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File photo of incoming Sony CEO Kazuo Hirai. (Shizuo Kambayashi/Shizuo Kambayashi/AP)
File photo of incoming Sony CEO Kazuo Hirai. (Shizuo Kambayashi/Shizuo Kambayashi/AP)

Sony warns of $2.9-billion loss Add to ...

Ailing Japanese electronics giant Sony Corp. warned it was heading for a bigger-than-expected $2.9-billion annual loss, presenting a daunting task for incoming chief executive officer Kazuo Hirai, who vowed to move quickly to turn things around.

Overtaken by more innovative rivals such as Apple Inc. and Samsung Electronics over the past decade, Sony posted a disappointing $1.2-billion. operating loss for October-December, normally a lucrative quarter with the Christmas and year-end sales, as it battled a strong yen and flooding in Thailand that ruptured supplies and a weak economy.

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The company’s forecast for a ¥220-billion ($2.9-billion) loss for the year to March, its fourth straight year of red ink, was close to double what the market had expected, and revealed the task ahead for Mr. Hirai, who takes over as CEO in April.

“It won’t be easy for Sony to regain its lost ground under new leadership, as its overall competitiveness has sharply weakened,” said Kim Young-Chan, analyst at Shinhan Investment Corp in Seoul.

“It’s got structural problems that will take years to fix.

“It’s not just Sony, but Japanese IT firms have similar problems. They are failing to innovate and produce industry-leading products in almost every major area – from TVs to displays, tablets and smartphones.”

Sony kept its forecast for annual sales of 20 million LCD TVs, but trimmed the number of digital cameras and PlayStation 3 consoles it expected to sell.

For the next financial year, starting in April, Chief Financial Officer Masaru Kato said Sony aims to make an operating profit of about 200 billion yen, halving its TV losses and operating at a 5-per-cent margin. The TV business was forecast to lose ¥220-230 billion this year.

Mr. Hirai, a Sony veteran who revived the PlayStation gaming business, is being promoted to stop the rot in the troubled TV business and to rekindle the innovative spirit that made Sony a king of the global consumer electronics industry in the 1980s and into the 1990s.

Sony shares closed down 2.6 per cent ahead of the results on Thursday in a broader market that rose 0.8 per cent.

“Sony has few businesses that have value. In short, it has failed to change,” said Hisashi Kuroda, general manager of equity investment at Meiji Yasuda Asset Management in Tokyo.

“One silver lining is that governance is working and they realised the company was shrinking but not developing.”

There is unlikely to be a honeymoon period for Mr. Hirai, who is under immediate pressure to sort out the ailing TV business after it fell behind South Korean rivals such as Samsung in a market where prices are tumbling.

Above all, Mr. Hirai will strive to recapture the innovative flair that led Sony to come up with the Walkman personal music-player in the 1980s and the PlayStation in the 1990s, and regain ground lost since then to Apple and Samsung whose iPhones, iPads and Galaxy gadgets are snapped up by consumers.

Some analysts believe Mr. Hirai – 51, tall, urbane and a fluent English speaker – can rekindle the flame, saying he has a good grasp of the overall business and is likely to know how to break down its silos and integrate its divisions.

“He’s a convergence executive in a convergence world,” outgoing CEO Howard Stringer told reporters.

Others are less sure.

“The biggest issue is top management ... There needs to be a vision for the products, for innovation,” said a former Sony executive who felt that a new management mindset was needed.

He told Reuters he believed Sony would ultimately shut the TV business unless it came up with fresh ideas to revive it. “There is still a chance in home electronics, but I imagine the day may come when they will pull the plug on TVs,” he said.

Mr. Hirai sketched out his priorities in a statement late on Wednesday after his appointment was announced, saying Sony needed to drive growth in its core electronics businesses, such as digital imaging, games and mobile devices, turn around its TV business and accelerate innovation.

“There will be situations in which we will be required to choose, make a decision, or implement very painful issues that cannot be avoided for the future of Sony,” Mr. Hirai told reporters on Thursday.

“But we can’t take a step forward if we are afraid of this.”

Welsh-born Stringer, a former journalist who ran U.S. broadcaster CBS, was brought in as a rare foreign CEO in Japan to shake things up, but many analysts see his major achievement as cost-cutting.

Sony’s shares have lost nearly two-thirds of their value since Stringer, who turns 70 this month, took the helm as CEO and chairman in 2005.

Stringer sold off TV factories in Spain, Slovakia and Mexico and outsourced more than half of its production to other companies, including Hon Hai Precision Industry, the contract electronics maker whose key customer is Apple.

Recently, Sony exited an LCD panel joint venture with Samsung – writing off ¥63.4-billion in the third quarter – enabling it to obtain screens for its TVs more cheaply. It also agreed to buy out Ericsson’s half of their smartphone venture for $1.5-billion to shore up its position in a market where Apple and Samsung have become leaders.

Mr. Hirai was effectively anointed as Stringer’s successor last March when he was promoted to head Sony’s consumer products and services businesses, which produce the bulk of Sony’s $85-billion in annual sales.

“They’ve been grooming him for a while,” said Dan Ernst, Hudson Square analyst. “I think he will carry on the plan for Sony – as difficult as it is.”

That plan means turning around a business that many believe has lost its innovative edge.

A chief concept in the strategy hinges on merging Sony’s robust roster of entertainment properties – including singers Kelly Clarkson and Michael Jackson, and the Spider-Man and Men in Black film franchises – with its Vaio, Bravia and other electronics brands, in an effort to boost sales.

The last year has been brutal for many Japanese companies, hit by a strong yen that hurt exports, and two natural disasters – the March earthquake in Japan and record floods in Thailand.

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