Stringer Leads a Diminished Sony


By Brian Bremner In the end, Nobuyuki Idei could not overcome the forces arrayed against him and Sony (SNE), a $72 billion consumer electronics and entertainment colossus that has somehow lost its once-fabled killer instinct for innovation. On Mar. 7, Sony's board of directors replaced Idei, the company's chairman and CEO since June, 2000, with Sir Howard Stringer, who runs Sony Corporation of America.

It was a shocking development on several fronts. A native of Wales, Stringer, 63, has won kudos for lighting a fire under Sony's music and movie units, which he runs from the U.S. Still, the former TV news journalist wasn't considered a likely successor to Idei, who was planning to retire in 2006. The betting was on Ken Kutaragi, president and CEO of Sony Computer Entertainment, Sony's game unit, which has had a stupendous success with the PlayStation.

EARNINGS SHOCK. Stringer came to Sony in 1997, and though he's rated highly as a manager, running one of the world's premier gizmo makers will be a stretch. He doesn't speak Japanese and has no engineering background. His basic challenge will be same as Idei's: Coping with the consumer electronics industry's steady and miserable slide into a low-margin, commodity business.

Sony has long argued that its brand power, excellent technology, and superior functionality would shield it against such industry forces. And they may yet, but so far Sony has lost the march in one key product category after another, from DVD players to flat-panel televisions and portable digital music devices. The margin pressure from established players such as Samsung and newer competitors throughout Asia has been relentless.

On Jan. 20, Sony lowered its forecast for total operating earnings in the fiscal year ended Mar. 31 by a whopping 31%, to $1.05 billion. The culprit: Intense margin pressure in TVs, DVD recorders, and personal computers. That matters because, despite the strength of the PlayStation franchise and smash film hits like the Spider-Man series, Sony still relies on consumer electronics for about 60% of sales. That earnings shock for the fiscal year and previous disappointments probably left the board with little choice but to push for a change at the top.

BRAND WITH LESS WEIGHT. All of this is a remarkable turnabout for Sony, which since its founding in 1946 by a couple of engineers -- the legendary Akio Morita and Masaru Ibuka -- has been considered flat-out the most innovative company in Japan. Throughout the post-war years it was responsible for numerous breakthroughs in consumer electronics, from the Walkman portable stereo/cassette player to Trinitron TVs to the all-important compact disc, which it developed with Philips Electronics.

Once it established a new product category -- often based on proprietary technology -- Sony could usually milk those items for years. It had a vast global marketing machine behind its goods, and the Sony brand mystique was unparalleled. No more. Today, the Sonys, Sanyos, and Samsungs of the world -- not to mention myriad Chinese upstarts -- all have access to a huge pool of chips, liquid crystal display, and other key components that have leveled the playing field.

A small startup in Seoul can launch an MP3 player, and so can a big established computer company such as Apple (APPL) -- the latter dominates with its iPods a category Sony should probably own. Samsung flat-screen TVs carry about the name cachet as Sony. Heck, you can buy $100 DVD players, and a lot of folks do without a thought about whether it's a Sony. The magic premium brand image and pricing power simply don't have the weight they once did.

GLORY DAYS ARE GONE? To be sure, Sony is still a heck of a company. Its global rollout of its third-generation of PlayStation game machines later this year likely will be a triumph. It is investing, along with IBM (IBM) and Toshiba, in an advanced microprocessor called the cell-chip that it promises will deliver next-generation applications to consumer electronic offerings. Sony may yet figure out a way to revive itself.

But the departure of Idei, who spent the better part of a decade promising a turnaround at Sony, may mark more than the the disappointing end to another CEO's career. One gets the feeling that Sony's glory days are gone for good, too. I wish Sir Stringer plenty of luck. He will certainly need it. Bremner is the BusinessWeek's Asia Economics Editor, based in Hong Kong


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