The New York Times posted an interesting article about Sony. As you know Hedge fond leader Mr. Loeb has a considerable share in Sony. Last week he asked Sony to drop the electronic business. But Sony CEO Hirai gave him a (metaphoric) kick in the butt and this is his answer:
“Mr. Loeb’s prescriptions for Sony are shortsighted, merely milking the company’s profit-making content business for good money to throw after the bad….He defended the company’s continued focus on electronics. “Electronics has a future. And it is in Sony’s DNA,” he said at a corporate presentation. “It is my mission to revive it.”
There are some glimmers that Sony is finding its way again, even as Apple and Samsung widen their lead. Sony’s sleek new XPeria Z smartphone has received generally rave reviews. Photography buffs have called its high-end, full-frame RX1 camera the most advanced compact camera.
“Not so long ago, we had despaired at Sony’s ability to ever again produce stellar products (especially when faced with duds like the Dash alarm clock and the Rolly music player),” Damian Thong, Tokyo-based technology analyst at Macquarie Securities, said in a report published Thursday.
“Yet we now have had a consistent run of beautifully designed, technologically advanced, class-leading products,” Mr. Thong said. “We think these products hark back to Sony’s glory days.”
Editor’s note: I like MR. Hirai way of thinking. A company is not only about making money, but also about dreaming and doing something. Also Mr.Dell told Steve Jobs to quit the Apple company (in the mid 90’s). And see what happened after. You don’t solve a problem by selling what doesn’t work. If you do that every time you have a problem you end up with not having a company anymore 🙂
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>You don’t solve a problem by selling what doesn’t work. If you do that every time you have a problem you end up with not having a company anymore
Absolutely right. This is why there are so few electronics and photography companies left in the U.S., computers being the sole exception at this point.
Mr. Loeb, then, of course, represents the American Way. 🙂
Loeb is interested in short-term profits for his hedge fund with no regard to Sony’s long-term health. There’s an inherent conflict of interest. Hirai’s task is not just to maximize short-term profits, but to ensure Sony’s health well into the future. He is right to rebuff Loeb’s officious advice.
The point of a hedge fund is to make money for those owning parts of the fund. If the fund feels like that it is not making money from Sony, it is welcome to sell the Sony shares. The fund / modern capitalism does not take into account that people are required to work in order to be able to keep the society up and running…
After reading the article, I feel that this post really misrepresents the situation as it is laid out in the piece.
Here is what the facts are, as laid out by the NYT piece:
1) Sony is now a diversified company involved in insurance, content (movies, music and games), as well as its traditional electronics business.
2) Sony is losing money in electronics – $8.5 billion over the last decade
3) Daniel S Loeb is SUPPORTIVE of the electronics business – he wants Sony to sell off its profit-making contents division (film and music) to fund a revival of the electronics business. Read the second and third paragraphs of the article carefully.
4) By saying electronics has a future, Hirai basically agrees with Loeb’s basic stance, which is to continue investing in the business. However, his approach might not require the sacrifice of the contents business.
I was going to say the same thing. Thank God that we have some SAR readers that can actually read critically.
Yes, the post does misinterpret the NYT article. Although there are some people that believe that Sony electronics should be ditched, that is not what neither Hirai nor Loeb want according to the article. Hirai is rather speaking to investors and stake holders here reassuring that his strategy is a long term strategy.
Lets hope that the sale of their HQ assets around the globe is not the only thing that made the company go back to positive numbers.
Mr Loeb wants to get rip off the consumer part of the electronic business. And focus on High End professional products only. But I believe that’s the wrong approach. You need the keep the consumer market for different reasons. 1) Image 2) because it drives tech development
I seriously recommend you carefully read Loeb’s letter to Hirai, dated 14 May, which is the basis of the current developments. Third Point (Loeb’s hedge fund) has made the letter publicly available, and a copy is here: http://www.ft.com/cms/4a0f6844-bc77-11e2-b344-00144feab7de.pdf
In particular, look at the section for “Step 2”. Loeb did not mention SLT cameras specifically, but did mention mirrorless cameras alongside PlayStation and Xperia smartphones as “excellent products”.
Note that this was DESPITE the Imaging Products & Solutions (IP&S) business (which includes the alpha lines of cameras) suffering a 4.7% year on year loss in 3Q12, compared to 3Q11. i.e.: he recognised that despite short-term difficulties in the business, it is likely to turn around, IF Sony takes the right steps.
He was, however, critical of the PC, DVD recorders and TV hardware side of things, although he pointed out the TV part of the business is likely to return to profit.
Even the Image Sensor business was lauded as “large, rapidly growing, and profitable”, but profits from that division are being diluted by losses from the legacy semiconductor businesses.
At no point did Loeb make a distinction between Sony’s professional and consumer lines. He did appeal for an increased focus on profitable product lines.
This could mean any number of things, but Sony already knows which of its products are doing well, and which are not.
If Sony chose to take on Loeb’s suggest wholesale, the only part of the IP&S business which would be under threat of being cut would be compact digital cameras, and, in direct contradiction to what you have said, broadcast- and professional-use products, which have seen decreased sales in the latest Sony report.
That said, Sony’s situation is currently in flux. A more realistic adoption of Loeb’s proposal would be to cut the urecoverable product lines like DVD recorders, and most of the low-tier compact P&S, and then sink the extra money into the stuff with potential. Which includes current consumer-tier mirrorless cameras, and professional equipment.
Hirai and Sony on their part have not come straight out against Loeb’s proposal, but has said they will consider it (as opposed to the common practice of many Japanese companies to just ignore these suggestions). Some analysts are against the proposal to spin off parts of the Entertainment business to fund the electronics revival, but it’s pretty clear Sony and Hirai – AND Loeb – do see a future in electronics, be it consumer or professional. They just have differing strategies in regards to how they can sustainably revive it.
I’ve just read through about a dozen account of Mr. Loeb’s intentions. I think I’m coming down with “you are both right.”
1) Mr. Loeb wants Sony to make the entertainment division an independently, publicly traded company. However, only 15-20% will be offered initially. So, a partial spin-off.
2) Mr. Loeb does want this to raise funds to use to revive the electronics arm.
3) HOWEVER, Mr. Loeb’s main goal is NOT really electronics. What he is concerned is that the entertainment division is badly undervalued because of the woes of the electronics division. If entertainment and electronics are traded separately, Sony will be valued much better; Mr. Loeb thinks people have been undervaluing the whole package because of the perception that Sony is doing badly, since it is perceived to be predominantly an electronics company, when it is not. This is analogous to when GM was undervalued, because people thought of it as a car company, when it was really a financing company. Same with GE.
So, no, Mr. Loeb is not here to save the electronics division. He wants to “unlock the value” of the entertainment division, and make money in the sale, since he is also offering his company to facilitate the spin-off. This MIGHT benefit the electronics division, but, again, that is not Mr. Loeb’s goal. What Mr. Loeb is doing is, indeed, to split the company; who is spinning off whom is immaterial. In the end, the effect will be to spin off the electronics division so that the entertainment will be valued more fairly, i.e., be suddenly worth more.
4) He does have an interesting suggestion for Sony: cut down on your cost by focusing on fewer products. Japanese companies in general have a tendency toward proliferation of models; this is why Olympus and Panasonic have insisted on releasing a bunch of very similar models with minor differences, and Sony’s consumer electronics business is insanely prone to doing this. I think this is a sensible advice, but it will also mean elimination of certain product lines that Sony has gotten into just because it has to keep its street rep as a company that does everything.
5) So, Mr. Hirai is a mixed hero here. He is “fighting back” against Loeb in that he does not want the company broken up, but not just because he wants to keep the electronics division intact; he is more interested in keeping the entertainment division’s profits around to play with. This is a good point, too, since companies that have spun off profitable businesses to stick to its “core business” often end up languishing in the long run, because, again, in reality, what is really being spun off is the unprofitable “core business”.
Still, Sony’s corporate bosses are also romantically attached to the entertainment division, as it was a triumphant coup when Sony acquired them, and they also take pride in having made them profitable, when it used to be very unprofitable. Vertical integration between content and hardware has also been a flagship of Sony’s strategy, and a spin-off would be an admission of defeat. It would be very painful for them to sell off the entertainment business, like when Sears sold of the Sears Tower, regardless of whether this is a good idea.
In short, 1) Mr. Loeb is saying that he wants to raise funds for the electronics business. Yay. 2) What he really wants to do is to cleave the electronics business off the entertainment business and make money off the entertainment business. Boo. 3) Mr. Hirai believes that that this is not a healthy strategy for the electronics division. Yay. 4) Mr. Hirai is not saying this just because he cares about electronics, either, but because selling off the entertainment division will mean a kind of defeat for the model Sony has been pursuing. Boo.
You’re right. Loeb isn’t an angel – he is a hedge fund boss, and so of course the goal is to make a profit. The focus of the proposal is really on squeezing more money from the entertainment business – electronics is just a side show.
That said, why is cleaving the electronics business from entertainment such a bad thing? Especially in our limited context when talking about cameras?
At worst, the proposal is neutral for the camera business. At best, it will free up more money for R&D.
In any case, the allegation that Loeb “asked Sony to drop the electronic business” is patently false.
Icie: I agree with you 100%. I’ve never been a big fan of Sony’s consumer electronics products. The photography division is certainly earning my respect, and I hope what is best for them.
Here is a parable for eveyone else.
==========
There is a very successful sculptor named A. A is so talented, everything A makes, everyone wants to buy. A makes a lot of money.
One day, A meets B, also an artist, who used to be successful, but has fallen on hard times; people calls B a “loser” and B is very depressed. A falls in love with B, and says, “Hey, we should get married. I have plenty of money to support you. We can work on our art together. It’d be great.” It didn’t hurt that B is still beautiful and glamorous.
It takes a while, but the partnership works out quite well, and A becomes even more successful. However, B’s art isn’t doing too well, so B decides to go to business school. A pays for it, and B becomes a successful investment banker, and, coincidently, B’s art starts to sell well, too!
In the mean time, however, A’s art stops selling, and A has a big injury that prevents A from doing much work. A’s art and creativity suffers. B says, “That’s OK. You supported me when I was at a loss, so I will support you until you feel better and your art starts to sell again.”
However, A’s health continues to get worse, and C, B’s business partner who is friends of both, becomes concerned. C comes to A and goes, “You know, I know you guys love each other, but B is so worried about you that our work is starting to suffer. I think you guys should divorce. That way, B can really focus on the job. We can give you a stake in our business, so you will have the means to live and take care of your health, and you won’t feel so guilty about B supporting you. I will marry B, in fact, since then our business can then be really successful, and you will be better off in the long run.”
So, for whose sake would this divorce occur?
What should A do?
And what would happen to their adopted child, D?
Daniel Loeb wants Sony to sell off the profitable division so he can POCKET the money now. It would be outright disaster for Sony’s electronic long term though.
Well, where will you play those ‘profitable’ content with, if not with electronics???
Mr. Hirai, I tip my cap to you sir.
Loeb is a huge gaelord, Mr Hirai is glorious Sony leader.
Well, all these fund managers tend to be jacks of all trades, masters of none.
Loebe, Hirai, XXXX, etc: They can yap all they want.
Produce a camera with better sensor than the Nikon cams at competitive prices.
Bottomline.
Like that is going to change anything.
One camera to rule the all.
HAHAHAHAHA
You got it! 😀
Subtleties are lost on Vlad. 🙁
Again? 🙁 Just when I thought my english was getting better.
Hedge Fonds are locusts, a plaque for large companies & for the own economy. Fast money makers with a strong capitalist American Way of Life… This sucks!
It is refreshing to hear someone with passion running a tech giant, hopefully that passion will filter down to their products and from 2014 onward a new dawn for Sony will come.
Si
Mr Hirai , You got the balls , Sir.
while i cant call loeb a complete idiot, since needs brain to make money.
i can say that making money just buying cheap and selling pricey, using “any means”, its a thing i will never do, its like fraud.
lying, manipulate, using FUD, media, blackmail, etc. like “The end(purpose) justifies the means” when the end its just money, means, everything can be done justified by money.
you can run certain companies that way, as in bank or assurances.
but tech companies not, because suddenly, selling assets, cutting jobs, stop researching, passing creating new things to build “safe stuff”, etc. will collapse the company.
this is just an idiot opinion from a guy that dont know anything about running a company, just a guy that knows how to haggle.
Mr Loeb can and wants to milk sony dry and then bail out.
Mr Hirai cannot and will not do so.
That restores a little of my confidence.
Now make a high res camera to restore the rest of my confidence.
How can a servant talk to his lord that way? I don’t get it, does he want to get fired?
Revolutions makes the records in history.
If Sony drops Electronic products, I can’t think of what else do they make? this is an electronic giant, isn’t it?
Sony makes money in places most people wouldn’t ever dare to believe. This guy is an idiot. I am sure he wants Sony to stop making loss-leader electronics but if Sony dumped their electronics, they’d also dump their electronics patents and the licenses other companies purchase to use those patents.
4k video is a new ballgame.
All new electronics products are comming out.
Sony and Samsungs past successes or failures are irrelevant. Sony will take or lose the lead strictly on what they do now.
Here we see so much difference in business cultures. No one side is perfect. Sony has made and continues to make fatal mistakes in their camera business. Sony is losing it’s user base. They are fast becoming a supplier of tech, more like a Toshiba or Hitachi.
Don’t tell me their are so focused on their new tech when they release a gimped A58.
The A58 is a placeholder. It was supposed to be introduced with a slew of other SLTs that will now probably never make it to the light of day. As a beginner’s camera, it is actually pretty decent piece of equipment. If you want to upgrade your A57, buy an A65 or an A77. They are still good cameras and the prices have dropped. To keep harping on a gimped A58 is silly. The target audience for the camera will probably be perfectly happy with the camera. And no, I don’t believe that they are losing their user base. The NEX has grown a different user base. The forthcoing mirrorless A mount cameras, if executed properly, will propel Sony to a bigger market share (that is the hope). So good for Hirai on refocusing the company to actually making compelling products.
What user base are you talking about? When Sony bought Minolta, Minolta was dying with user base of less than 2%. Sony raised that to over 10% and even higher with Nex lines.
You are talking nonsense. There was no “user base” to start with when Sony bought Minolta.
Why is it that they hedge fund people push to sell the profitable part of a business? Do they want to make chopped wood out of the other part of the business? That is the impression that they give me.