Sony’s new CEO sets low bar for mid-term

Yoshida’s reputation as a stoic numbers guy demonstrated when he unveils mid-term targets for the 1st time as CEO

by BLOOMBERG

TOKYOSony Corp, once known for pushing the boundaries of technology, is starting to look a little bit boring under Kenichiro Yoshida.

The new CEO’s reputation as a stoic numbers guy was demonstrated yesterday when he unveiled mid-term targets for the first time as CEO, predicting conservative profit growth across most divisions over the next three years as the company focuses more on content and services.

The strategy announcement echoed results issued less than a month ago, when Yoshida gave an outlook for the current year that set a low bar and jolted investors. The shares fell 2% yesterday, the biggest decline since May 1, the day after the earnings report.

While the former CFO said the goal is to generate “high profitability” in electronics, entertainment and financial services, the biggest news of the day was Sony’s agreement to buy EMI Music Publishing’s music catalogue for about US$2 billion (RM8 billion).

“As a former finance executive, Yoshida isn’t the type to make unrealistic predictions, and this mid-term plan plays it safe,” said Hiroshi Kato, GM at Chibagin Asset Management.

Sony even predicted a decline in the game and networks business, forecasting operating profit of ¥130 billion to ¥170 billion (RM6.8 billion) by March 2021, compared to the current year’s outlook for ¥190 billion. Music profits will be ¥110 billion to ¥130 billion, up from ¥112 billion, while movies will bring in ¥58 billion to ¥68 billion, compared to ¥42 billion.

“I’m not putting much of my colour on this mid-term plan,” Yoshida said in a speech in Tokyo. “Our vision of moving people’s emotions is unchanged. Our message this time is to pursue that further.”

The measured outlook comes as Yoshida seeks to push Sony toward more-predictable and stable profit streams from gaming subscriptions, online content and intellectual property (IP) licensing. At the same time, he expects to sell fewer hardware products — televisions, digital cameras, smartphones and PlayStation consoles — as the rise of Chinese manufacturing has turned gadgets into a business with razor-thin profit margins.

“It’s quite disappointing,” David Dai, an analyst at Sanford C Bernstein & Co, said of the forecasts. “He’s really set a low bar, too low for investors.”

Sony is targeting operating cashflow of at least ¥2 trillion over the next three years. Capital investments will total ¥1 trillion, while the rest is earmarked for strategic investments, bolstering the balance sheet and shareholder returns, the company said. Yoshida said he made a deliberate choice not to set an overall operating profit target, which would have included Sony’s finance division.

“We didn’t want to be controlled by having to deliver that profit in three years time,” Yoshida said. “That’s why we’re focusing more on the cashflow. We will continue discussions with our shareholders and investors on whether we need to show the three-year operating profit going forward.”

The brightest spot was Sony’s semiconductors business, which supplies camera chips for the iPhone and other high-end smartphones. Annual operating profit for the division will be ¥160 billion to ¥200 billion, up from ¥100 billion, the company said.

Investors have applauded the transformation toward content and services that’s been under way since Kazuo Hirai took over as CEO in 2012, with the shares climbing more than fivefold amid a turnaround. Sony’s mid-term plans have become more conservative in recent years, due in |part to Yoshida being the CFO and Hirai’s right hand.— Bloomberg