Sony’s Battles

The world of consumer electronics is set for an upheaval with the arrival of the computer companies. How will the likes of Sony respond to competition from the brigade led by Dell? NYTimes writes:

A few years ago, Sony would have sniffed at a low-cost computer maker like Dell producing flat-panel television monitors or a cellphone manufacturer like Nokia making hand-held video games. Not anymore. Sony executives know that these newcomers to the home-entertainment business can produce what they say they will, and do it for less than any company in Japan. Apple Computer’s success with iPod, the digital music recorder, is also a reminder that Sony no longer has a monopoly on tech cool.

Sony, of course, has been under attack before, and often has rebounded in ways that few analysts had expected. Rarely, though, have so many competitors joined the home-entertainment market at once. Thanks to the commodification of the electronics industry, companies can buy components easily from suppliers in Taiwan, South Korea, China and even Japan. Having honed their cost-cutting skills, these companies can often produce products faster and more profitably than Sony can.

Having been upstaged by Apple, Samsung and others in certain product categories, Sony is taking action. Mr. Ando is one-half of a two-man team heading the company’s ambitious, multipronged strategy, called Transformation 60. It is an effort to bolster profits, revamp the company’s product lineup and repair what many critics see as a damaged reputation. To be completed by Sony’s 60th anniversary, in 2006, the plan includes eliminating 20,000 jobs, cutting billions of dollars in expenses and quadrupling operating margins, to 10 percent.

The other major pillar of the plan is to design a new generation of products that will allow Sony to fend off challenges from Hewlett-Packard, Intel and others that are trying to put personal computers, not the television, at the center of home entertainment. Ken Kutaragi, whose is best known for creating the PlayStation video game console, is spearheading the development of these products.

To vault past the competition, Sony is joining hands with outsiders in some product areas. The company will spend $2 billion to produce next-generation liquid crystal displays with the Samsung Corporation of South Korea. Sony is also working with the Toshiba Corporation and I.B.M. to develop CELL, a high-powered chip that will become the centerpiece of an array of new digital gadgets. Last week, Sony said it would spend 120 billion yen ($1.14 billion) this year alone on building these chips. In other areas, most notably video games, Sony will try to blend its electronics and content businesses to produce the long-sought-after “digital convergence,” the integration of software and hardware.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.