The Problem With Sony's Plan

Sony Corporation's headquarters in Tokyo
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Sony Corporation's headquarters in Tokyo

New Sony CEO Kaz Hirai is an easy guy to like.

When I sat down to interview him at the Consumer Electronics Show earlier this year he was immediately affable, chatting easily in our cramped little director's chairs before the interview started. At one point he whipped out a Sony Tablet P, the company's unique clamshell device, and shared his quibbles: He likes it quite a bit, but in the next version he's pushing engineers to eliminate the border between the two screens so that it seems like one surface. When I asked if that's even possible, he got a twinkle in his eye, and described in somewhat geeky terms how it might be done.

So it would be easy to root for the reorganization he announced this morning. Sony, after all, is a company with a history of producing beautiful technology, not just pumping out low-priced gear it thinks will sell. Hirai also seems like the perfect guy for the job: he's fluent in Japanese, so he's less likely to get flummoxed by Sony's hometown bureaucracy. He's fluent in English, so he can directly engage with some of Sony's biggest markets.

There's a problem, though. This reorganization may be structured to solve yesterday's problems, not tomorrow's.

Look at Sony's results: The company lost $2 billion on $23 billion in revenue in the holiday quarter. Half of that came because TV sales fell off a cliff. Most of the rest of the losses came from the phone business. Other units, including batteries, chips and storage, are limping along.

Given the realities, Hirai says he's focused on turning the TV business around and boosting the viability of the phone business. The vexing thing is that he's also determined to keep doing a lot of other things Sony has done for a long time: the gaming business on PCs, PlayStations, mobile consoles and phones; consumer and professional cameras; an entertainment business; even expanding a new business in medical devices.

I can understand why Hirai would hesitate to shut down any of the businesses that are profitable — consumer and professional cameras, for instance. Still, it could be dangerous. In the reorganization conference call, Hirai conceded that cameras aren't likely to grow as a business because of the challenges from smartphones, but he said he believes Sony can gain market share and stay profitable.

But what if smartphones destroy the camera business faster than he anticipates? He will have missed an opportunity to shift Sony's smartest imaging R&D engineers and marketers into the phone business, where the future is. (And I can promise you, this is an area where Apple will be pushing hard over the next couple of years.)

And what if Silicon Valley titans Apple and Google start to make real progress in the TV market? Hirai may end up wishing he had shut down the PC business and moved the best software resources from there to the television team.

This strategy from Hirai amounts to a bet that the rate of change in Sony's businesses will slow down, not accelerate. We'll see if he's right.