Bloomberg News

Sony Incoming CEO Hirai Vows ‘Painful’ Steps to Cut Costs

February 12, 2012

(Updates with closing share price in seventh paragraph.)

Feb. 10 (Bloomberg) -- Sony Corp. incoming Chief Executive Officer Kazuo Hirai said he will make “a hard, painful decision” to cut costs in the TV business and supply chain to turn around a company facing a fourth straight annual loss.

“Pain can come in many ways,” Hirai, 51, told reporters yesterday in Tokyo, where Sony is based. “We have to make some hard decisions on where there are redundancies and reduce the fixed costs in a variety of different areas.”

Hirai, who replaces Howard Stringer as president and CEO on April 1, said he was committed to TVs because they are “at the center of every entertainment experience.” Sony, a trendsetter in the 1980s, predicts losing money on TVs for an eighth consecutive year as consumers flock to devices from Samsung Electronics Co. and Apple Inc. for movies, music and games.

Sony, the world’s No. 3 TV maker, will invest in new technologies and improve its lineup of liquid-crystal-display sets, said Hirai, who is credited with reviving the PlayStation game business.

“Sony will have to cut jobs if it loses any more market share in TV,” Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo, said before the interview. “Wages are the burden to the company’s fixed costs.”

New Technologies

Stringer streamlined the company’s workforce. Sony’s number of employees dropped 6.8 percent to 168,200 in March 2011 from 180,500 three years earlier, according to the company’s website.

Sony, once worth $100 billion, is now worth $20 billion, according to data compiled by Bloomberg. Shares fell 0.5 percent to 1,536 yen in Tokyo today, trimming the gains this year to 11 percent. The stock tumbled 53 percent last year.

The maker of Bravia televisions more than doubled its annual loss forecast last week to 220 billion yen ($2.9 billion), blaming a stronger yen, production setbacks due to floods and the cost of exiting a display-panel venture with Samsung. The company may drop its less-competitive businesses, Hirai said last week without elaborating.

The company may lose as much as 230 billion yen on TVs this fiscal year after lowering its sales target to 20 million sets from 27 million last year. It is writing down the value of some facilities, reducing the number of models and cutting marketing expenses in an effort to make the unit profitable by March 2014.

“It’s very difficult to imagine Sony getting out of the TV business,” Hirai said yesterday. “We have to obviously focus on pushing the envelope in coming up with new technologies.”

Cutting Costs

The company has cut sales forecasts on cameras, game consoles and personal computers, and said mobile phone sales were worse than expected.

Japan’s largest-consumer electronics exporter is looking to save money at its local operations and in the U.S. and Europe, Hirai said. The cost-cutting also may affect suppliers and manufacturers for Sony, which has had its credit ratings cut by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings since December.

“That’s a hard, painful decision that we need to make but the right one for business,” Hirai said without elaborating. “I don’t make them easily.”

Hirai, who worked in Sony’s music and entertainment divisions, edged out three other candidates with engineering backgrounds, including Executive Vice President Hiroshi Yoshioka, for the top job. Stringer, who turns 70 this month, will become chairman of the board after a shareholders meeting in June.

Medical Business

“Sony is very unique, even among Japanese companies, being on the top of the list under the microscope,” Hirai said. “It’s not an easy job, I get that. I’m going to do my best to turn it around.”

One area of focus is the medical business, where Sony wants to leverage its imaging, sensor and chip technologies, Hirai said. Yoshioka will head the medical business as Sony spends 140 billion yen to boost its production of complementary metal-oxide semiconductors, or CMOS.

Hirai also wants Sony to evolve from a company that provides unique products to one providing a unique experience for users.

“It starts with great hardware but that’s not the entire equation,” he said. “It’s got to be combined with software, content, services. That’s the whole combination that we need to bring our customers.”

--Editors: Michael Tighe, Anand Krishnamoorthy.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.


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