System reboot

Kazuo Hirai will take up the reins at Sony with investors’ expectations set to “low”. The Japanese electronics giant has forecast a $2.9-billion net loss for the year ending in March 2012, a month before Howard Stringer stands down as CEO. That gives Hirai some breathing space, but his task is still daunting.

Sony’s Q3 earnings contained a catalogue of glitches. It almost tripled its estimate of losses from floods in Thailand, a hub of hardware manufacturing. Yen strength and writedowns from exiting an LCD panel joint venture with Samsung, didn’t help. Sony now says full-year operating profits for its consumer products will be 90 billion yen below November’s estimate. That, in turn, is 115 billion yen below July’s number.

Underlying trends are no better. TV sales are plunging as Sony is eclipsed by Korean rivals like Samsung and LG. Sony has cut sales and marketing costs, and inventories fell over the quarter from 58 days’ worth of revenue to just 40. But, input costs are rising, which accounted for half of the yearly fall in underlying operating profits. Sony’s shares are down 55 per cent since the start of 2011.

Setting expectations low means Hirai starts with some wiggle room. Meanwhile, Stringer stays on as chairman, so bad news doesn’t mean he ends his Sony career on a bum note. With financial bad news out, investors will want to know whether Hirai can turn on Sony’s almost mythical “four screens” vision. The dream is for consumers to have an interconnected Sony phone, tablet, laptop and TV. Stringer was big on content but lacked the requisite grasp of how to use software to push platforms.

As an articulate Anglophone with international experience, Hirai has the fresh-face qualities that helped Stringer in his early days. But, it will take more than that to restore Sony to its Walkman-era glory. Recent pushes, such as 3D TV and the sleek new Playstation Vita console, have so far disappointed. This financial reset needs to be followed by a serious ideas upgrade.