Sony Launches New Mid-Term Strategy (2015-2017)

Image: Kazuo Hirai

On Wednesday Sony Corp. unveiled its mid-term strategy update for the period FY2015-FY2017.

Sony is setting “profit generation and investment for growth” as the theme of its mid-range corporate plan from for the next three years. That means that any divisions running losses better run and hide. Sony won’t keep them. The emphasis of language on profit retention and boosting throughout the news release suggests that any endeavors not proving to contribute directly to profit or growth won’t be tolerated. The key focus now above everything else is to boost profit throughout all businesses and the overall message seemed to be aimed particularly at Sony shareholders. This new plan comes into effect from April.

A few main points that Sony announced:

  • That they will be spinning out the Sound and Video units, which will become wholly owned by Sony
  • A plan “to deliver to investors a consolidated Return On Equity (ROE) of more than 10% and a target for consolidated operating profit of more than 500 billion yen for the Sony Group in FY2017″
  • There was not talk of selling the Mobile division, though it is now considered a threat to financial stability and ‘partners are being considered’

Read on for the full details.

Sony Building 2

What’s Today All About?

It’s an update on what Sony is prioritising over the next 3 years. For Sony especially, it affects how money is spent and which businesses will be grown, reduced or possibly sold.

The Big News

You may read that Sony is selling the video and sound units. Not exactly, Sony will fully own them. It’s a repeat of what they did with the TV business last year. There is a clear warning however in their statement that further changes are coming.

 …splitting out the Video & Sound business unit and launching it as a self-sustained, wholly owned subsidiary. Sony also intends to move forward with preparations for splitting out other business units thereafter. 

Additionally, the other dramatic soundbite is their shocking ambition to multiply their most recent annual operating income by a factor of x20 to reach 500 billion yen in the year FY2017. I’m going to need a few days to get my head around that multiple…

Taking Charge of Finances

It’s clear that some Sony businesses have been struggling for years and that they need to maintain profitability. Today’s actions seem largely designed to please investors. For most investors, much of the specific business details don’t matter. The only question that matters is: will the stock of this company deliver good returns to shareholders? Looking at a broad corporation like Sony, each business needs to perform over a period of time, or needs to be restructured, or sold.

 …set a target for consolidated ROE of more than 10% and a target for consolidated operating profit of more than 500 billion yen for the Sony Group in FY2017. 

So Sony is aiming to give stockholders at least a 10% return for this period. Also, the most recent fiscal year produced 26 billion yen of operating income, and the company is aiming for 500 billion yen for the financial year ending 2017.

These more drastic changes have really come into play since Sony Corp. took on its new Central Finance Officer, Kenichiro Yoshida in March 2014. The first drastic change was arguably spinning out the TV business. While today’s news seems rough, one of the better measurements of Yoshida’s job performance, besides the balance sheet, is the stock price. Sony Corp’s stock price has climbed 80% in the past year.

Sony Corporation Stock February 2015Source: Yahoo Finance

Sony’s stock was up 5% on Wednesday’s news.

Other Key Notes from the Strategy Update:

Management Changes

  • Business management that emphasizes profitability, without necessarily pursuing volume
  • Business management that grants each business unit greater autonomy and mandates a focus on shareholder value
  • Clearly defined positioning of each business within a broader business portfolio perspective

This is quoted directly from the news release. Starting with the principles listed at the start, notice the emphasis on profit, not volume. So market share won’t be key moving forward. The second principle releases the grip of ‘Sony centralisation’, giving each business more room to make its own decisions and report home to Tokyo less. The third principle is somewhat of a warning – each division must have relevance or could be cut off.

Besides these broad principles, Sony more specifically targeted businesses based on:

 each of the Sony Group’s businesses will be classified as a “growth driver,” “stable profit generator,” or “area focusing on volatility management” 

A host of executive changes were announced.

New Business Focus for Sony

Forget the triple pillar of Game, Mobile and Devices. The new focus for growth and profit for Sony Corp is:

Growth: Devices, Game & Network Services, Pictures, and Music

Stable Profit Generators: Imaging Products & Solutions and Video & Sound

Areas focusing on volatility management: TV and Mobile Communications

Will Xperias (Mobile) be Sold? No.

 By carefully selecting the territories and product areas it targets, Sony will seek to limit its capital investment and establish a business structure capable of securing stable profits. The Company will also continue to explore potential alliances with other companies in these areas, in response to changes in the business landscape. 

Sony Mobile Tweet Not Exiting BusinessThanks to Khaled for this tip!

There is no mention that Mobile will be sold. They really say two things: one that investment will be reduced and two that Sony is looking for a partner, such as joint venture, like they did with Ericsson over 10 years ago. The next question is what type of partner – a partner could possibly mean maybe co-producing parts with another company. We’ll have to wait and see.

Brief Notes on Financial Services and Medical

 In the Financial Services segment, each of the life insurance, non-life insurance, banking and nursing care businesses will target further stable business expansion and profit growth by continuing to provide high quality services that our customers trust and are satisfied with. 

So financial services will expand.

 In the medical field, one of Sony’s new business areas, Sony Olympus Medical Solutions Inc. is proceeding as planned with the development of surgical endoscopy systems and other medical solutions. 

Medical is rolling out as planned.

The full news release can be read in full from Sony.

 

Discuss:

Is Sony making the right decisions? Should it have sold certain divisions?

  • camillo777

    What about broadcast video?

  • Malek Mangus

    Interesting stuff. The 500 billion target for the operational profit is really ambitious. This year, excluding the cost for exiting the pc business, impairment charges (smartphone business) and other restructuring charges, Sony would have an estimated operational profit of around 350 billion yen. So it is a step up but it doesn’t seem impossible.

  • Penemue

    Sounds good, I really dislike that a few media outlets reported that they maybe selling their Mobile segment when the plan does not imply that. Also that they are selling their Sound division which is not what they are doing, as it will still be wholly owned by Sony unlike VAIO.
    How useless are these journalists.

  • Khaled

    Sony Mobile on Twitter posted this!

    “Lots of media speculation re: our future today – don’t believe the rumours. Looking forward to a busy & exciting MWC!”

    https://twitter.com/SonyMobileNews/status/568447306506346496

    “@KnowYourMobile not by a long way! We’re still very much alive and raring to go for MWC.”

    https://twitter.com/SonyMobileNews/status/568393403207163904

  • Jonathan Nolan

    Khaled, thank you for posting this, I hadn’t seen it. I’ve been trying
    to highlight this for some time now – for now it is not up for sale,
    because Sony didn’t mention that. If the worst happens in the future, so
    be it, but it is not today. Wuhoo! 😀

  • Jonathan Nolan

    Exactly. I totally agree. I’ve quoted the company directly and their
    news release is available for everyone to see. Too much lazy journalism
    elsewhere!

  • Khaled

    Dunno why all these sites started spreading these doom and gloom articles about Sony axing the mobile division, even Engadget!

    The mobile division has so much potential, the Z series is reaching it’s prime..it would be a complete loss and stupidity if they give up on it now!

  • Sonyfan

    Hi being a big Sony fan it really hurts to see Sony in this situation. Sony needs to focus better and do better marketing instead of thinking of selling its tv or mobile business. They should concentrate more on Tvs, projectors, soundbars, home theatre systems, digital cameras, action cam, bluetooth speakers, headphones, mobile phones, tablets, smartwear and playstation. They should focus less or stop making these products – bluray,dvd players (ps3/ps4 is there for that), shelf and music systems (dont really need it), hi-res audio(new market), handycam (dont really need it now), car audio systems (they are not very serious about it), music video recorders (dont know why), smart tennis sensors (what the hell is this), digital paper (1000$ really?) , binoculars (why) , walkman players (1200$ walkman player and 150$ 64gb premium sound card really? why?), voice recorders (crap) , microphones (crap), cd players (why), boomboxes (why). They really have awesome products but they really need to market it better. Please Sony dont sell your tv and mobile business. TV is Sony’s identity and they make the best phones in the market today.

  • It’s staying :)

  • Kind of crazy how many news sites got the announcement wrong.