Sony is bleeding money - business strategy discussion

[Shifty Geezer]

For example, Sony CMOS sensors are in high demand currently. There's a guaranteed market for them that is very profitable.
...
In short, in that example. It's obviously in the best interest of the phone division to get the sensors at cost or at a discount. It not in the best interest of the devices division and may not be in the best interest of the Sony Corporation as a whole with regards to profit generation.

That's true, but it means a limited, even non-existent corporate wide strategy beyond 'make profit'. If leveraging their assets can produce more competitive products and significantly grow their market share and profits beyond selling to rivals, that'd be a Good Thing. This was many of ours expectations come PS3 - that Sony would leverage it's divisions to provide an all-in-one solution. Movies cooperating with gaming to provide a steaming service, a universal login across Sony Entertainment, selling Music via a rival to iTunes, mobile phones tapped in to this Sony Network streaming Sony media, etc. Sony's inability to capitalise on their position is a significant part of why they're in this mess.

The present move is probably good for a conservative approach to their future, but it means a Sony far less than it could have and should have been. I suppose there's no going back though, and that opportunity around 2000-2005 will never come again.

 

[Deleted member 11852]

That's true, but it means a limited, even non-existent corporate wide strategy beyond 'make profit'. If leveraging their assets can produce more competitive products and significantly grow their market share and profits beyond selling to rivals, that'd be a Good Thing.

Making a profit has to be Sony's number one goal. They've had years of losses and lost market/investor confidence which is needed to survive when you are bleeding money.

Competitive products and market share do not mean profit. From what I've read Sony's mobile phones are pretty decent but that hasn't made them appeal widely or the division profitable. The non-Apple PC and non-Apple phone markets dwarf Apple's tiny markets but not particularly profitable and lots of people have gone to the wall, while Apple rake in insane profits. Market share equalling profit simply isn't true.

This was many of ours expectations come PS3 - that Sony would leverage it's divisions to provide an all-in-one solution. Movies cooperating with gaming to provide a steaming service, a universal login across Sony Entertainment, selling Music via a rival to iTunes, mobile phones tapped in to this Sony Network streaming Sony media, etc. Sony's inability to capitalise on their position is a significant part of why they're in this mess.

In hindsight, expectations like these were foolish and I'd argue Sony trying to pursue them are part of the reason why Sony are in this mess. Sony Music are a single publisher and Sony Pictures are a single distributor and a few studios. It was unrealistic to expect such a small controlling part of the music and movie industries to effect a change that benefits other parts of Sony. For PlayStation and the content delivery parts of Sony to turn the world on its head needs all of the other publishers, distributors and studios in each industry to be on board and why should they? Sony are their direct competitor. Apple made iTunes Music Store work because iPods were selling gangbusters, so there were demonstrate they had customers who were spending money on digital music players, but mostly it worked because they were non-partisan; they were just a retailer.

The present move is probably good for a conservative approach to their future, but it means a Sony far less than it could have and should have been. I suppose there's no going back though, and that opportunity around 2000-2005 will never come again.

This is far from conservative. The prospect of a structure geared to easily shutting down business units and exiting from markets isn't a conservative move. This is a bold, but much needed, approach to Sony's future. It also makes entry into new markets easier because you're not trying to crowbar a new market business unit into a structure which makes no sense.

Sony isn't like Apple or Microsoft who's business is in one or two sectors. Sony are like Samsung with electronics/components, industrial, financial, medical, arts and media and consumer divisions. You can't have "one Sony" unless it's Schizophrenic Sony.

 

[Silent_Buddha]

This is far from conservative. The prospect of a structure geared to easily shutting down business units and exiting from markets isn't a conservative move. This is a bold, but much needed, approach to Sony's future. It also makes entry into new markets easier because you're not trying to crowbar a new market business unit into a structure which makes no sense.

It's not so much bold, as why has it taken so long for them to decide to do this? Most large corporations at some point move to a holding company + subsidiary model. Especially if they are selling products to multiple market segments and sell products to themselves. In Japan, Hitachi is a great example of this. And because of that fact, it was relatively easy and painless for them to exit the HDD market by selling off Hitachi Global Storage Systems.

Had Sony done this years and years ago when they first started to have financial troubles they wouldn't now be stuck with recurring PC market exit costs, for example.

Regards,
SB

 

[Deleted member 11852]

It's not so much bold, as why has it taken so long for them to decide to do this? Most large corporations at some point move to a holding company + subsidiary model.

Most large non-Asian corporations. This is not the norm in Japan where the ingrained social hierarchies transfer into a deep hierarchies within business. What Sony have done is, I think, unprecedented for a Japanese conglomerate with such a diverse portfolio of business.

In Japan, Hitachi is a great example of this.

Hitachi is a TERRIBLE example of this. Hitachi has such a convoluted organisational structure that there is no single hierarchal overview of the entire organisation on a single slide except at the highest executive levels within HQ. But they can perhaps be forgiven because their portfolio is even more diverse than Sony. Hitachi have electronics, telecommunications, power (including nuclear), medical, financial, automotive, defence, consumer and aerospace divisions. Some divisions have divisions, some with sub-divisions.

Hitachi is the model Sony should be, and are, running from.

And because of that fact, it was relatively easy and painless for them to exit the HDD market by selling off Hitachi Global Storage Systems Had Sony done this years and years ago when they first started to have financial troubles they wouldn't now be stuck with recurring PC market exit costs, for example.

I don't know where to start with what's wrong with this analysis. Hitachi's "ease" in exiting the HDD business had nothing to do with Hitachi's organisation structure. Hitachi's rapid exit (announced in March 2011, completed in March 2012) was response to investigations by the EU and US FTC about the duopoly Hitachi themselves created when they bought IBM's HDD business in 2003, creating HGST. Hitachi didn't exit the HDD business, they were ejected from it by regulators.

The reason Hitachi avoided exit costs was because, unlike Sony's Vaio division, Hitachi's HDD business was crazily profitable and they sold it Western Digital for $3.9Bn plus some share investment making the whole deal worth about $4.5Bn. Sony on the other hand could not sell Vaio as a going concern because it was making heavy losses so they sold the assets they could and everything else was swallowed - financially speaking.

 

[Silent_Buddha]

Except it isn't rare for Asian corporations to operate as Holding company + subsidiaries.

Toyota, Mitsubishi, Nissan, Honda (for a smaller corporation), Panasonic (electronics), Sharp, Toshiba, etc. It is anything but rare. Most large Japanese corporations operate this way.

In the past you had electronics firms such as Kenwood operating as a holding company + subsidiaries, but it appears they recently absorbed those back into the main corporation.

Even Sony actually operates with a Subsidiary structure (beyond their overseas operations), it's just that they never moved their core electronics businesses into their own wholly owned subsidiaries. I had forgotten that Aiwa was a subsidiary of Sony Corp. As well, back in the 90's before Sony brought them back into the fold, Verant Interactive was a wholly owned subsidiary. They were then folded back in to become SoE.

And you are correct, Japanese businesses can get a bit convoluted with how they categorize their internal structure (divisions and subsidiaries). I'm not entirely sure they always use the generally accepted definitions of those terms.

Regards,
SB

 

[Deleted member 11852]

Except it isn't rare for Asian corporations to operate as Holding company + subsidiaries.

I agree, but I said conglomerate - this is what Sony (and Hitachi) are. Sony's challenge is flattening (is that a word?) the corporate structure and doing so in a way that also increases transparency about their financial operation and financial viability through separation of those particular industries.

In a conglomerate it's customary for assets and liabilities to be consolidated and centralised across the organisation making it much more difficult to determine the actual worth of an individual division (business unit in Sony parlance). There are good reasons for doing this, for example if several divsions need bolstering you get one loan at a lower rate rather than several loans at a higher rate. The reasons for not doing this is problems get hidden on balance sheets which aren't specific to the division in question.

Had Sony had a different structure in 2010 it would have been more apparent much earlier how badly their PC and Mobile Communications divisions were doing and they could have taken corrective action sooner and taken fewer losses. The CFO should be on top of things like this but maybe he overlooked it. Sony appointed a new CFO in April last year. Their old CFO was a chap named Masaru Kato, who (having googled him) is apparently a Japanese footballer. This could say a lot about Sony's internal financial oversight prior to last year.

Toyota, Mitsubishi, Nissan, Honda (for a smaller corporation), Panasonic (electronics), Sharp, Toshiba, etc. It is anything but rare. Most large Japanese corporations operate this way. In the past you had electronics firms such as Kenwood operating as a holding company + subsidiaries, but it appears they recently absorbed those back into the main corporation.

Of this list only Mitsubishi are a conglomerate, the reminder are just basic corporations or multinationals. And Mitsubishi is, like Hitachi, an example of the structure that Sony are moving away from.

Even Sony actually operates with a Subsidiary structure (beyond their overseas operations), it's just that they never moved their core electronics businesses into their own wholly owned subsidiaries. I had forgotten that Aiwa was a subsidiary of Sony Corp. As well, back in the 90's before Sony brought them back into the fold, Verant Interactive was a wholly owned subsidiary. They were then folded back in to become SoE.

Sony have done it on a small scale, as you say Sony Online Entertainment is such an example. But now they're going to do this across the entire organisation. Interesting fact about Awai, I had a great Awai walkman in the 90s - I never knew they were part of Sony.

 

[MrFox]

http://www.reuters.com/article/2015/03/02/sony-mobile-idUSL5N0W456120150302

"At the beginning of February there was speculation about a sale of Sony Mobile," division head Hiroki Totoki was quoted as saying by the newspaper in an interview published on its website late on Monday. "It's completely untrue."

Totoki said that Sony Corp CEO Hirai had come to Barcelona, where the Mobile World Congress is taking place this week, to speak about "the importance of this business for Sony".

Totoki also told Le Figaro that Sony Mobile's portfolio of products is too diverse and needs to be refocused. He said the company would slow the rhythm of new product launches to adapt to consumers who now keep their phones longer than they have done in the past.

i.e. stop releasing three new phones with very minor upgrades every 6 months. There's just no reason to have a shorter cycle than 1 year.

 

[wco81]

I didn't hear about new Sony phones at MWC this week.

Instead, they were showing Morpheus at GDC?

 

[Deleted member 11852]

i.e. stop releasing three new phones with very minor upgrades every 6 months. There's just no reason to have a shorter cycle than 1 year.

The reasoning for shorter product cycles is that consumers, particularly when buying CE devices, often want the latest thing. A phone that has been on the market 9 or 10 months may appear quite dated and not all consumers would wait for the next update.

To what extent this results in lost sales is debatable but sales volumes of products often often drop off over time. Except for PS4 Of course if your sales are low (like Sony's appear to be) to start with, further drop off is terrible.

 

[eastmen]

The reasoning for shorter product cycles is that consumers, particularly when buying CE devices, often want the latest thing. A phone that has been on the market 9 or 10 months may appear quite dated and not all consumers would wait for the next update.

To what extent this results in lost sales is debatable but sales volumes of products often often drop off over time. Except for PS4 Of course if your sales are low (like Sony's appear to be) to start with, further drop off is terrible.

except for apple. Apple until the 6 releases 1 new phone model a year and is able to sell 10s of millions of them. They also sometimes get 1 or 2 generations out of the same form factor. One of the things I hate is when I buy a phone and can't find accessories for them. With apple they have everything even stuff you'd never need like a shower head with a dock for your iPhone.

When you move to something like the galaxy line it still has a lot of stuff because it sells well but its a fraction of what apple has. Then you move on to lg or htc and its a fraction of the galaxy line.

Sony should be focusing on 1 single phone a year. Not a line up of phones , only one. The previous phone should become the mid range and so on.

 

[Deleted member 11852]

except for apple. Apple until the 6 releases 1 new phone model a year and is able to sell 10s of millions of them.

Apple's quarterly sales figures show this claim to be patently false. Product sales drop quarter-to-quarter following release culminating in a plummet in the 4th quarter - relative to the launch quarter. The only time this wasn't the case was years back when Apple simply couldn't keep up with demand for months and months after release.

But I'm not disagreeing that Sony should be producing more than one phone a year, just explaining the conventional wisdom for shorter product cycles. Rather than High-medium-medium-low quarters you have a shot at attaining High-medium-high-medium sales quarters. Of course you have to have desirable, competitive products and a lot of engineering resources to support this - perhaps twice as many as one product per year so the overheads of this, along with testing and certtification of the CE device in every territory you sell make it much more complicated.

 

[Silent_Buddha]

Apple's quarterly sales figures show this claim to be patently false. Product sales drop quarter-to-quarter following release culminating in a plummet in the 4th quarter - relative to the launch quarter. The only time this wasn't the case was years back when Apple simply couldn't keep up with demand for months and months after release.

Well, part of that is also that people now expect a new iPhone every year. So there's little to no reason to buy one just before the new one comes out.

Something else about the multitudes of phones that Sony released. That's sort of a part of Japanese electronics sales, in Japan. It just doesn't work as well in the world at large. And now that non-Japanese electronics are actually selling well (gone are the days of Japanese just completely ignoring any electronics gadget not made in Japan), it's tougher for Japanese companies to sell electronics products, in Japan, in the same way as they used to in the past.

Heck, well into the 90's you'd have multiple new home gaming consoles released each year.

In the reality of the global electronics market and the new reality of the electronics market in Japan, it's less realistic to do that. Although many Japanese phone makers still release multiple new phones (in the same price bracket) each year. Or at least did the last time I was there. Most of which never left Japan.

Regards,
SB

 

[eastmen]

Remember that decrease in sales just fuels the drive for the new phone. People go into a holding pattern waiting for the previous model to drop in price and the new model to come out. It doesn't actually hurt apple as they can continue to produce phones that continue to sell

They have what the iPhone 6xl at $300 , iPhone 6 at $200 , iPhone 5s at $100 and the 5c free correct ? Its a line up that makes sense to the consumer and consumers get new features once a year.

 

[Deleted member 11852]

Well, part of that is also that people now expect a new iPhone every year. So there's little to no reason to buy one just before the new one comes out.

Exactly, and the rationale for shorter product cycles is the eliminate that low sales quarter.

 

[eastmen]

https://www.ftc.gov/news-events/pre...rders-related-false-advertising-sony-computer
Looks like sony is going to have to pay $25 per person in cash that bought a psvita before june 2012 or $50 in merchandise vouchers .

Looks like I will be getting $25 bucks

 

[Cjail]

https://www.ftc.gov/news-events/pre...rders-related-false-advertising-sony-computer
Looks like sony is going to have to pay $25 per person in cash that bought a psvita before june 2012 or $50 in merchandise vouchers .

Looks like I will be getting $25 bucks

Ok so $25/$50 for every person that bought a PS Vita before June 2012, that should cost Sony around $25000/$50000

 

[eastmen]

lol , I think they sold over a million in the states. So 25m at minimum i'd say. Guess that's why they sold some of their shares in olympus

 

[Deleted member 11852]

Looks like sony is going to have to pay $25 per person in cash that bought a psvita before june 2012 or $50 in merchandise vouchers. Looks like I will be getting $25 bucks

The order says Sony must offer $25 cash or $50 voucher, not that Sony must offer those due recompense the option of the two. I think Sony will probably go with vouchers although the economics would favour $25 cash if that money is reinvested in Sony / PlayStation merchandise.

Sony's PR has been on the nail lately which I why I think they'll go with the voucher even though it'll cost them more in real terms.

lol , I think they sold over a million in the states. So 25m at minimum i'd say. Guess that's why they sold some of their shares in olympus

I don't think so. Last quarter (Q3) Sony's Game and Network Services division (PlayStation predominately) had an operating income of $228m - that clear profit, not revenue. A quarter of a billion dollars pure profit

 

[London Geezer]

I don't think so. Last quarter (Q3) Sony's Game and Network Services division (PlayStation predominately) had an operating income of $228m - that clear profit, not revenue. A quarter of a billion dollars pure profit

Peanuts.

 

[Deleted member 11852]

Peanuts.

It won't be long before somebody says "We have too much money, let's re-hire Ken"