After years of heavy losses, Sony Inc. has returned to profitability and declared itself ready to take on Apple and Samsung. What can Taiwan's struggling brands, Acer and HTC, learn from Sony's revival?
The final chapter of the Lord of the Rings, when the king makes his return, may be playing out in the global high-tech sector.
Smartphone growth is expected to plateau in 2014, with both Apple and Samsung losing some of their luster, but Sony, the one-time king of electronic brands, seems to be mounting a comeback. The Japanese brand's smartphone shipments have doubled over the past two years and should total 42 million units during its current fiscal year (which ends in March), about twice as many as Taiwan's leading smartphone brand HTC.
At the 2014 Consumer Electronics Show in Las Vegas, Sony president and CEO Kazuo Hirai declared his ambition to claim the world's third highest share of the smartphone market within two years.
Probably nobody realizes more than Hirai that the key to victory on today's global smartphone battlefield has evolved from the ability to develop "unique" product differentiation to a company's ability to "integrate" an ecosystem.
"How can we compete with a 1,000 renminbi smartphone? We have to incorporate all of our group's best technology into our mobile phones and compete at the high end of the market," explains Jonathan Lin, general manager of Sony Mobile's Taiwan branch.
The idea of Sony even being in the conversation might have seemed unfathomable just 20 months ago in May 2012, when it reported a net loss of 456.7 billion yen for the fiscal year ending March 2012, its fourth consecutive annual loss.
"There is no respite in sight for them. Demand from Europe has been falling, and the yen continues to remain strong," Nitin Soni of Fitch Ratings told the BBC after Sony reported the loss.
Yet Sony was able to re-energize itself and return to profitability for the fiscal year ending March 2013. Its rebound has three important lessons for two struggling Taiwanese brands – PC vendor Acer Inc. and smartphone maker HTC Corp. – which are contemplating their own transformations to reverse mounting losses.
Lesson No. 1: Integration of 'One Sony'
Sony's rebirth began in April 2012, when Hirai took over as Sony's CEO and president and sounded the clarion call to fight back.
Why Hirai? According to industry insiders, Hirai, who headed Sony Computer Entertainment Inc. during the Sony Ericsson era, has a reputation for keeping an eye on the big picture of overall company benefit. He integrated PlayStation Portable functions into a handset in creating the Xperia Play, introducing a sliding game control panel and later adding more than 10 new games to the package.
"The handset will definitely eat into his PlayStation sales. But he's willing to overcome interdepartmental rivalries to create group-wide synergies," says Hung Yi-feng, vice president of Arima Communications, one of Sony's handset assemblers.
In fact, the predicaments faced by HTC and Acer today are not as serious as that faced by Sony two years ago.
When Hirai took charge, Sony had suffered four consecutive years of losses and was facing the equivalent of NT$100 billion in long-term debt with a maturity of less than a year and a net working capital deficit of about NT$250 billion.
At the heart of the gloom was Sony's television business, which was bleeding money because of its inability to compete with Chinese and Korean rivals. Sony's handset business was unable to fill the gap, beleaguered by its image within the company as a "mixed breed" because of its partnership with Ericsson.
Sony's eight major business groups were structured as independent profit centers, in effect competing against one another. If one business group were to turn over its painstakingly developed technology to Sony Ericsson, the mobile phone unit had to pay a royalty. Not surprisingly, the specifications and launch dates of Sony Ericsson mobile phones perpetually lagged behind those of the company's rivals.
The groundwork for Sony's integration was laid under Hirai's predecessor, Howard Stringer. In late October 2011, Sony announced that it would buy out Ericsson's 50 percent stake in the Sony Ericsson venture for 1.05 billion euros (about NT$44 billion) (a deal fully completed in February 2012), that would pave the way for a more unified approach.
Hirai then unveiled his "One Sony" turnaround strategy when he formally assumed his post in April, articulating a "Mobile Centric" strategic vision in which smartphones were to become the "hub device."
He brought down the barriers erected between business groups and created a User Experience ("UX") & Product Strategy and Creative Platform to encourage greater horizontal integration. As part of the platform, the presidents of Sony's business groups meet once a month to discuss how they can leverage their observations of consumer behavior into "star" products. The contributions business groups made to other groups in the company were added to the criteria used in their performance evaluations.
"In the past, when we met with them, every division would say, 'We are Sony's most important division and the core of the digital household.' Now that's changed. It's all about the smartphone," says an executive with one of Sony's Taiwanese suppliers.
Sony's horizontal integration has already become apparent in the company's products. Hirai reassigned the team responsible for the Cyber-shot camera from the Digital Imaging Products division to the Mobile Products & Communications division, resulting in the coordinated launch in October 2013 of Sony's flagship Xperia Z1 smartphone and the new QX line of accessory lens cameras that can be mounted on it. The products' debut drew long lines of consumers, and they continue to be in short supply.
"This foreshadows the rebirth of Sony's R&D capabilities," opined Japanese online tech site Nikkei BP Tech-on.
Sony has not only integrated its once-fragmented business groups, but also accelerated the fusion of hardware and software.
One example: Sony Computer Entertainment acquired Gaikai Inc., one of the world's leading cloud-based gaming companies, for US$380 million in July 2012. By November 2013, the new generation of Sony's Remote Play developed by Gaikai enabled consumers to stream games from the PlayStation 4 to the PlayStation Vita, Sony's handheld game console, and cloud-gaming services are being introduced to stream games across PlayStation devices in 2014. Beginning this summer, consumers will be able to rent or play games across Sony's game consoles, smartphones and televisions.
It took Sony barely a year to turn the acquisition into tangible services. In contrast, when HTC was awash in cash in 2010 and 2011, it misfired on several investment targets, including U.S.-based cloud gaming provider OnLive Inc. OnLive decided to apply for "assets restructuring" in 2012, forcing HTC to write off its US$40 million investment.
Similarly, Acer bought Silicon Valley-based cloud computing services provider iGware in mid-2011, but few synergies have been developed with the company to this day.
Lesson No. 2: Importance of Unique Technologies
The "Build Your Own Cloud" slogan coined by Acer chairman Stan Shih to spearhead the company's revival represents a 10-year vision of Acer helping customers create personal clouds, but it will require a carefully integrated strategy. The challenge for Acer's new management team is whether it can eliminate departmentalism, as Sony did, to achieve the level of integration needed to pull off the vision.
Acer has been most harshly criticized for relinquishing its independent R&D capabilities, unlike Sony, which even at its nadir never abandoned its emphasis on technology.
The company, for example, invested nearly US$1 billion to develop and produce stacked CMOS image sensors that position the sensor's circuit layer below rather than above the photodiode that collects the image, resulting in the sensor being twice as sensitive as those used in conventional digital cameras. This new technology is now standard in Sony's smartphones.
"We plan to redefine smartphones starting from the camera lens," Sony Mobile Communications CEO and president Kunimasa Suzuki told Japanese media.
Possessing unique technologies has made it possible for Sony to clearly redefine a product category. HTC, which in the past relied on riding the waves of markets created by Apple, must also nurture its own technologies, patents and ecosystem if it hopes to revive its waning fortunes.
Sony's product design director Jun Katsunuma, who was with Sony through the Sony Ericsson venture and its aftermath, has as clear a picture as anyone of how the company has changed.
Lesson No. 3: Hardware No Longer the Smartphone Star
"In the past, we would change design languages once every six months. Last year, the 10 mobile phones we put on the market all used the same design – OmniBalance," Katsunuma says.
The OmniBalance design language's uniformity not only strengthened Sony's brand recognition but also reflected the company's burgeoning confidence.
"We looked at the mobile phone as an extension of a person. Mobile phone design should not be intrusive," Katsunuma says. "The idea behind the 'OmniBalance' design is that regardless of the viewing angle, the phone can reflect ambient lighting and have it blend seamlessly into the background."
Katsunuma strongly believes that the stars of a smartphone should be its image, games and music rather than the device itself, and the design language reflecting this clearly seeks to differentiate Sony handsets from Apple's strong brand personality and Samsung's aggressive pursuit of functions.
"Mobile phones should give consumers an experience and move them emotionally," Sony Taiwan's Lin says.
And Sony is not taking a back seat to Apple or Samsung in generating the content needed to engage consumers' emotions. With Sony Music Entertainment and Sony Pictures Entertainment under its corporate umbrella, Sony is the only company that can rival Apple's ecosystem.
In Europe, Sony smartphone users have unlimited access to 15 million songs in the Sony Music arsenal, second only to the 20 million tunes available on iTunes, and they can watch the latest films released by Sony Pictures, such as Elysium.
Sony has vowed to become the world's third biggest smartphone maker within two years, but regardless of whether this former king attains its ambitions, the company's reversal of fortunes has already demonstrated to Taiwan's high-tech sector the energy needed to rise up once again.
Translated from the Chinese by Luke Sabatier.