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The main lobby of the headquarters of Sony Corp. in Tokyo.

Koji Sasahara/Koji Sasahara/Associated Press

From the FT's Lex blog

Everyone seems to have some advice for new Sony chief executive Kazuo Hirai. Consumers of a certain generation lament the demise of a company which once gave rise to a buzz around products like Apple does today. Sony's workers are also frustrated.

Under last boss Sir Howard Stringer they saw ¥550-billion spent on restructurings, half as much again as total net profits earned. This week Sony is expected to confirm another 10,000 job cuts.

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Hence the common view that if Sony has any chance of recovery it should cease retrenching and start investing in the future. But this argument confuses glorious products of old with glorious performance. Ask any long-suffering Japanese equity investor; Sony has been a terrible company for decades. Its return on equity in 1992 was 2.4 per cent and it has only managed an average of 1.3 per cent since, according to CapitalIQ data. The only reason ever to buy the stock was because it was a way to play a falling yen (and other Japanese electronics makers were even worse).

What is more, it is not true that Sony has neglected to reinvest in the business, nor is it fair to say there is no fat to cut. Last year, 5 per cent of revenue was spent on capital expenditure, compared with a two-decade average of 5.5 per cent. Sony's sales, general and administrative costs as a proportion of sales are also in line with history. Certainly the mood may be grey as employees send out CVs (using devices made by other companies), but Sony's loss of sparkle is not a financial phenomenon.

Thus Mr. Hirai's billion-yen task is to somehow give existing workers a boost while continuing to restructure the company. In the mid- to late-1990s, Sony generated more than one yen of revenue for every yen's worth of assets. That ratio has now halved. Mr. Hirai is right to be addressing the underperforming flab.

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