From household name to no name, Sony charts a comeback

TOKYO — Since late last year, tens of millions of consumers worldwide have purchased small, high-tech and highly profitable cameras made by Sony Corp. — probably without even knowing it.

The cameras, sophisticated image sensors, are tucked inside every new Apple iPhone 6 and 6 Plus, and in some models made by Samsung.

The sensors have boosted sales and profits in Sony's important Devices unit and are a centerpiece of a new strategy that the long-suffering electronics giant hopes will return it to financial health.

Sony was once known for creating iconic products such as Trinitron TVs and Walkman portable audio players that dominated their market category. Now, it no longer insists on stamping its name on every product, fighting for market share or maintaining popular but money-losing products. The priority now is profitability.

This represents a major cultural shift at Sony, according to a senior executive who agreed to discuss company strategy on the condition that his name be withheld. He and other company executives declined to talk about the company on the record.

In the past, when faced with heavy competition, Sony would lower prices to maintain market share, even at the expense of profit margins. Now its chief focus is to boost the bottom line, even if that means retrenching in some markets, the executive said.

Toward that end, Sony sold off its Vaio personal computer business last year and split off its TV division into a wholly owned subsidiary. It laid off more than a third of the staff at corporate headquarters in Tokyo and trimmed its worldwide sales staff by 20%.

The moves followed years of losses in Sony's core electronics businesses that prompted Moody's to downgrade the company's credit rating to junk status in January 2014.

So far, investors approve of the new direction. Sony shares on the New York Stock Exchange have nearly doubled the past year and jumped 10% since officials announced a three-year restructuring plan in February. Investors in Japan are even more bullish. Shares on the Tokyo Stock Exchange have more than doubled from a year earlier and are 20% higher than before the re-structuring announcement.

Some analysts caution that it is too early to declare victory. "Sony did not have a good strategy in the past and may not even now. Its financial performance improved recently due to the weak yen, but not due to restructuring," said Sea-Jin Chang, a business professor at the National University of Singapore and author of Sony vs. Samsung.

In the fiscal year that ended in March 2015, Sony's overall sales grew by 5.8% to $68.5 billion. Nonetheless, the company lost $1.05 billion for the year.

"Sony, in my view, is on a multi-year turnaround," said Atul Goyal, an analyst at Jefferies in Singapore.

This is not Sony's first attempt to stop the bleeding. A three-year restructuring plan announced in 2012 missed all three of its primary sales and financial targets — a failure that Sony CEO Kazuo Hirai blamed on "insufficient understanding of the competitive landscape."

"Our previous business plan was one that was overly reliant on solving our problems through increased scale in each of our business segments," Hirai said in introducing the new three-year plan in February.

Although Sony made its reputation on groundbreaking consumer electronic products like the Walkman and PlayStation video game consoles, the company in recent years has relied on its entertainment and lesser-known financial services division for much of its profits.

For example, Sony's insurance and banking division — yes, it has one — produced $1.61 billion in operating profits last year. Its music and motion picture divisions earned a combined $979 million, even counting $41 million that Sony had to spend dealing with a cyber-attack in November 2014.

A group claiming responsibility for the attack had demanded cancellation of the Sony-produced film The Interview, a comedy about a plot to assassinate North Korea's leader Kim Jong-un. Sony pulled the film from general release but has vowed to look for ways to make it available to a wide audience.

Sony's once high-flying TV, audio and video unit earned just $167 million. Its mobile communications division lost a breathtaking $1.84 billion, including a write-off of $1.47 billion that reflected how much value the company has lost in recent years.

The new plan puts much of Sony's hopes for overall sales and profit growth in its imaging sensors business. And in a major break from the past, those sensors are no longer limited to Sony-branded products.

Sales to external customers, like Apple, rose to a near-record $7.98 billion last year and operating profits in the Devices division reached a record $776 million. Profits are forecast to grow to $1.01 billion next year.

Sony recently formed a joint venture with Olympus to produce endoscopes and other medical equipment that use advanced image sensors as well. The company says its cutting-edge technology is two years ahead of its nearest competitors.

To keep up with demand, Sony plans to spend $1.75 billion to expand capacity this year.

The new strategy doesn't mean that Sony is giving up altogether on its past reputation for developing unique, outside-the-box consumer products. At Sony's showroom in the tony Ginza district of Tokyo, a display showcases an LED light bulb that doubles as a high-end audio speaker.

The light bulb is stamped with the Sony logo. For now.