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Why Sony desperately needs to innovate

The Sony Corp. logo is displayed outside the company's showroom in Tokyo, Japan.
Akio Kon | Bloomberg | Getty Images
The Sony Corp. logo is displayed outside the company's showroom in Tokyo, Japan.

Innovation is the name of the game for most tech firms. In Sony's case, much more needs to be done on this front if the consumer electronics giant behind the PlayStation is to turn itself around, analysts say.

The Japanese company is heading for its fifth net loss within six years and is struggling to bring its sales back into the black.

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"The last demonstration of Sony's innovation was a $2 million commitment to a property project," said Ben Collett, head of Asian equities at Sunrise Brokers in Hong Kong. "Historically, the intentions they have made towards innovation have been pretty weak."

According to a report in the Nikkei newspaper last week, Sony will branch out into the real-estate business after recently setting up a property unit in Tokyo.

Sony expects a loss of 110 billion yen ($1.08 billion) for the year ending March 31. It has been selling off assets and restructuring loss-making units such as its TV business as it tries to get back to profitability.

Its shares have fallen almost 25 percent since hitting a two-year high last May – not long after American billionaire investor Daniel Loeb called for a break-up of the company. The broader Japanese market is down almost 9 percent over the same period, while Apple shares are up just over 30 percent.

At the core is a need to drive new products and change in the consumer space in the way the likes of U.S. tech giant Apple and South Korea's Samsung Electronics have done in recent years, analysts add.

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Indeed, innovation is not a new term for the company that introduced the Walkman 35 years ago at a time when the idea of music on-the-go was a relatively alien concept.

"Japanese companies are aware they have missed the social media trends -- Sony should have been Apple. They haven't been globalized with a global perspective," David Frigstad, the chairman of Frost & Sullivan, a consulting firm to Fortune 1000 clients around the world, told CNBC.

"They should create visionary scenarios. The key visionary scenario should be what bankrupts Sony, what bankrupts Panasonic because they don't look at it that way. If you don't look at the worst case scenario you miss the disruptive technologies," he added.

Something drastic

"They do need to do something drastic and their ability to do that is very much in question," said Collett at Sunrise Brokers.

The problem with Sony, says Atul Goyal, a senior strategist at Jeffries, is not innovating in terms of new products but changing its business model.

"These companies are not short on product innovation. Do you know who came up with the first LCD TV or the first e-book – it wasn't Amazon, it was Sony," Goyal said on CNBC earlier this week. "Time to market and business model, that's the innovation you need. That's where Apple stands out – they take their products to the market at the right time and execute it well."

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Still, Goyal said he did not see Sony returning to its glory days and said it lagged behind Japanese peer Panasonic which has also been going through a cost-cutting process.

Panasonic this week reported its first annual profit in three years.

"Panasonic is going in the right direction exiting unrelated, irrelevant, low-margin businesses," Goyal added.

"Sony has not shown any signs yet and this news about real-estate reflects a lack of clear strategy on Sony's part. Even if it's a tiny investment, it's just $2.5 million, to approve another business when the core is not doing so well is not a good omen," he said.

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