Pacific Money

Sony to Diversify Amid Renewed Losses

Can fresh board members and a transition into new markets be enough to save a premier Japanese brand?

Sony to Diversify Amid Renewed Losses
Credit: Sony Storefront via Shutterstock

Japan’s once unstoppable technology giant Sony has released some significant news this week. After a dismal four years of losses, the struggling company looked poised to return to health last year when if finally returned its bottom line into the black. However, Bloomberg this morning reported that Sony is expecting another annual loss, “the sixth in seven years… The net loss will probably be 50 billion yen ($490 million) in the 12 months ending March 31.”

Sony also announced two new board decisions this week. Former U.S. Ambassador to Japan John Roos and former Japanese Economy, Trade, and Industry Vice Minister Kazuo Matsunaga were both named outside board directors. Interestingly enough both men are closely linked in Japan to the 2011 earthquake and nuclear disaster at Fukushima. Roos oversaw Operation Tomodachi, which was the U.S. armed forces operation to provide disaster relief following the disaster. Matsunaga was vice minister during that period; prior to that, he had been a career bureaucrat since 1974.

Sony has been shedding assets and shuttering sizeable portions of its empire since current President and CEO Kazuo Hirai took the helm in April 2012. According to Japan Today, Sony has cut 5,000 jobs in its computer and TV divisions, sold off its expensive headquarters in Manhattan and Tokyo, and closed ebook stores in Europe and Australia. SBI Asset Management Co.’s chief investment officer expects that Hirai will face pressure to replaced after this latest forecast, despite his attempts at change.

While Sony made its name and built its empire in electronics, the company is expected to have to move into markets where it faces less competition and better margins both at home and abroad from companies like Panasonic, Samsung, and LG. Hirai is intent on retaining Sony’s television sector, but in April announced plans to use consumer information from its electronics division to expand into real estate. According to Nikkei, Sony plans to “develop 10 new businesses over the next three years… [and] is considering forays into such areas as toys.”

For better or worse, Sony will probably have to leave most of its minted electronics business behind, with notable possible exceptions like its TV market and gaming divisions (Playstation and PSP). The addition of two new outside board members may prove important. Matsunaga has decades of contacts built up in Japan’s government bureaucracy, which in many ways is more powerful than the country’s elected officials. Roos is popular in Japan and also widely respected for his expertise. He was named a global advisor for Mitsubishi UFJ Financial in October 2013. Sony officially says Roos will contribute in the field of law – his profession – but he can also be expected to advise on global business strategy.

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It remains to be seen if Sony can transition away from an electronics driven company to one that is more diverse. Sections like its little-known insurance division have been profitable and have helped to buoy the company. Leveraging its sizeable base of consumer information could help to achieve its goal of expanding into 10 new markets. It will be more difficult to quantify the impact of its new board members, but their connections may prove decisive in allowing the company to change course in troubled waters.