakers like Toyota, which sells about 7 million cars overseas out of the 9 million cars it makes annually. (The company doesn’t give a breakdown of domestic and overseas revenues but it’s a sure bet that much of its earnings come from overseas sales.)

Outside of Japan, it’s more of the same: Microsoft overnight announced its first-ever mass layoffs. Intel, Motorola, Advanced Micro Devices and Sweden’s Ericsson are also eliminating jobs.

But partly what ails Sony is self-inflicted. Three and a half years after becoming CEO, Howard Stringer is still fighting the old guard of hardware engineers, who have resisted his efforts to use software as the connective tissue for gadgets and online services. Shame. As Stringer repeatedly pointed out yesterday—like a mantra—Sony has the music and movies and consumer electronics to do what no other tech company can. But it hasn’t. Too much Old Sony, and not enough New Sony, as Stringer himself observed.

Which is not to say that Sony has nothing going for it. Despite the obvious hurdles, Sony has a chance to show it hasn’t lost its innovation mojo. Stringer hinted at cutting-edge mobile gizmos: “We will tap our unique strengths in gaming, entertainment, digital imaging and telephony to fast track a line-up of next-generation mobile devices.” No details but let’s hope there’s more collaboration from different divisions than in the past.

Reader Comments

m.r.

January 26, 2009 6:05 PM

SONY is not the innovation, must have company it used to be! much of what it makes and sells has stiff competition.
its problems are the fault of both complacent management and engineers.
it can learn a lot from Apple. perhaps Sony has reached its zenith and is on the way down. Pity!

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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