Sony Corp., which has built its fame through a global brand presence and innovative products, appears to be facing a difficult time. The Sony group’s operating profit in the six-month period through September nosedived by 90.9 percent from a year before to 6.22 billion yen, although sales were up 9.7 percent to 3.6 trillion yen.
Behind this are the massive global recalls of its defective lithium-ion battery packs for laptop computers; a delay in launching the PlayStation 3 (a next-generation video-game console) due to problems with mass-production of the machine’s Blu-ray disc drive; and a price cut on the PS3 in Japan to compete with Nintendo Co., its rival in the video-game machine business.
The battery recalls and the delay in the production of the Blu-ray disc drive could pique concern about Sony’s in-house ability to develop mainstay, state-of-the-art technology. It is hoped that the company will mobilize its experience, wisdom and knowledge to overcome its technology-related problems and develop new hit products that will enchant consumers.
The lithium-ion battery packs caused lap-top overheating or short-circuiting problems. It is thought that microscopic nickel particles trapped inside during the manufacturing process caused the problems. When Dell recalled Sony battery packs used in its laptop computers in December 2005, Sony put forward the theory that the computers themselves were responsible for the problems. This suspicion apparently delayed an investigation and response by Sony.
The battery problems caused safety concerns and inconvenience for customers. Since a manufacturer is supposed to place priority on product safety, Sony may also have lost customer trust. Sony is urged to conduct a thorough investigation of the battery problems and do its utmost to prevent recurrences.
The problems have affected almost all major laptop makers, including Apple, Lenovo, Toshiba, Fujitsu, Hitachi, Sharp and Toshiba. Sony is recalling about 9.6 million battery packs worldwide. It booked the 51.2 billion yen recall cost for the July-September quarter, for a quarterly group operating loss of 20.8 billion yen, a sharp drop from the 74.6 billion yen profit a year before.
The lithium-battery was a source of pride for Sony, whose engineers had made strenuous efforts to develop it. In 1990, Sony became the first company to put the battery on the market. Therefore, the recent problems have dealt an especially telling blow to the company.
As it is, Sony is facing an uphill battle due to delays in the launch of the PS3 and a lower number of units to be produced. It must compete against Nintendo’s Wii and Microsoft Corp.’s Xbox 360. In the portable video-game machines market, Sony’s PlayStatioPortable has been outdone by Nintendo’s DS and DS lite. Accumulated sales of the Nintendo DS are estimated to have reached 11.08 million units while the corresponding figure for the PlayStationPortable is 4 million units.
In the half-year period through September, Nintendo’s sales increased by about 70 percent from a year before to a record 298.8 billion yen, and its operating profit shot up by 3.4 times to a record 67.1 billion yen.
There is some good news for Sony. Operating profit in its core electronics division in the April-September period soared from 1.4 billion yen a year ago to 55.45 billion yen, thanks to a boost in the sales of its Bravia flat TV series, Vaio computers and digital cameras. But Sony’s near-future prospects do not appear very bright. A performance estimate for the business year ending March 2007, announced in October, was revised downward from the one announced in July.
The new forecast is for Sony’s consolidated net profit to decrease from an earlier estimate of 130 billion yen to 80 billion yen, a decline of 38 percent, and for consolidated operating profit to drop from an earlier estimate of 130 billion yen to 50 billion yen, a fall of 62 percent.
Sony’s problems may stem from the group’s corporate management. In the latter half of the 1990s, Sony tried to add value by linking its electronics business with its music- and movie-content business through a broadband network. This strategy apparently led to dispersion of resources and deprived the Sony group of vitality as a manufacturer. There may be deficient communication and interaction between various divisions.
It is imperative that Sony and any other manufacturing company, for that matter, go back to manufacturing basics — accumulate and improve the ability to develop new products as well the knowhow needed to ensure their reliability. Only by doing that will Sony be able to come up with a convincing growth strategy for the coming decade.
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