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Sony’s Hirai mixes camera, phone geeks to catch Apple

by Mariko Yasu and Grace Huang

Bloomberg

For Kazuo Hirai, creating Sony Corp.’s flagship smartphone was too important to be left to the company’s mobile phone experts.

Taking aim at a $310 billion market dominated by Samsung Electronics Co.’s Galaxy and Apple Inc.’s iPhone, Sony’s chief executive officer sent dozens of his company’s camera engineers to its phone division last year to give the Xperia Z handset advanced photography capabilities.

It was a big change for a company whose units haven’t been used to collaborating on their thousands of consumer products.

“We used to believe Walkman belonged to the Walkman team and Cyber-shot belonged to the Cyber-shot team,” said Kichiro Kurozumi, who leads the Xperia planning unit, referring to Sony’s music players and compact cameras. In the past, the divisions acted like independent companies and “wouldn’t be thrilled to let others use assets they’d invested in,” he said.

The Xperia highlights how Sony is uniting technologies from different departments to create more successful products, Hirai, 52, told reporters in Tokyo. Sony released the Xperia Z’s successor model, the Z1, last month. The company is counting on the handsets to meet Hirai’s goal of becoming the largest smartphone seller after Samsung and Apple.

“He’s fearless about cannibalization, and you can see that in the smartphones they’ve created,” said Takashi Watanabe, a Tokyo-based Goldman Sachs Group Inc. analyst, describing the changes at Sony under Hirai’s 19-month tenure as “amazing.”

“The latest model is so powerful, you wonder whether it will completely destroy the digital camera market,” Watanabe said.

Released Sept. 9, the 5-inch Z1 features a 20.7-megapixel camera, compared with the predecessor’s 13 megapixels, a “G” high-performance lens that was once proprietary to the camera unit, and a more powerful image processor. Sony’s latest Cyber-shot RX10, to be released next month at around ¥130,000, has a 20.2-megapixel image sensor. Samsung’s Galaxy S4 is equipped with a 13-megapixel chip, while Apple’s high-end iPhone 5s has an 8-megapixel sensor.

“They’re using the camera technology as a way to differentiate themselves from rivals,” said Junya Ayada, an analyst at Daiwa Securities Group Inc. who recommends investors buy the shares. “Sony will also put other signature technologies in its smartphones.”

Sony’s smartphone sales rose 30 percent in the quarter through June to $3.65 billion. While that outpaced Apple’s 9 percent gain, it fell short of top-ranked Samsung’s 55 percent jump in smartphone revenue and a 48 percent advance by LG Electronics Inc.

Samsung now outsells Sony more than 8-1, while Apple’s sales are almost five times those of fourth-ranked LG.

Sony aims to make a profit from mobile products this fiscal year after its consumer electronics business racked up ¥130 billion in losses a year earlier. The company’s TV-manufacturing business has been unprofitable for the past nine straight years as it lost market share to South Korea’s Samsung and LG.

An average of four analyst estimates compiled by Bloomberg indicated Sony would post net income of ¥17.2 billion for the quarter that ended Sept. 30, compared with a ¥15.5 billion loss a year earlier.

The company’s shares have almost doubled in Tokyo trading this year, helped by Prime Minister Shinzo Abe’s economic policies that have led to a weaker yen, boosting the repatriated value of Sony’s overseas earnings.

The company projects a second straight full-year profit after cutting 16,400 jobs and selling assets, including a 37-story Manhattan office building last year, to end a streak of four straight annual losses.

Taking over from former CEO Howard Stringer in April 2012, Hirai pledged to unify the electronics maker’s sprawling businesses, ranging from consumer electronics to music, movies and financial services, under the slogan “One Sony.”

For the Xperia planning team, change under Hirai has been noticeable, Kurozumi said.

“I have staff who joined my team from the Walkman unit and a former Cyber-shot manager, too,” Kurozumi said. “There’s no longer any awkwardness in talking to people on other teams.”

Hirai also weighed in personally on the Z1′s design, Kurozumi said, telling the creative team to get rid of a headphone-jack lid because it was “uncool.” The CEO also advised against moving the location of the new model’s power switch because doing so might confuse users who upgraded from the Xperia Z, Kurozumi said.

“To me, these were clear and simple messages that the management intends to boost attention to what customers care about,” Kurozumi said.

Sony is also hoping for a boost from the PS4, its first new home-gaming console in seven years, which will be introduced in the U.S. and Europe next month. The machine’s price tag of $399 will help it outsell Microsoft Corp.’s Xbox One, which will cost $100 more, researcher IDC said.

Even if Hirai succeeds in creating better products by breaking down barriers inside Sony, it may be 10 to 20 years too late, said Koki Shiraishi, an analyst at SMBC Nikko Securities Inc. who rates the shares neutral, or hold.

For TVs, price competitiveness has become more important than technological superiority, and smartphones are approaching the same stage, Shiraishi said. That gives the edge to companies with lower costs, such as Samsung and LG, he said.

“You can no longer attract consumers by promoting technological advancement,” Shiraishi said. “Sony is always a lap behind.”

Sony also hasn’t shown investors yet that “synergy” is happening between its hardware and software businesses, said Keita Wakabayashi, an analyst at Mito Securities Co. who rates the shares neutral plus, or hold.

Kurozumi said the changes happening at Sony are gradual, yet meaningful.

“We’re just taking elementary steps,” Kurozumi said. “Sony was long unable to do the basics.”