Companies / 25 February 2015, 11:42am / Pavel Alpeyev and Takashi Amano
Tokyo - Sony will put more businesses into separate structures, including its lucrative devices unit, as Chief Executive Officer Kazuo Hirai tries to boost accountability in his turnaround push.
Chips and batteries will probably follow audio and video into new structures, Hirai said on Wednesday in Tokyo. TV manufacturing, which Sony split into a new business last year to boost autonomy and end losses, needs to be profitable to stay part of the company, he said.
Hirai is targeting Sony’s highest earnings in 20 years with an emphasis on games, image sensors and entertainment to underpin a turnaround. That strategy is being bolstered by a restructuring push under Chief Financial Officer Kenichiro Yoshida as the company focuses on transparency for business units and profitability instead of volume growth.
“Splitting off units doesn’t mean selling them or withdrawing from a business,” Hirai said. “The goal is to increase the independence of each unit.”
The company’s previous forecast for 400 billion yen ($3.4 billion) of operating profit in the 12 months starting April is still possible, Hirai said. Earnings are expected to be 384 billion yen next fiscal year, according to the average of 20 analyst estimates compiled by Bloomberg.
“Not only is it possible, we stick with our 500 billion yen profit target next fiscal year,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. “Their mid-term plans look very modest.”
Sony said last week earnings would reach 500 billion yen in the year ending March 2018. That’s the highest since 520 billion yen in 1998, according to data compiled by Bloomberg, and about 25 times the 20 billion yen Sony is projecting for this year.
Shares of Sony rose 0.1 percent to 3,280 yen in Tokyo on Wednesday. The stock has surged 86 percent in the past 12 months.
Yoshida’s restructuring efforts are restoring credibility at the company, which he estimates has lowered its earnings outlook 15 times in the past seven years. The CFO will add the role of executive deputy president from April.
Sony last week said return-on-equity would become its primary performance indicator. The company is targeting the measure of earnings compared with shareholder equity to exceed 10 percent for fiscal 2017, a return it hasn’t achieved since posting 10.8 percent in the 12 months ended March 2008, according to data compiled by Bloomberg.
“Each division now has a clear place, whether it’s growth, stable profit or risk control,” Koji Kamichika, an analyst at SMBC Nikko Securities Inc. in Tokyo, said before the announcement. “The emphasis on ROE is also a positive because it shows a shift to a point of view of investors.”
The devices unit supplies the image sensors that power cameras built into its Xperia smartphones and Apple Inc.’s iPhones. Hirai is boosting investment in the chip unit to build more modules for phones, tablet computers and automobiles.
Sony expects sales from the business that makes sensors, camera modules and memory storage will rise to as much as 1.5 trillion yen in the year ending March 2018. The business is expected to have an operating margin of 10 percent to 12 percent.
The sensors help record images in low light or with strong backlight, boosting the quality of pictures from smartphone and car cameras, such as those used when backing.
The business could be split into multiple units, Hirai said.
“Another reason to split off is that it helps foster managerial talent,” Hirai said. “We want our heads of businesses to feel like entrepreneurs as opposed to middle management inside a huge organisation.”