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Sony’s Top Executives May Resign (海归论坛 www.haiguinet.com)

March 6, 2005 3:39 p.m. (海归论坛 www.haiguinet.com)

TOKYO – Sony Corp.’s top executive, Nobuyuki Idei, is proposing to step down and name U.S. operations head Howard Stringer as his successor, according to a person familiar with the situation. (海归论坛 www.haiguinet.com)

The move, an unprecedented step that would put a foreigner at the helm of a major Japanese corporation, will be discussed at an emergency board meeting Monday, the person said. (海归论坛 www.haiguinet.com)

Mr. Idei’s second-in-command, President Kunitake Ando, would also resign and be replaced by Executive Deputy President Ryoji Chubachi, the person said. (海归论坛 www.haiguinet.com)

The meeting comes amid rising internal frustration with Sony’s leaders and their ability to guide the company through a period of increasing turmoil and competition in the electronics industry. (海归论坛 www.haiguinet.com)

Although much of the criticism had been leveled at the performance of Mr. Idei, Sony insiders say Mr. Idei had also been searching for a way to shake up the company and instill a greater sense of urgency. (海归论坛 www.haiguinet.com)

Mr. Idei and his second-in-command, Sony group President Kunitake Ando, weren’t available for comment. (海归论坛 www.haiguinet.com)

The stresses on Sony’s executive suite increased sharply in April 2003, when the company slashed its profit outlook and said it had serious problems in its core electronics business, which sent its shares into a tailspin. (海归论坛 www.haiguinet.com)

In the months following the so-called Sony Shock, Mr. Idei came up with an ambitious turnaround plan that called for a drastic restructuring, creation of bold, new products and operating-profit margins of 10% by March 2007. He put Ken Kutaragi, creator of Sony’s PlayStation videogame business, in charge of home electronics. Then Mr. Idei announced a change in strategy that called for heavy investment in semiconductors and other key devices used in its products, and oversaw an overhaul of business units and personnel that resulted in thousands of Japanese staffers opting for early retirement. (海归论坛 www.haiguinet.com)

Yet after two years, Sony’s electronics profits are weak and the organizational shuffles and personnel cuts have pummeled morale without much improvement in performance. Sony’s flagship Walkman music player is losing ground to Apple Computer Inc.’s popular iPod, while profit has slipped at its television business amid intense price competition from a host of new rivals. (海归论坛 www.haiguinet.com)

Now, after a disappointing Christmas quarter, Sony expects an operating-profit margin of just 1.5% in the fiscal year ending March 31. That puts the company far from its targeted 10% in 2007, and well behind peers such as Samsung Electronics Co. and Matsushita Electric Industrial Co., which is expecting a margin of around 3.5%. (海归论坛 www.haiguinet.com)

And although most Sony managers agree that a key challenge is keeping profitability up in an industry where standardized parts mean almost anyone can build a flat-panel TV or a portable music player, there is sharp disagreement on the best way to do that. The Walkman group has suffered from a split between those who believe Sony should make its gadgets compatible with a wide range of popular services and technologies — like the MP3 music-encoding system — and those who push Sony’s proprietary technology — such as minidiscs and the Atrac music-encoding system. The TV group has been shaken by Mr. Kutaragi’s drive to replace programs and parts they had been using with software and microchips brought over from the videogame business. (海归论坛 www.haiguinet.com)

Amid that confusion, Sony managers say Mr. Idei and Mr. Ando haven’t been able to steer the feuding camps in one direction, or implement the visions they have for the company. In particular, many Sony engineers say privately that they are concerned about Mr. Idei’s ability to articulate his strategy for Sony, and they worry about his capacity to keep on top of key organizational changes. (海归论坛 www.haiguinet.com)

Mr. Idei has even started to redefine the way he describes Sony’s operating-profit-margin target. He told a Japanese business magazine in an interview published in mid-February that it was “nonsense” to think he had given a firm commitment to hit 10% by 2007, and that he had only meant Sony should build a corporate structure capable of reaching 10%. (海归论坛 www.haiguinet.com)

The article has circulated widely inside Sony, and some say it underscores their concerns about the company’s leadership. (海归论坛 www.haiguinet.com)

The man often cited as Sony’s strongest leader and visionary is Mr. Kutaragi, now an executive deputy president. Nevertheless, although the PlayStation unit is one of Sony’s most successful and profitable businesses, Mr. Kutaragi hasn’t yet had a big success outside of videogames. And one of his flagship consumer-electronics products — a hybrid DVD recorder and game console called the PSX — hasn’t sold well in the Japanese market. (海归论坛 www.haiguinet.com)

Although engineers admire Mr. Kutaragi’s bid to secure electronics earnings by creating a new, ultrapowerful processing chip, analysts warn that the strategy could be risky if the chip doesn’t take off. (海归论坛 www.haiguinet.com)

Mr. Kutaragi wasn’t available for comment. (海归论坛 www.haiguinet.com)