Vendor focus: Sony – where did it all go wrong?

By Sooraj Shah
28 Nov 2012 View Comments
kazuo-hirai-sony

In the eighties and nineties, if you wanted the best consumer electronics the high street could offer, the chances are you’d buy a Sony product. Its televisions, video recorders and Walkman music players were trailblazing and cool. Sony was a prestige brand. It was the Apple of its day.

Further reading

And back then, Apple wanted to be like Sony, with Steve Jobs telling Fortune magazine in 1998 that “the whole strategy for Apple now is to be the Sony of the computer business”.

Apple is now valued at £321bn – making it the most valuable company in the world. While Sony – which was worth £75bn in 2000 – is now valued at only £7bn.

And, just last week, credit rating agency Fitch downgraded Sony’s corporate bonds to “junk” status, citing its high debts combined with “loss of technology leadership in key products, high competition, weak economic conditions and the strong yen”.

So what has gone wrong at the once all-conquering giant?

Days of glory

Founded on 7 May, 1946, by Akio Morita and Masaru Ibuka, Sony came to the fore-front of consumer electronics by creating products that had not previously existed.

It dominated the TV market for decades, created the personal audio market with the Walkman in 1979 (which eventually sold over 220 million units worldwide) and then achieved another industry breakthrough in October 1982 with the release of the world’s first Compact Disc (CD) player. It beat off Nintendo and Sega in the games market with its PlayStation console in the 1990s, building on this success with the introduction of the PS2 – which is the best-selling console of all time, with about 153.6 million systems sold worldwide.

The master is now the pupil

In 1961, Sony had 3,703 employees and a net income of ¥720m (£5.5m). By 1991, it had 19,811 employees and a net income of £924m. It now has more than 162,000 staff but reported a net loss of £202m in the April-to-June quarter this year.

In April, newly elected president and CEO Kazuo Hirai (pictured) stated that the firm would cut 10,000 jobs as part of a restructuring project. A month later the company’s shares plummeted to a 31-year low after it reported a record annual loss of £3.5bn.

According to industry analyst DisplaySearch, in the second quarter of this year, Sony’s market share in plasma and LCD TVs was just 8.3 per cent – coming in third after Samsung and LG. Meanwhile, Sony Mobile – which acquired Sony Ericcson in February 2012 – reported a net loss of £175m in the 2011 financial year.

Last week, it was announced that Sony had sold 70 million PlayStation 3 (PS3) consoles, still lagging behind the Nintendo Wii, which as of September had sold 97.18 million units worldwide.

So why has Sony stumbled from leader to follower?

Nature has played a significant role in its decline. The Japanese earthquake and tsunami of 2011 hit Sony hard, with a Blu-ray disc factory and a research and development lab damaged by flooding, and six other factories thrown into chaos by power outages. The devastating floods in Thailand later that same year also caused major disruption to its operations.

However, Jordan Selburn, analyst at research firm IHS iSuppli, believes commoditisation in China is largely to blame for Sony’s woes, and those of fellow Japanese strugglers Sharp and Panasonic.

“It is just a tidal wave that you can’t hold back. There is almost nothing Sony could have done to have position themselves better in today’s consumer market,” Selburn says.

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