Sony struggles with economy
TOKYO (AP) – Sony Corp.’s new Qualia line of TVs are assembled by hand, by a worker who alone pieces each set together. The result is an $11,000 television with some of the richest video quality possible. Offering the high-end products in the Qualia series – which include a $3,200 digital camera and a $12,500 stereo – is one way Sony is grappling with a tough global economy and a slew of price-cutting competitors to remain king of quality consumer electronics.
The TVs, sold by special order, aren’t expected to fly off the shelves. But Sony officials say the ultra-high-end product line sends the message that the Japanese entertainment and electronics giant still dwarfs the rivals that have battered its profits.
Projects like Qualia look to some analysts like a desperate attempt by Sony to recapture a market it dominated for decades with innovative products like its transistor radios, CD player and the once ubiquitous Walkman.
Nowadays, Sony finds itself beset by shrinking sales of once prized brands such as Vaio computers and Wega TVs.
Analysts say the Tokyo-based company has failed to show leadership in adding wireless Internet to mobile products, and worse: it has fallen behind Japanese rivals in key products such as flat-panel TVs and DVD recorders.
Playing catch-up isn’t Sony’s usual game, and the company’s struggle is evident on its balance sheet.
Sony stunned investors when it sank into the red in the first quarter this year. The company jumped back in the black in the next quarter but profits dwindled from $474 million a year ago to $9 million as sales dipped nearly 7 percent.
Sony’s electronics segment has been smarting for more than a year, stung by the global downturn. But last fiscal year, the company’s bottom line was bailed out by its blockbuster film “Spider-Man.”
A good way of assessing Sony’s plight is through Japan’s two pillar industries: electronics and cars.
Japanese automakers such as Toyota Motor Corp. and Honda Motor Co. are reporting booming profits and sales, benefiting from globalization and adding market share in North America and China.
Japan’s electronics companies, meanwhile, are struggling.
The key difference is pricing.
Chinese, South Korean and other consumer electronics makers offer cheaper products that shoppers increasingly see as “commodities,” Sony executives say.
To win in that kind of market, analysts say electronics makers need to sell in large numbers in key regions. It also helps to release new products ahead of competitors.
In Japan, the battle has been joined in liquid crystal, or LCD, TVs and DVD recorders, two products that are proving a hit with buyers. Sharp Corp. and Matsushita Electric Industrial Co., which makes the Panasonic brand, are thus far trouncing Sony.
Sharp is believed to control about 60 percent of the global and Japanese LCD TV markets while Panasonic has nearly 50 percent of the Japanese and global DVD recorder markets.
By contrast, Sony says it owns just 6 percent of the LCD market. The company won’t disclose its share of the world DVD recorder market, but it is believed to be quite small. Sony spokesman Scott McCook says Sony still aims to become No. 1 in the flat panel display market.
The manufacturer promises an array of slick flat panel TVs, DVD recorders and other products. But so do the others, including Toshiba Corp., Mitsubishi Electric Corp. and Sanyo Electric Co.
“This year is going to set the winners apart from the losers,” says Kazuharu Miura, analyst at Daiwa Institute of Research in Tokyo. “The worst possible scenario is that they’ll all cut into each other’s sales and they’ll all have to lower prices – and they’ll all come out losers.”
Miura says Sony must also cut jobs in Japan and move operations abroad. Sony promises a $1.2 billion restructuring program, to include Japanese layoffs. It hasn’t released details.
Sony also plans new digital cameras, where it controls about 20 percent of the global market, as well as mobile phones, where it is also playing catch up.
One arena Sony still dominates is game machines, with its PlayStation 2. Later this year, it will introduce the much-awaited “crossover” PlayStation 2, or PSX, a game console and home-appliance in one that can store data on a built-in hard drive.
The PSX will emerge in Japan later this year and next year in the United States.
Sony has other advanced products out in Japan, such as the Blu-ray disc recorder and CoCoon, a home broadband audiovisual receiver that includes a digital recorder.
Neither is thought to be a huge seller.
CoCoon, which stands for “connected community on network,” links to the Internet, can record TV programs and learns owners’ tastes to find their favorite music or movies. Models range in price from $700 to $1,200. There are no plans yet to sell the device in the United States.
The $3,500 Blu-ray disc recorder, meanwhile, can store about five times the information of current DVD recorders. To record data, it uses a next-generation blue laser instead of today’s red laser.
Analysts say the Blu-ray stands a better chance once digital broadcasting becomes widespread.
Richard Chu, an analyst with ING Barings in Tokyo, thinks that while Sony’s marketing efforts will probably boost sales, the pizzaz the company truly needs is in innovation.
“That mystique has been a little bit tarnished,” he said.
AP-ES-08-07-03 1316EDT