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Sony still faces tough hurdles despite CFO’s successes

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Reuters

Months after Sony Corp. bought So-net, the broadband provider’s chief chided Sony CEO Kazuo Hirai for having his “priorities in the wrong order.”

He told Hirai his focus should be on restructuring the struggling electronics conglomerate rather than spending time and effort buying a firm it had previously spun off, said a person familiar with the exchange.

That was two years ago and Hirai was sufficiently impressed to hire Kenichiro Yoshida as Sony’s chief strategy officer. Within a matter of months, Yoshida was promoted to chief financial officer.

Yoshida, a reserved foil to the more flamboyant “Kaz” Hirai, has since sought to turn around Sony with a no-nonsense program of cuts and targeted expansion that has won over investors, even as the Tokyo-based conglomerate prepares to post its sixth loss in seven years.

Yoshida is pushing each Sony division to take more responsibility for its performance, a direction that insiders say Sony is likely to confirm in a new multiyear business plan to be unveiled Wednesday.

Colleagues say Yoshida’s low-key demeanor conceals a straight-talker who is unafraid to ask tough questions.

Under Yoshida’s knife, Sony sold its ailing Vaio personal computer division, a seismic shift for the group as this was an established, 17-year-old brand. He spun off the TV business and axed thousands of jobs across the company while raising spending on imaging sensors, a profitable segment and likely future earnings driver.

Yoshida’s overhaul is not only being felt in Japan; it has rattled Sony’s traditionally autonomous Hollywood big shots.

Late last year, he pressed Sony Pictures CEO Michael Lynton to give “serious consideration to modifying the Entertainment executives’ compensation plans,” emails leaked by hackers in November revealed. Lynton confided to studio co-chair Amy Pascal that he felt he was under “enormous pressure.” Pascal has since left the company in the wake of other embarrassing emails disclosed in the hack.

Yoshida’s shake-up seems to be paying dividends.

This month Sony reported stronger-than-expected quarterly results, forecast a smaller net loss for the year to March than previously expected and reversed a projected operating loss to a profit.

Some analysts believe Yoshida is striving to get Sony’s mobile business back in the black with an eye on a possible sale. Sony declined to comment for this article.

Sony shares have risen more than 70 percent since Yoshida was named CFO last April, including a 28 percent spike in the past month that was missed by activist investor Daniel Loeb, who said in October he sold his Sony stake after failing to persuade management to sell part of the entertainment business.

Under Yoshida, Sony’s five-year credit default swaps, the cost of insuring its debt against default, have halved. Jefferies analyst Atul Goyal, who has a “buy” recommendation on Sony, last week raised his target price by 15 percent to ¥4,050. On Friday, the stock closed at ¥3,220.5.

With Yoshida as CFO, “Sony has responded more quickly to the changing environment and competition,” said Fitch Ratings Director Kelvin Ho. “It’s been able to make more bold decisions.”

Yoshida has injected a sense of urgency, Ho added, but to return the company to investment grade, Sony needs a broader base for profits. Sony debt is still rated a speculative BB- by Fitch.

Ho and others say the real test for Yoshida will be in securing long-term sales growth rather than merely making Sony profitable again.

Aside from an announced increase in production capacity of image sensors, used in smartphones and security cameras, analysts say Sony’s best growth opportunity ahead may be in making better use of its PlayStation network to attract consumers beyond videogame players, with better movie and music services.

Sony has fumbled to emulate the success of Apple Inc.’s iTunes platform, and recently said it is ending its own Music Unlimited service, offering music through Spotify instead. For Yoshida, the challenge may be in continuing that search while keeping costs under check.

“Given the sharp recovery in the stock price, the CFO (Yoshida) may need to watch out for senior executives relapsing into grand expansionary visions,” warned Goyal, the Jefferies analyst.