New Sony CEO Faces Historic Losses and Global Challenges

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Kim Kyung-Hoon / Reuters

A man walks past Sony's television sets at an electronics shop in Tokyo Feb. 2, 2012. Japan's ailing electronics giant, Sony Corp., warned it was heading for a worse-than-expected $2.9 billion annual loss.

Sony Corp. announced grim projections for the fiscal year on Thursday in Tokyo, reporting $1.2 billion in operating losses for the third quarter and a projected $2.9 billion loss for the year.  The bleak figures highlight the challenge ahead for Kazuo “Kaz” Hirai, who will take the helm of the struggling electronics-and-entertainment giant, assuming the role of both president and chief executive on April 1. The Tokyo-born Sony veteran will replace current CEO, president and chairman Howard Stringer, who will become chairman of the board, a nonexecutive position, in June. “I look forward to helping Kaz in every way I can so that succession leads inevitably to success,” Stringer said in statement issued by Sony yesterday. “He is ready to lead, and the time to make this change is now.”

The news of Hirai’s ascension did not surprise anyone in Japan. Stringer himself has brought Hirai up through the ranks of Sony and, last March, named him deputy executive director and head of the company’s consumer-electronics division. Hirai was one of Sony’s four young(ish) execs — known as the four musketeers – whom Stringer promoted as a group a few years back. With a background at Sony operations in both the U.S. and Japan and a successful revamp of PlayStation under his belt, Hirai won out over his colleagues for the top job to help carry on the outgoing CEO’s vision to integrate Sony’s hardware with its native digital content — and try to pull the firm out of the red.

Hirai has a sizable challenge ahead of him doing any of that at Sony, a company whose slow-moving infrastructure and chronic near misses tapping into the global zeitgeist have some not-so-subtle parallels with Japan itself. The very word Sony is synonymous with Japanese electronics, but even in Tokyo, consumers are reaching for Apple’s slick and user-friendly phones and tablets, or inexpensive Korean televisions, over Sony’s well-made but pricey and unsexy devices.

MORE: See some of Japanese design’s greatest hits.

Sony, of course, has not been without its own coups in recent years. The new handheld PlayStation Vita was met with critical success, and the PlayStation Network, which draws on the best of the brand by offering Sony games, movies and TV shows, has won a sizable fan base. But the firm can’t seem to catch its breath, with its market capitalization stuck at just over $18 billion, compared with Apple’s $425 billion. The bedraggled television division has been a particular drain, facing losses of $2.3 billion this year alone. If Sony’s own predictions are correct, the company will mark its fourth consecutive fiscal year of losses in March — a first since the company was founded.

When Stringer became the first foreigner to hold Sony’s top post in 2005, Japan was stunned. Not only was a non-Japanese-speaking, Welsh-born American taking over a company that embodied Japan’s 20th century rise, he was not a technical person. But many held high hopes that an outsider could shake up the stagnant company that had recently lost to Apple’s iPod the game that Sony’s Walkman invented. Stringer, a former CBS president, had a reputation as a likable but firm leader who was busy delivering movie hits like Spider-Man in Sony’s U.S. operations while the company’s core business in Japan was floundering.

But Stringer, in addition to grappling with deep divisions within the company, ran into some fairly epic bad luck during his seven-year tenure. The 2008 global recession hit the industry hard, and by the time Sony was getting back on its feet, 2011 struck. The March 11 earthquake and tsunami temporarily shuttered 10 Sony plants in north Japan, disrupting the company’s supply chain. The next month, PlayStation Network was hacked, causing the system to close down for two months and putting millions of customers’ personal data at risk. A few months after that, the catastrophic Thai floods sent manufacturing into disarray.

Add a touch of the historically high yen, and by November, the company issued a warning to investors that it would end this fiscal year with a $1.2 billion loss, prompting Moody’s to downgrade its credit rating. Today, that estimate nearly doubled. As Stringer told Bloomberg Businessweek: “You can’t keep saying, ‘I had this and I had that.’ When the Thailand floods hit, I thought, ‘Well wait a minute’ … You don’t feel sorry for yourself, but you do occasionally say, ‘If some of my competition had the same experience…'”

It’s Hirai’s headache now. With years at the helm of both the U.S. and Japanese arms of Sony Computer Entertainment, he is not short on qualifications. But as he steps up and Stringer steps down, one hopes there are no lingering illusions that a Japanese citizen is better equipped to lead this global company that started in Japan. If Sony – or any of us, for that matter – can take one thing away from a howler of a year like 2011, it’s that we’re in a global game now. Without accepting that, Sony doesn’t have a chance of staying in the game, let alone getting to the next round.

Krista Mahr is a correspondent at TIME. Find her on Twitter at @kristamahr. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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