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Behind the refashioning of Sony

Sony Electronics President Fujio Nishida on his plan to remake one of the most recognizable consumer-electronics brand names into a broadband networking company.


Behind the refashioning of Sony
By Richard Shim
Special to CNET
July 17, 2001, 2:15 p.m. PT

Fujio Nishida has the unenviable task of trying to remake one of the most recognizable consumer-electronics brand names into a broadband networking company. And he has to do it while core businesses are hurting and broadband adoption is going slower than expected.

The 52-year-old Nishida is president and chief operating officer of Sony Electronics, which last year was the leading financial contributor to Sony Corp., with 31 percent of global electronics sales.

With product hits such as Sony's Trinitron Wega TVs, DVD players, digital cameras and Vaio notebooks, Sony Electronics had fiscal 2000 revenue of nearly $14 billion, up about 15 percent from fiscal 1999. However, prospects for this year are not nearly as rosy.

The sluggish economy and slowdown in tech spending have hit Sony Electronics hard. Sales from nearly every product category are down from last year, and relief from the second half of the year--and the ever-important holiday season--appears less likely than was anticipated. But Nishida, who has worked at Sony for 28 years, is locked to the big picture.

While committed to maintaining profitability for the year, Nishida also has his eyes set on offering hardware, software, content and services that can be used with broadband access to create an always-on, ubiquitous network tailored to each person's entertainment needs. He chatted about his plans in a recent interview.

Q: What's the overall strategy at Sony Electronics?
A: Two years ago, Sony started talking about a business strategy that revolved around networking. We wanted to transform the company into a personal broadband network solutions company by focusing on four different areas. First, building gateway products, including Vaio PCs, mobile devices such as handhelds, (PlayStation 2) and digital TVs. Second, developing unique content, such as movies, music and games, for those gateway products by capitalizing on our entertainment assets. Third, differentiating from the competition with new services and applications, such as wireless connectivity and online imaging. And creating new digital lifestyles for Sony's dream community, which means developing a total Sony information and entertainment community for users.

Today we are delivering on that strategy by developing products and services consistent with our plans. Of course, the rate of broadband deployment will determine how much we push our products to be broadband enabled.

So how has the slower-than-expected adoption of broadband affected your plans?
What we're seeing is that by 2005, maybe 30 percent of the population will be connected to broadband, either through a cable modem or DSL. It's been hard because orders have been canceled or reduced, and while our consumer business has steadily grown, it hasn't been enough to offset IT and telecommunications. That's lower than we expected, but we will take advantage of Internet opportunities as appropriate. We're constantly balancing potential with reality. It's a real chicken-and-egg thing. People may start using broadband gateway products, but the services may be limited because of the slow penetration of broadband. When broadband is more broadly deployed or for those that have it now, then they will start to see the value of a gateway product.

What would be an example of that? The eVilla? Internet appliances haven't been very popular. Look at the likes of Netpliance, 3Com's Audrey and Gateway.
Our project is different. We are not making the eVilla to be a stripped-down version of the PC. It's much easier, like a TV, just plug and play. So it's easier for the non-PC users who are our target customers. And of course, the uniquely configured monitor is definitely helping those customers understand that this is an easy way to view Web pages.

There's also the Ethernet connection, which leaves the door open for broadband capability. We're not expecting a big splash or quick penetration, but I think the customers are there, and we just need to try to develop that business.

Despite some of the early controversy around eVilla, you plan on sticking with it?

Do you see this as a product that will take some time to generate success?
Definitely. It's not a one-year story, and we're going to continue to offer products similar to the eVilla--products that provide specialized entertainment services.

There's been a lot of talk surrounding the slowdown in sales of PCs in the United States, however many analysts have said that they expect consumer-electronics devices to continue to grow. This seems to play right into your strategy or at least into your portfolio of products. Has the PC market slowdown hurt or helped your business more?
Mostly it hurts, and we've felt it on our component businesses, where we work with companies such as Sun Microsystems, HP and Compaq. It's been hard because orders have been canceled or reduced, and while our consumer business has steadily grown, it hasn't been enough to offset IT and telecommunications, which have been hard hit. So in those areas, we have some concern today.

What would you say are the promising product areas in the Sony Electronics portfolio?
Digital imaging is showing promise, from camcorders and digital cameras to home printers and in-store digital photo-finishing kiosks at major retail stores. Camcorders are a mature market, but we continue to see double-digit growth compared to the rest of the industry, which is actually declining. And after fast growth from digital cameras, almost doubling every year for the last couple years, it's slowing down partly in reaction to the economy. We're probably going to see growth more along the lines of 20 to 30 percent.

By 2005, maybe 30 percent of the population will be connected to broadband, either through a cable modem or DSL. The Vaio PC business is very constant and showing positive growth this year compared to last because of our differentiation strategy making Vaio PCs geared more towards entertainment instead of a business tool like our competitors. And the DVD market is still growing, close to 25 percent as compared to the 50 percent rate that we wanted for this year.

After disappointing results from the first-generation Clie handheld, we weren't deterred, and the reception of the second generation (Sony Clie PEG N710C) has been very positive. There were many firsts in the color Clie, including the built-in MP3 player and high-resolution color screen. Demand is actually more than we expected.

Is there any one type of product that you're really counting on in the second half of the year?
Not really one. We think digital cameras and camcorders will continue to contribute very well. So, too, will the Clie and the Vaio PCs, but not to the same degree. We are still expecting good things from the DVD business, which includes our big hitter from last year, the DVD Dream System. We're also hoping that TVs will recover in the second half with a big increase. Unlike the landmark growth we're experienced over the last couple years, today I don't have much optimism on the TV business.

What about five years down the road? What do you anticipate will be some of your more popular products?
Key products will be those that provide consumers with integrated, personalized, interactive experiences. And broadband will be an important part of them. Airboard is a good example. This is a new concept--enabling a new lifestyle with an electronic device. The Airboard changes the scope of enjoying either TV broadcast or Internet access through wireless technology.

We call it the "location-free TV" concept. You have a base station connected to cable and Internet access, and using wireless technology you can actually move around and watch content with the Airboard--an LCD-based pad. So you can enjoy all this entertainment and information anywhere you want. And if you have broadband access, the connection is always on, and because it's wirelessly enabled, it can be ubiquitous: everywhere, anywhere, anytime.

This year has been a very tumultuous year in the tech industry. What's your perspective on what will happen in the second half?
In order to get some indication of the rest of the year, we needed to see the results of the June-July forecasts. This is when major retailers plan purchases for the sales season, and the results were not very good. We have some pessimism and believe that for our overall businesses, there will be either low single-digit or flat growth.