Sony’s Hirai Mixes Camera With Phone Geeks to Catch Apple

Sony’s Hirai Mixes Camera With Phone Geeks to Catch Apple

For Kazuo Hirai, creating Sony Corp. (6758)’s flagship smartphone was too important to be left to the company’s mobile-phone experts. Taking aim at a $310 billion market dominated by Samsung Electronics Co.’s Galaxy and Apple Inc. (AAPL)’s iPhone, Sony’s chief executive officer sent dozens of his company’s camera engineers to its phone division last year to give the Xperia Z handset advanced photography capabilities. It was a big change for a company whose units haven’t been used to collaborating on their thousands of consumer products.“We used to believe Walkman belonged to the Walkman team and Cyber-shot belonged to the Cyber-shot team,” said Kichiro Kurozumi, who leads the Xperia planning unit, referring to Sony’s music players and compact cameras. In the past, the silos acted like independent companies and “wouldn’t be thrilled to let others use assets they’d invested in,” he said.

The Xperia highlights how Sony is uniting technologies from different departments to create more successful products, Hirai, 52, told reporters in Tokyo. Sony released the Xperia Z’s successor model, the Z1, last month. The company, set to report second-quarter earnings on Oct. 31, is counting on the handsets to meet Hirai’s goal of becoming the largest smartphone seller after Samsung and Apple.

“He’s fearless about cannibalization, and you can see that in the smartphones they’ve created,” said Takashi Watanabe, a Tokyo-based Goldman Sachs Group Inc. analyst, describing the changes at Sony under Hirai’s 19-month tenure as “amazing.” “The latest model is so powerful, you wonder whether it will completely destroy the digital camera market.”

Megapixels

Released Sept. 9, the 5-inch Z1 features a 20.7-megapixel camera, compared with the predecessor’s 13 megapixels, a “G” high-performance lens that was once proprietary to the camera unit, and a more powerful image processor. Sony’s latest Cyber-shot RX10, to be released next month at around 130,000 yen ($1,332), has a 20.2-megapixel image sensor. Samsung’s Galaxy S4 is equipped with a 13-megapixel chip, while Apple’s high-end iPhone 5s has an 8-megapixel sensor.

“They’re using the camera technology as a way to differentiate themselves from rivals,” said Junya Ayada, a Tokyo-based analyst at Daiwa Securities Group Inc., who recommends investors buy the shares. “Sony will also put other signature technologies in its smartphones.”

Fourth-Ranked

Sony’s smartphone sales rose 30 percent in the quarter through June to $3.65 billion. While that outpaced Cupertino, California-based Apple’s 9 percent gain, it fell short of top-ranked Samsung’s 55 percent jump in smartphone revenue and a 48 percent advance by LG Electronics Inc. (066570) Samsung now outsells Tokyo-based Sony more than 8-1, while Apple’s sales are almost five times those of fourth-ranked LG.

Sony aims to make a profit from mobile products this fiscal year after its consumer-electronics business racked up 130 billion yen in losses a year earlier. The company’s TV-manufacturing business has been unprofitable for the past nine straight years as it lost market share to South Korea’s Samsung and LG.

For the quarter ended Sept. 30, Sony may post net income of 17.2 billion yen, compared with a 15.5 billion-yen loss a year earlier, according to the average of four analyst estimates compiled by Bloomberg.

The company’s shares have almost doubled in Tokyo trading this year, helped by Japanese Prime Minister Shinzo Abe’s economic policies that have led to a weaker yen, boosting the repatriated value of Sony’s overseas earnings.

‘One Sony’

Sony projects a second straight full-year profit after cutting 16,400 jobs and selling assets including its 37-story Manhattan office building last year to end a streak of four straight annual losses.

Taking over from former CEO Howard Stringer in April of last year, Hirai pledged to unify the electronics maker’s sprawling businesses, ranging from consumer electronics to music, movies and financial services, under the slogan “One Sony.”

For the Xperia planning team, change under Hirai has been noticeable, Kurozumi said.

“I have staff who joined my team from the Walkman unit and a former Cyber-shot manager, too,” Kurozumi said. “There’s no longer any awkwardness in talking to people on other teams.”

‘Uncool’ Lid

Hirai also weighed in personally on the Z1’s design, Kurozumi said, telling the creative team to get rid of a headphone-jack lid because it was “uncool.” The CEO also advised against moving the location of the new model’s power switch because doing so might confuse users who upgraded from the Xperia Z, Kurozumi said.

“To me, these were clear and simple messages that the management intends to boost attention to what customers care about,” Kurozumi said.

Sony is also hoping for a boost from the PS4, its first new home-gaming console in seven years, which will be introduced in the U.S. and Europe next month. The machine’s price tag of $399 will help it outsell Microsoft Corp.’s Xbox One, which will cost $100 more, Framingham, Massachusetts-based researcher IDC said this month.

Even if Hirai succeeds in creating better products by breaking down barriers inside Sony, it may be 10 to 20 years too late, said Koki Shiraishi, an analyst at SMBC Nikko Securities Inc. in Tokyo, who rates the shares neutral, or hold.

Price, Not Specs

For televisions, price competitiveness has become more important than technological superiority, and smartphones are approaching the same stage, Shiraishi said. That gives the edge to companies with lower costs, such as Samsung and LG, he said.

“You can no longer attract consumers by promoting technological advancement,” Shiraishi said. “Sony is always a lap behind.”

Sony also hasn’t shown investors yet that “synergy” is happening between its hardware and software businesses, said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo, who rates the shares neutral plus, or hold.

Kurozumi said the changes happening at Sony are gradual, yet meaningful.

“We’re just taking elementary steps,” Kurozumi said. “Sony was long unable to do the basics.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Grace Huang in Tokyo at xhuang66@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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