In a corporate strategy briefing held Wednesday (May 22) in Tokyo, Chief Executive Kazuo Hirai of Sony Corp. reiterated that restoring Sony’s electronics business is his company’s “top priority,” while the company will further expand entertainment and financial services -- two divisions propping up the entire Sony Group today.
At a time when Sony’s latest financial results show that the Japanese consumer electronics giant is no longer an electronics company (nearly all of its profit comes from its entertainment and insurance units, while the company’s TV and mobile businesses are dragging down the bottom line), juggling pros and cons of the company’s non-electronics businesses and its unprofitable electronics divisions is no easy task for the CEO.
Sony's CEO Kazu Hirai
During the briefing, Hirai acknowledged that Sony plans to “thoroughly discuss” the proposal made by an activist investor Dan Loeb from Third Point. Loeb, who owns 6 percent of Sony, is urging the Japanese company to consider a partial spinoff of its music and movie divisions.
Explaining that the proposal is about spinning off 15 to 20 percent of Sony’s entertainment business in an IPO rather than selling off the entire entertainment division, Hirai noted that “we are going to start the discussion at a board meeting.” He refrained, however, from talking of a timeline for the board to reach a conclusion.
During the briefing, Sony also noted that it is “on track” to reach an annual operating margin of 5 percent in the electronics business within two years. Hirai reiterated his goal to achieve an operating profit margin of 5 percent on sales of 6 trillion yen in the fiscal year to March 2015. Lowering expectations
Several tweaks and “realignments” Sony made in its predictions -- including lowering its profitability targets for its videogame operations -- illustrate that the road to recovery in the electronics business will be treacherous, and the company will be vulnerable to rapid changes in the global market.
Of the three pillars of Sony’s electronics business -- games, mobile and imaging -- games is where Sony decided to lower the target for operating income margin. While maintaining its sales target at 1 trillion yen in the fiscal year ending March 2014, Sony expects its operating income margin to decrease from a previously predicted 8 percent to 2 percent.
Despite its upcoming PlayStation4 (PS4), scheduled for roll-out later this year, Sony has chosen to tamp down industry expectations, at least during the current and next fiscal years. “Sony aims to significantly expand its business model around PS4, to transition the business to further growth in the fiscal year ending March 31, 2016 (“FY15”) and beyond,” the company said.