Sony management shakeup may cause game exec to step down

PARIS — Howard Stringer's ascension to CEO at Sony Corp. dramatically displaces his predecessor, Nobuyuki Idei, but a more significant casualty of the executive shakeup might well be Ken Kutaragi, the outspoken executive who confounded many experts by turning Sony into a heavyweight in the video game market with the invention of PlayStation.

Under the new regime, Kutaragi, once widely rumored as a potential successor to Idei, will step down from Sony Corp.'s board.

Kutaragi will be also stripped of his title as president of Sony's home electronics and semiconductor divisions, a powerful position he took over only a year ago. Kutaragi's new role within Sony now reverts to that of a group executive officer running Sony's game division.

As of April 1, Ryoji Chubachi-- Sony Corp.'s new president-to-be -- will oversee Sony's semiconductor business. Katsumi Ihara, expected to assume the role of executive deputy president and group CFO at Sony Corp. under the new management team, will head up Sony's home electronics operation.

It remains unclear if all this game of musical chairs portends fundamental change in the corporate strategies that affect some of Sony's most important business units.

In the last few years, while conventional wisdom among big consumer electronics companies has been to go "horizontal," Sony has done the opposite-- striving to transform itself into a much more vertically integrated company. Investing massively in its semiconductor fab capacity, Sony has committed, for better or worse, to get back into the semiconductor business.

The Japanese giant's business operations today includes processors that drive the next generation PlayStation, CCDs for digital cameras, low temperature poly-silicon devices, disk drives and pickups for optical disks, TVs, camcorders, DVD recorders, PCs, music and movies.

Kutaragi's grand vision was to leverage the wildly popular PlayStation platform devices to assure that Sony's 90nm fab capacity is fully implemented. He also hoped to re-use some macro blocks deployed within PlayStation devices for Sony's other consumer products. Kutaragi was even hoping to make the new PlayStation Portable (PSP) unit a strategic client device for Sony's fledgling on-line music and video download service, Sony Connect.

The end game envisioned by Kutaragi was to rely on the development of key devices for differentiating Sony's consumer system products. He anticipated a much bigger return on investment for Sony Corp., by flexing corporate muscle and riding the wave of a successful PlayStation platform campaign.

The shakeup announced this week suggests that Kutaragi's dream ran out of time, or that Sony simply ran out of patience with it.

Under a management strategy entitled "Transformation 60 - Confirming Sony's Position as a Leading Consumer Brand in the 21st Century" announced in the fall of 2003, Sony newly created The Semiconductor Solutions Network Company. This was an effort to strengthen the development system for semiconductor and key devices, with Kutaragi heading up the operation. The company said then that its objective is "to increase the ratio of semiconductors and key devices produced within the Sony group and thus add value to home and mobile electronics products."

Indeed, of 500 billion yen ($4.8 billion) Sony promised to set aside for semiconductor business development between 2003 and 2006, the company spent 175 billion yen ($1.68 billion) in fiscal 2003 and 160 billion yen ($1.536 billion) in 2004 for the company's chip operation. The company spent $1.62 billion over the last two years to develop its Cell processor.

Sony will not launch its Cell processor-based PlayStation 3 gaming console until later this year, and Cell itself -- shown at a recent ISSCC -- still remains only a prototype. Cell, designed for digital-home applications, is expected to end up in a number of consumer systems.

However, beyond PlayStation 3, Sony has yet to announce specific plans for any other Cell-driven consumer products. Moreover, despite its heavy fab capacity investment, there is no sign that Sony is actively recruiting semiconductor customers outside the company.

There is a persisted rumor that a more significant executive role may be in store for Kutaragi once Stringer takes over, but Sony is currently keeping any such possibility close to the vest.