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Culture

The fire next time

After taking over a wobbly Sony Electronics, president Hideki "Dick" Komiyama is girding his giant division for a battle to re-establish its primacy in consumer electronics.

Talk about being put in the line of fire.

In late March of 2003, Hideki "Dick" Komiyama took over as president and chief operating officer of United States-based Sony Electronics. A month later, its Tokyo-based parent company reported a loss of about $1 billion.

If that weren't enough, Gateway, Hewlett-Packard and Dell soon announced plans to enter the consumer electronics market, adding to the list of Sony's competitors, including long-term rivals LG Electronics and Samsung Electronics.

All this came as the electronics division, the largest contributor to revenue, was limping, due to softness in two of the stronger categories in its portfolio: cathode ray tube televisions and Vaio PCs.

We're not always looking for market share in this business, but the important thing is to keep it healthy and profitable.
Sony Electronics' management realized that the consumer electronics business was changing and that it would have to change quickly in order to protect its turf.

"Five or six years ago, it was a peaceful marketplace," Komiyama said. "Now, people from the outside are coming in like hunting tribes."

The division has since spun off a music download service and pushed further into new product categories, such as liquid crystal display televisions and DVD recorders.

There are signs that the changes are having an impact. Sony Electronics achieved double-digit growth in virtually every consumer product category leading up to the important holiday buying season. Komiyama recently discussed his expectations for the consumer electronics business and the shift at Sony with CNET News.com.

What are some of the product categories you think will be a hit with consumers in the coming year?
Flat panels will be big, especially as high-definition television begins to grow. The display business in general will be very significant to us. Secondly, DVD players with hard-disk recorders will be big, as will Blu-ray. Digital cameras will continue to evolve. Portable music players with Hi-MD features and hard-disk drives will be an interesting business opportunity. Home theater environments will also be an opportunity.

The life cycle of consumer electronics products is shorter than ever. Why is that happening?
Technology is changing and evolving more quickly than ever, and consumers are more demanding in terms of wanting devices that use new technologies and have the latest features. This means that we have no choice but to use new technologies to appeal to consumers. We're seeing this more and more, as consumer electronics companies are gradually shifting emphasis from audio and video technologies to information technology, and this is definitely the way we have to move in order to stay ahead.

How have the shortened life cycles affected product features?
If you look at the past two or three years, display technology has improved dramatically from plasma to liquid crystal display. Not only the quality but the size of the screens--they have just gotten bigger and better. These technologies are quickly changing our product configurations. Hard disks are another example. They're getting smaller and smaller, while capacities are getting bigger.

Was the (revenue) decline from last year due to the effects of a rising competitor in Samsung or just poor operations?
We were behind in some of the products that were demanded in the market. We have adjusted our competitiveness and tuned up our lineup for improved results in the market.

What about Samsung? Many see them as a competitor to Sony, but their major products are semiconductor products and not necessarily consumer electronics.
Samsung is a very basic device company in comparison to LG Electronics, which is more like a branded consumer electronics product company. Samsung's strengths are in the semiconductor market as well as cell phones and some devices. Samsung and Sony have cooperated with each other--such as in future generations of LCDs, where we have a joint venture--but I expect them to come further into the consumer electronics field, especially after the success of their cell phones.

The electronics division went through a difficult time last year, but at the Consumer Electronics Show, you said there's a strong recovery now underway. How much of that growth is simply because the bar was essentially lowered versus actual new growth?
This fiscal year, we have better positioned ourselves with an expanded display product lineup, with almost 17 new models, while also introducing a new technology, high-temperature polysilicon LCD, which is what our Grand Wega televisions are based on. Another area we are proud of is the DVD Camcorder, which we feel we have reinvented.

Consumer electronics companies are gradually shifting emphasis from audio and video technologies to information technology, and this is definitely the way we have to move in order to stay ahead.
It was available before, but after anticipating that it was going to be popular among all American consumers, we quickly adopted this technology and improved products to make them more user-friendly. Those devices went beyond our expectations.

We also reorganized Sony Electronics in the United States. Where we previously had six divisions, we now have three, and we have a more tightly knit group within Sony Electronics. So we've seen revenue increase. Margins are also improving, as is our cost structure, to yield outstanding results.

Contract manufacturers are playing a bigger role in the consumer electronics world these days, causing prices and margins to shrink faster than many expect. What are some of the advantages and disadvantages of contract manufacturing for Sony?
We expect to maintain our leadership position in terms of developing new technologies, products and markets through further innovations and investments. However, we should also expand our view to be more open to alliances or relationships with contract manufacturers so that we can fulfill some of the areas where we find it advantageous to work with them. Sony used to be more focused on developing its own products, which we will continue to do, but we will expand manufacturing so that we are able to retain our leading positions.

It is important that we identify new technology and that we shorten our lead time in engineering development, as well as our ability to adjust production and supply chain management. Focusing on these things will make us an effective player in this business environment.

Has the PC business picked up since last year?
Yes. We have seen very healthy growth for both desktops and notebooks. We're very pleased with our current situation. If you look at the past 10 years in the PC market, key players are disappearing, but still, new processors and features are coming, and the market continues to grow. So there is still an opportunity for us. PCs are also getting more diversified with entertainment features.

Is price a big issue?
Price remains an issue, but offering different features is important in this category. If you look for only market share in the low end, it could be a very dangerous. If you don't have products that stand out and sell through, you could end up with excess inventory, a key issue in the PC industry. Managing operations is very important here. We're not always looking for market share in this business, but the important thing is to keep it healthy and profitable. Looking for market share means going after the low end of the market, which makes it more difficult to make a profit.

Sony helped launch a new music service and said others are on the way. What will the criteria be in deciding what kinds of new services start and which are worth offering?
Each of the three businesses--Sony Music Entertainment, Sony Pictures Digital and Sony Electronics--is part of a group but is operated independently based on its own budget and profit expectations. First of all, it would have to make sense for each business, and an investment would have to make sense in both the short term and the long term. Based on these criteria, management would have to decide.