Closing the gadget gap: At 60, Sony focuses on rebuilding brand, restructuring

TOKYO -- Three years ago, Sony Corp. launched the Qualia line of luxury gadgets that included a tiny $3,300 digital camera and a $13,000 audio console that automatically centered a compact disc regardless of how carelessly it was tossed into the player.

Problem was, Sony engineers seemed more enamored with the extravagantly priced technology than consumers were, and the products meant to highlight Sony's fine-tuned prowess received little interest beyond the initial gee-whiz.

The gadgets were a sign of a growing gap between Sony creations and consumer sensibilities at the company that brought the world the Walkman portable music player. The company, which turned 60 this year, appeared to be losing touch with its customers.

"Sony used to be a company that had superior technology and cool design and created products that other companies didn't have," said Akihiko Jojima, author of "Sony's Sickness." "Sony has become merely a brand for brand's sake."

A turnaround effort led by chief executive Howard Stringer, who a year ago became the first foreigner to head the Japanese company, is showing early signs of paying off. Stringer -- the former head of Sony's U.S. unit and previously a top executive at CBS -- adopted a two-pronged strategy of downsizing and focusing on growth areas.

It's no simple task. Sony has sprawling operations spanning everything from electronics and video games to Hollywood movies, financial services and a music joint venture.

Stringer says Sony can't allow itself to grow obsolete.

"Any time a company is 60 years old, it has to say to itself: Are the advantages of age outweighed by the weaknesses, and the weaknesses are that you get stuck in your ways and you get conservative? The opportunities to reinvent yourself are the ones that have to be taken," Stringer said. "You adapt or you die."

One of his first moves was to pull the plug on the Qualia line.

He also reversed some decisions of his predecessor Nobuyuki Idei, a marketing expert who helped raise Sony's stature but never achieved the lucrative "synergy" he had repeatedly promised would come between electronics and the movie, music and other content businesses.

Job cuts and sell-offs

Stringer has ordered 10,000 job cuts by March 2008, of which 9,600 have already occurred. That amounts to about 6 percent of Sony's global payroll of 158,500.

Sony also has sold off $975 million of assets and lowered its stake in a Japanese retail chain that sells candy, cosmetics and other trinkets unrelated to electronics. It also scrapped its Aibo pet robot division and stopped making plasma TVs.

In February, the company stopped promoting retired executives to advisory positions, a common practice at Japanese companies. It removed 45 advisers who served a symbolic purpose but required hauffeur-driven cars.

Jojima and other analysts say Sony is faring better under Stringer. But more time is needed to assess whether the Tokyo-based company can make a full recovery to its heyday that ran from the 1960s through the 1980s, when it scored hits with the transistor radio, Walkman, videotape recorder, compact disc, color TV and other pioneering products.

There have been some successes.

On Thursday, Sony posted a $276 million profit for its fiscal first quarter, compared with a $65.2 million loss last year. In the most recent period, it credited strong sales of liquid-crystal display TVs, digital cameras, camcorders and laptops.

Even its electronics division, which accounts for more than two-thirds of overall revenue, returned to the black. Still, the unit hasn't posted a profit for a full year since fiscal 2002. And Sony shares are worth only about half of what they were five years ago.

Sony president Ryoji Chubachi, who heads the electronics business, believes that TVs and portable music players are two products in which Sony must show it's a winner.

"If we lose in either category, it's inevitable that people are going to have doubts about Sony," he said.

Sony has fallen behind Apple Computer Inc.'s iPod in portable digital music players: Sony has sold one-fifth as many players as the 58 million iPods that consumers have snapped up.

A book on Sony by Japan's top business daily, Nihon Keizai Shimbun, said the success of the iPod and the iTunes download service made Sony's brand power "a thing of the past."

"As an outsider to the music industry, Apple acted extremely quickly," according to the book "Sony Versus Sony." "Sony, which had its own music division, worried about possible damage to CD sales and could not act as quickly."

One error Sony made was sticking to a format for music files called ATRAC3, which protected against illicit copying. Sony only belatedly adapted to the more widely used MP3 file format. The iPod played MP3s from its inception.

Although Sony won't say much more about its plans for future music players, Stringer is giving more say to software designers and requiring greater interaction among the various teams developing products.

Late last year, Sony brought Tim Schaaff from Apple and appointed him senior vice president of Sony's software development. Schaaff oversaw interactive media at Apple and the development of Apple's QuickTime media player for computers.

Sony has scored in one category, the TV, with new flat-panel models that have commanded top global market share in the category during some periods.

A venture for liquid crystal displays Sony set up with Samsung Electronics of South Korea in 2004 has helped Sony play catch-up and boost profits, but it also demonstrated Sony had fallen too behind to go at it alone.

Chubachi acknowledged Sony had grown overly confident of its cathode-ray tube TV technology, failing to see how slimmer TVs were "an entirely new category."

In fact, Sony had grown arrogant about designing products that anticipated, rather than followed, consumer tastes, Chubachi said. Some colleagues were appalled when he started a basic customer-satisfaction push within the ranks.

The original Walkman, which sent on sale in 1979, was long heralded as an innovative product that was ahead of its time. Many, even within Sony, had predicted the Walkman would never catch on, warning that consumers wouldn't want to be seen wearing earphones.

They couldn't have been more wrong. But over the years, Sony grew complacent about its ability to come up with cutting-edge products and lost sight of the consumer.

"Producing a hit without listening to customers is inefficient, and we may even strike out," said Chubachi.

Stringer also has made "Sony United" the company motto to encourage Sony to take advantage of the full scope of its businesses. Mistakes were made -- like the digital music player -- when Sony's section working on computer chips or software development failed to work closely with its other product designers, officials say.

Mitsuhiro Osawa, analyst with Mizuho Investors Securities, believes Sony has been humbled.

"In the past Sony was overly confident that whatever it would make would sell," he said. "Sony acted like it was a samurai king in business."