Sony hits stumbling blocks on road to recovery
It seems to be one thing after another for Sony Corp. these days.
After a recall involving millions of Sony-made personal computer batteries and yet another delay for the PlayStation 3 game console, even one of Sony's top executives is questioning whether the company is on the right track.
"If you asked me if Sony's strength in hardware was in decline, right now I guess I would have to say that might be true," game unit head Ken Kutaragi said after Sony pushed back the PS3's European launch by four months to March.
The delay means Sony will miss the crucial Christmas shopping season in Europe, giving Microsoft and Nintendo a head start in the race to win over next-generation gamers in key markets like Germany and Spain.
But for investors, the bigger worry is what the setback says about Sony's reputation as a top-class manufacturer with the ability to deliver quality products to the market on time.
Sony now has a market value of $43 billion, less than half of rival Samsung Electronics $112 billion, which was smaller than the Japanese firm before 2002.
Shinko Securities analyst Hideki Watanabe sees both the PS3 delay and the battery recall as manifestations of deeper problems rooted in poor management decisions taken during the 90's when Nobuyuki Idei was at the helm.
Watanabe does not expect Sony to lose Dell and Apple as customers because the batteries are highly customized and it would be very difficult for the PC makers to make a switch.
He sees the PS3 production problems as a far more dangerous development because the game division has been a cash cow for Sony, helping keep the group afloat as it posted heavy losses on core electronics products.
"I see a major risk that Sony's presence in the game market will weaken," he said. "Investors will have to start considering the possibility in the future that the game division will not produce any real profits at all."
Sony's stock has lost 5 percent since Dell announced its recall in mid-August, lagging a small gain in the broader Tokyo market. Sony is up some 20 percent, though, since it was announced in March 2005 that Stringer would take the top job.
Certainly things have improved markedly since Sony stunned investors in April 2003 with an unforeseen quarterly loss of about $1 billion in what came to be known as the Sony Shock.
"Sony has no doubt passed through the worst stage," said Ichiyoshi's Akino.
"But investors can't let their guard down."
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