February 12, 2018 10:00 am JST

Sony's Hirai will pass on a humbler company -- and a tough fight

Outgoing CEO righted the ship, but his successor will lead the search for new growth

HISASHI IWATO, Nikkei staff writer

Sony's President and CEO Kazuo Hirai will depart this April after six years at the helm. © Reuters

TOKYO -- Sony CEO Kazuo Hirai will in April hand a hefty baton to successor Kenichiro Yoshida, the strategy and finance chief who helped rescue the electronics and entertainment group from a deep slump but who must contend with the likes of Google and Samsung.

Hirai took the helm in April 2012 following a four-year streak of red ink culminating in the company's worst-ever annual loss. He brought Sony down to earth, taming an overconfidence that stemmed from its days as a tech pioneer that brought mobile entertainment to a world before iPhones. Under Hirai, Sony delivered its best-ever profit. Yoshida was a key player in that effort.

In Hirai's second year as president and CEO, he found himself in a pinch. The year before, Sony had cobbled together its first net profit in five years by selling off assets including real estate and shareholdings. But a deeper restructuring, particularly in the hemorrhaging television business, had been postponed as a result, and the company now appeared to be in danger of plunging back into the red.

By that point, Hirai had recognized the talents of Yoshida, then head of internet service provider So-net. Every month, when he came to report on earnings at the unit, Yoshida would impress the CEO with his ideas for reform as they debated over Sony's overarching strategy.

In autumn 2013, at a hotel in the hot-spring resort town of Hakone, Hirai surprised a room full of Sony executives with the news that Yoshida would take over as chief strategy officer in December, in effect pushing out then-strategy head Tadashi Saito. With that reshuffle, and Yoshida's appointment as chief financial officer the following spring, Sony's revival began.

Sony could no longer put off addressing its problems, Hirai told his new strategy chief. With the the detail-oriented Yoshida drafting plans and Hirai making decisions, the company quickly began sorting out its unprofitable operations.

Sales of money-losing TVs were halved to just over 10 million units. Over three years, the division returned to the black. Sony also sold its Vaio PC business in 2014 to investment fund Japan Industrial Partners and its battery business last year to Kyoto-based electronics maker Murata Manufacturing. Also in 2014, Sony and compatriot Panasonic spun off manufacturing of organic light-emitting diode displays into a new company, JOLED.

Sony's incoming CEO Kenichiro Yoshida, right, was instrumental to the reform efforts of the departing Kazuo Hirai, left.

Hirai had shown an ability to face problems head-on over 20 years ago, when he was temporarily assigned to Sony's American video game arm. The move, which took him away from the music division for the first time, was not what Hirai had wanted. But seeking to earn his new colleagues' trust, he asked for a transfer to the gaming unit, where he went on to build up the U.S. side of the PlayStation game businesses from square one. He eventually rose to the top of Sony's video game division.

As Sony CEO, Hirai strove to instill at the company a more realistic view of itself, one that differed from the larger-than-life image to which some still clung. Nowhere was this more apparent than in the autumn 2014 decision to suspend Sony's dividend for the first time since its listing. The company had maintained payouts even in the year ended March 2012, when its net loss surpassed 450 billion yen ($4.14 billion at current rates), but that was a bluff it could no longer afford.

Past Sony leaders had been known for their charisma. That includes founders Masaru Ibuka and Akio Morita, as well as later executives including Norio Oga -- an early evangelist for compact discs -- and Nobuyuki Idei. Named president in 1995, Idei recognized early on the importance of the internet and said Sony's mission was to build products and services for consumers he described as "digital dream kids." But such attempts to impress sometimes backfired, sending share prices falling when results fell short of expectations.

By the time Hirai took over from Howard Stringer, an overstretched Sony had hit rock bottom. The only way out was to bring it down to a manageable size and stop the bleeding.

While entrusting Yoshida with the restructuring, Hirai deepened ties with important figures at tech front-runners including Apple and video-streaming service Netflix. Raising Sony's profile in this way was no small victory.

The keystone of Hirai's reform effort was a business model that emphasized not one-time hardware sales, but recurring income -- such as from renewing subscriptions for software or services. The prototype for that model was none other than the PlayStation business he himself had helped build up, with combined worldwide sales of 400 million units throughout the console's history.

But over the six years Sony has spent getting back into fighting shape, platform providers like Google and Amazon.com have become towering presences. South Korean manufacturer Samsung Electronics earns nearly eight times Sony's operating income. When it comes to challenging these titans, Sony is only now reaching the starting line. Yoshida has a heavy workload in front of him, starting with laying out a plan for the post-PlayStation era.

Sony Corp.

Japan

Market(Ticker): TKS(6758)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 63,394.96M
Shares: 1,265.82M

Murata Manufacturing Co. Ltd.

Japan

Market(Ticker): TKS(6981)
Sector:
Industry:
Electronic Technology
Electronic Components
Market cap(USD): 31,239.40M
Shares: 225.27M

Panasonic Corp.

Japan

Market(Ticker): TKS(6752)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 37,780.75M
Shares: 2,453.05M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 314,065.46M
Shares: 146.45M

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