June 26, 2008 / 6:13 AM / 11 years ago

Sony targets networked electronics, LCD TV crown

TOKYO (Reuters) - Sony Corp (6758.T) said it would make a strong push into networked electronics and video delivery services and aim for the top spot in LCD TVs as the firm looks to make the most of its hardware and software assets for growth.

An employee dusts Sony Corp's Bravia flat panel LCD televisions at a Sofmap electric store in Tokyo May 14, 2008. REUTERS/Yuriko Nakao

The company, which sells PlayStation games and Vaio PCs, said it would aim to double revenues from fast-growing markets of Brazil, Russia, India and China (BRIC) to 2 trillion yen ($18.5 billion) and invest 1.8 trillion yen in key businesses and technologies as part of a three-year strategy to March 2011.

Under the leadership of Chief Executive Howard Stringer, Sony has been working hard in recent years to have its various business divisions, ranging from consumer electronics to games, movies and music, work closer to create synergy effects.

That campaign has led to Blu-ray’s victory over HD DVD as the next-generation DVD technology earlier this year after its videogame, electronics and film units all threw their weight behind the Sony-led format.

“As Blu-ray has indicated, when Sony is united, Sony is unbeatable,” Stringer told a news conference.

Sony wants to lift return on equity to 10 percent from an average of about 6 percent over the past three years, and reach the 5 percent operating profit margin that eluded it in a previous plan, coming in at 4.2 percent in the year ended March.

“We believe a 5 percent operating margin represents a baseline to continue to lead and innovate. This is what’s considered to be the minimum, acceptable level going forward,” said Stringer, the first non-Japanese top executive at Sony.

Sony’s current return on equity is very low compared with global rivals such as South Korea’s Samsung Electronics Co (005930.KS), which boasts 14 percent, and Philips Electronics NV (PHG.AS), which registers 23 percent, according to Reuters data.

“That target is a sign of Sony’s sense of crisis that it could really become a takeover target if it doesn’t lift its ROE to at least over 10 percent,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Sony trails Samsung in the LCD TV market, while locked in a three-way battle with Microsoft Corp (MSFT.O) and Nintendo Co Ltd 7974.OS in the global videogame industry.

NETWORKED WORLD

Sony aims to make each of its three key businesses of Vaio PCs, Blu-ray disc-related products, and microchips and electronic components a one-trillion-yen operation in three years.

Sony already has four businesses that exceed the one-trillion yen mark — TVs, games, mobile phones and digital imaging, which includes digital cameras and camcorders.

As part of its big push into networked electronics and video delivery, the Tokyo-based company will launch a movie and TV episode distribution service on its PlayStation Network starting this summer, playing a catch-up with Apple Inc (AAPL.O).

The company plans to broaden the online video distribution service to other key products, potentially including Bravia flat TVs, by March 2011, and make 90 percent of its electronics product categories network-enabled and wireless-capable.

Apple and its iPod dominate the portable music player market, which Sony created nearly three decades ago with its Walkman. The Japanese electronics maker also has been struggling in Apple’s shadow in music and video distribution service.

Of the planned 1.8 trillion yen it aims to invest over the next three years, about half would go to its component and semiconductor operations — which span image sensors, batteries, display devices and Blu-ray disc-related parts.

Sony said it would aim to bring its TV business back to profitability this year by cutting production costs, and shoot for the number one position in the LCD TV market in three years.

The company said in February it would take a one-third stake in Sharp Corp’s (6753.T) 380-billion-yen LCD panel plant set for completion by March 2010, securing a new, major panel supply source on top of its LCD venture with Samsung.

The flat TV and video game operations were Sony’s two major earnings drags last year, eating into profits earned by its cash cow Cyber-shot digital camera and Handycam camcorder businesses. Sony also aims to turn its game business profitable this year.

Ahead of Thursday’s announcement, shares in Sony closed up 2.9 percent at 5,060 yen, against a 0.1 percent fall on the benchmark Nikkei average.

Additional reporting by Mayumi Negishi and Nathan Layne; Editing by Louise Ireland/Ian Jones

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