In early Febraury Sony announced plans to reform their TV business and sell their PC section when they released their latest financial results.
Subsidiary, restructuring, streamlining; the announcement was full of management-speak, so what is actually happening?
The TV business is being set apart as a separate company that will be still be fully owned.
Let’s take a closer look at the language used in Sony’s news release on the TV business.
If you are interested in the shorter version, you might like What Did that Announcement Mean? We Explain What’s Happening to Sony’s TV Business.
Let’s stick closely to what Sony said in their official news release here.
Sony Corporation today announced significant new measures to address reform of its PC and TV businesses aimed at accelerating the revitalization and growth of its electronics business.
Okay, TV is part of the reform plans designed to boost growth in electronics.
We also know that the TV (and PC) business was identified as a problem area for profit:
At the same time, Sony identified PCs and TVs as businesses for which profitability improvement would be a key priority and implemented various reform measures. The reforms executed within the TV business have significantly enhanced its operational structure and product competitiveness.
In the announcement, Sony declared that despite the aim to bring the TV business to profit this fiscal year, it would not be achieved:
However, Sony now anticipates its target of returning the TV and PC businesses to profitability will not be achieved within the fiscal year ending March 31, 2014 (“FY13”).
Then followed the decision to turn it around with some new actions:
Sony is now also taking further significant steps to address reform of the PC and TV businesses, while at the same time moving forward with further optimization and streamlining of its manufacturing, sales and headquarters/indirect functions, and concentrating resources in growth businesses.
The company pointed out that their cost reduction efforts to date have successfully reduced the losses accrued in the TV business.
Due to these measures, losses from the TV business, which amounted to 147.5 billion yen* in the fiscal year ended March 31, 2012 (FY11), were successfully reduced to 69.6 billion yen in FY12, and are now anticipated to be reduced further, to approximately 25 billion yen in FY13.
They also told us in their report about the value of 4K for profit and growth:
In particular, Sony has significantly enhanced product competitiveness and accelerated its shift to high-end models, especially in the area of 4K, where Sony has secured more than 75% market share in Japan (as of the end of December 2013, based on Sony research). Sony has also taken the number one market share in the US for 4K models (during calendar year 2013, based on revenue).
Continuing with the strategic angle, they declared the value of the TV business to the company and their intention to keep it central to their product lineup:
TVs continue to play a vital role as the centerpiece of the home viewing experience. Sony aims to leverage the wealth of technological expertise and assets accumulated within this business as key differentiation technologies across its entire product lineup.
Sony said that they intend that the TV business can supply profit from the start of the 2014 fiscal year, which ends in March 2015:
…with the aim of establishing a structure capable of delivering stable profit beginning in the fiscal year ending March 31, 2015 (“FY14”)
The Road to Recovery
So far, the company has explained that the TV business needs more assertive action to deliver profit, that 4K is a key to success, and we know when they intend to finally turn it around by.
They next detailed the product strategy:
First, Sony will shift its product mix and focus on increasing the proportion of sales from high-end models in FY14. Sony plans to reinforce the company’s leading position in the 4K market by strengthening its product lineup while also bolstering its 2K models with wide color range and image-enhancing technologies.
They also had a plan for emerging markets:
In emerging markets, Sony will aim to harness market expansion by developing and launching models tailored to specific local needs.
More cost reduction was announced however:
Second, Sony will accelerate and broaden its on-going cost reduction and operational improvement measures, focusing attention across all functions relevant to the TV business, including manufacturing, sales, and headquarters/indirect functions (as outlined below).
The subsidiary plan:
In addition, to help transform this business into a more efficient and dynamic organization, optimized in size and structure for the current competitive business environment and fully accountable for its operations, Sony has decided to split out the TV business and operate it as a wholly-owned subsidiary. The targeted timeframe for this transition is July 2014. By implementing these measures, Sony is aiming to further enhance its TV business’ profit structure and return the business to profitability during FY14.
Also detailed were changes to manufacturing, sales, indirect functions and also how the headquarters operates:
…the Company plans to optimize the scale of the manufacturing, sales, and headquarters/indirect functions that support these businesses
In terms of electronics sales companies, Sony plans to identify focused product categories for each specific country and region, rationalize support functions, and proactively implement outsourcing and other efficiency measures with the objective of achieving total cost reductions of approximately 20%** by the fiscal year ending March 31, 2016 (“FY15”).
Sony will also streamline Sony Corporation headquarters and support functions and expects to achieve cost reductions of approximately 30%** by FY15 within these operations.
The workforce reduction:
…Sony is anticipating headcount reduction of approximately 5,000 (1,500 in Japan, 3,500 overseas) by the end of FY14.
So the TV business is being separated from the core, despite its importance to other products that they sell and will still be fully owned as a separate company. The detail that many will focus on will be the 5,000 job cuts.
Lots of key words came up amidst the management-speak:
- Optimize; that can mean many things but often it’s about cost reduction
- Tailor; products will be more carefully planned for different customers across the regions, fewer models maybe
- Streamline; anything that is being streamlined involves cutting something out from the middle
- Outsourcing; something that Sony needs to do/make will be sub-contracted to other companies, that is, Sony will agree with other companies to provide or produce something for them
Discuss:
Was Sony right to make this move? Did you spot any clues in the management terms about motivation or details that didn’t make it into the neat press release?