The fortune Apple created for its hardware business (iPod, etc) originates from Steve Job's successful efforts brokering a deal with the music industry. Without Job's understanding of the entertainment industry, Apple's new revenue streams for its hardware wouldn't have been created.
I'll take that challenge, Junko. I'm not always in favor of splitting companies, but here are four reasons I think it make sense:
1. The entertainment business is much riskier than electronics (really!), but it also has the potential of much greater short-term rewards in today's market. But if you were going to "subsidize" the electronics business with proceeds from a hit movie, you leave the electronics division vulernable to a quick downturn when the next dud hits the theatres. That's no way to run a CE manufacturing business.
2. Sony can't limit distribution of its entertainment products to its own devices without undercutting the revenue of the entertainment products. What's the point of that? And what's the point of having both unless you could do that?
3. The electonics business should be able to stand and compete on its own -- plain and simple. Sony's a great and innovative company that can play against any company in the world when it comes to CE; it has proven that repeatedly. Separating it from the entertainment group will lead to more stability and push it to innovate.
4. Shareholders -- who own the company -- deserve a choice. If the company split, they could continue to own both, or sell one and hold the other. That would make both divisions of Sony more valuable separately than they are together, which is probably what Loeb is thinking.
1. The CE hardware business is already a precarious business. Sure, you might want to see each business unit (hardware and software) to be independently successful. I understand. But if the oter part of your own company can help catapult the hardware biz, what's the harm in doing that? At least Sony could buy time to get the house in order before completely running out of money ( that's where Sharp is in today).
2. Who said that Sony is limiting distribution of its entertainment products to its hardware? Sony has never been that naive or short-sighted to think that as a successful strategy. The point of having both hardware and software under one roof is to understand what ticks sw biz ( or vice versa) or what makes sense to entertainment biz. It's unfortunate hat Sony was not able to pull off what Apple's Jobs did when it comes to the online music biz, but hopefully the Japanese company learned that lesson.
3. See my response above (answered in 1.)
4. Tom, let's not get carried away too much here. Honestly, I don't believe the activist's motive is so pure. Sure, Loeb might be able to make a bundle if his proposal is accepted. But the rest of the shareholders will be left holding the bag, because once a portion of Sony's entertainment biz is gone, much of the value of Sony Electronics will be also gone.
The taxpayers will also likely get stuck holding a bag, too, after the CE division declares bankrupcty and sticks the public with all sorts of pension, welfare, and other obligations one way or the other.
Splitting a company. throwing a vastly disproportionate share of the liabilities to one side, and then letting it fail is par for the "hedge fund" course.
I couldn't agree with you more, Ogemaniac. Look what happened to Elpida; look what happened to Renesas; look what's going on at Sharp.
While many of those Japanese companies' failures can be traced to the poor management, making the company [Sony] deliberately weak for the purpose of the hedge fund's gain doesn't strike me particularly as a smart move.