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New Sony CFO brings entrepreneur spirit to head office

Keeping the electronics giant on a profitable track will be a major challenge

New Sony CFO Hiroki Totoki speaks to reporters during a financial briefing on April 27 in Tokyo.

TOKYO -- On his first occasion to speak to reporters in his new role as chief financial officer in late April, Sony's Hiroki Totoki was unequivocal. 

"We will seek sustained profitability," he said about his goal for the role he had just taken over from Kenichiro Yoshida on April 1. Yoshida had been promoted to the electronics group's CEO.

Totoki comes into the job at a challenging time. While Sony appears to have made a convincing comeback, posting its first record profit in two decades in March, the business faces potential risks that could still jeopardize its future.

At the briefing, the new CFO seemed rather relaxed, a contrast from Yoshida, whose knitted brow has become a personal trademark. Yoshida had built a solid reputation with securities analysts in past briefings for his clear and succinct delivery.

As new CFO, how will Totoki help Yoshida keep the business moving in the right direction?

Until March this year, Totoki was chief strategy officer, in charge of planning new businesses and drafting mid-term business plans. He has also served as president of Sony Mobile Communications.

But his mindset seems to be that of an entrepreneur, something that could be a major asset. He played a major leadership role when the Japanese electronics maker decided to set up a banking business from scratch two decades ago.

Totoki joined Sony in 1987 and has specialized in finance. The young Totoki  played a central role when Sony began seeking to enter the banking business around 1997. As a total stranger to the business, he surprised financial regulators when he visited them and announced, "Excuse me, we would like to set up a bank."

The bank project got off to a rocky start. At the end of 1998, it was suspended and its development office was dissolved. The team got together again the following year, but the office was set up in an inexpensive building outside of Sony headquarters. Desks, chairs, meeting tables and other facilities were basically unused items from headquarters.

After some back and forth with regulators, Sony eventually obtained a banking license and launched its internet bank in 2001. The first day of service was a nightmare. Customers could not access the service due to system errors, and the business was bogged down with troubles for some time afterward.

Totoki appears to have incorporated lessons from that episode into his career. Despite extensive experience in important, often stressful positions, Totoki says the hardest he has worked was during preparations to set up the bank. In 2001, he quit Sony and joined Sony Bank, and was named head of the banking unit a year later. 

The achievement of launching a new business from scratch won him accolades. Now, he is known both inside and outside Sony as a successful "in-house" entrepreneur.

"He knows about entrepreneurship and understands what we say," said an executive of a startup that has received funding from Sony.

In 2005, Totoki was transferred to then Sony Communication Network, now Sony Network Communications, also known as So-net, as managing director. While helping Yoshida, who was president of the unit at the time, Totoki demonstrated a talent for nurturing startups. The team discovered businesses with high potential, such as the online advertising business, So-net Media Networks, and Enigmo, a merchandising platform for imported items.

During these years, Sony was struggling to improve its core electronics business. Kazuo Hirai, named chief executive in 2012, called Yoshida back to Sony from So-net, and Totoki also returned to support Yoshida.

Totoki and Yoshida have since worked together to bring about structural reforms across Sony. In 2014, Totoki was tasked to head Sony Mobile Communications, and to rebuild the slumping unit that had posted a 180 billion yen impairment loss earlier in the year. He was also involved in the Seed Acceleration Program, an initiative to create new business that was pushed strongly by Hirai.

Totoki's abilities as CFO will likely soon be tested. The company expects to unveil its three-year business plan on May 22. 

Totoki has been compared to Carlos Ghosn, chairman and CEO of the French automaker Renault, and chairman of Japan's Nissan. But will Totoki be able to exert similarly strong leadership as Ghosn?

During the April 27 briefing, Sony said it had posted its record operating profit in 20 years, at 734 billion yen ($6.68 billion) for the year through March. Despite such a comeback from years of disappointing results, the company expects an 8.8% decrease in profit for this fiscal year ending in March next year, largely from the impact of a less favorable exchange rate as the yen strengthens.

Developing a company structure to sustain robust profitability will be a major challenge for Sony, and for Totoki.

Sony's semiconductor business will likely suffer a particularly big profit decline, estimated at 64 billion yen. Sony controls a large share of the market for image sensors for smartphones. By June, the inventory adjustment phase will be complete, and unit sales are expected to pick up again. Still, the impact of a strong yen and soaring research and development costs could weigh on profits. 

The company's smartphone business is also struggling. Totoki has spent the past three and half years rebuilding the mobile communications unit, with unsatisfactory results.

"I take it quite seriously that we have not shown a turnaround in performance yet," Totoki said.

In the fiscal year that ended in March, the mobile business unit booked a 31.3 billion yen impairment loss on fixed assets. Sony once declared it would sell 80 million handsets a year, but has scaled back the target to 10 million for the current fiscal year -- 3.5 million units fewer than last year. 

The survival of Sony's mobile business is under threat, and the company's management team is apparently aware of the urgency. During the briefing, Totoki spent some time explaining that the company has no intention of selling the loss-making business unit.

"Sony will pursue fifth-generation technologies through smartphones, and the entire group will make the most of this advantage," Totoki said.

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