Nobuyuki Idei Remarks
Chairman and CEO, Sony Corporation
"Sony Corporate Strategy 2002"
Financial Analysts Meeting
New York, NY -- May 9, 2002
Thank you all for joining us today for Sony's Fiscal Year 2002 Corporate Strategy Meeting. Last year we held this meeting first in Tokyo and then in New York, but this year we have reversed the order to achieve mainly two objectives.
First, we are here today to illustrate Sony's true value as a unique company that is comprised of three core sectors: Electronics, Game and Content. While our market capitalization currently stands lower than our total annual revenue, I hope that today's meeting will give you a reason to re-evaluate Sony's total value.
Secondly, we are here today to convey Sony's proactive strategy to meet the challenges of the broadband era.
Joining me here on stage today to elaborate on Sony's strategies are management representing Sony's Electronics, Game, and Content Sectors. Together our presentation will speak to how Sony aims to become a leading Global Media and Technology Company in the broadband era. So, let me begin my presentation with a review of Fiscal Year 2001.
With the burst of the IT bubble and the shock of the tragic event on September 11, Fiscal Year 2001 was a difficult year for Sony. For the first time in our history, we had to revise our financial forecast downward two times. However, as we announced on April 25, we are proud to have achieved results that surpassed our second revised forecast. Fiscal Year 2001 was also a year in which we made a number of significant accomplishments.
We completed Phase I of our group-wide restructuring efforts, which we began back in 1999, greatly improving our financial structure. By the end of March 2002, we have successfully reduced the number of manufacturing facilities from 70 down to 55. We achieved our target of reducing headcount down to 150,000 from 170,000, a year ahead of our initial schedule. And, as you will later hear from Howard Stringer (Chairman and CEO, Sony Corporation of America) and his team, rationalization programs in our music and pictures businesses have resulted in significant cost-reductions and improved operational efficiency.
We addressed and answered many questions and concerns you raised last year regarding our operations.
Aiwa. In February, we announced our intention to make Aiwa a wholly owned subsidiary of Sony. Aiwa is currently executing a drastic restructuring plan to achieve significant reductions in fixed cost.
Commoditization of our traditional consumer electronics products in light of growing competition from low-cost manufacturers in China. I have asked Kuni Ando (President and COO, Sony Corporation) to talk about Sony-Aiwa strategy.
Large investments made in semiconductors. I am sure Ken Kutaragi (President and CEO, Sony Computer Entertainment America) is happy to share with you how increase in sales of both PlayStation2 hardware and software is helping to recoup our investments. Semiconductors will continue to play a strategic role in differentiating all our electronics products including PlayStation from others.
Our cellular phone business. We formed a joint venture company called Sony Ericsson Mobile Communications, combining Ericsson's expertise in cellular technology and Sony's capabilities in design and marketing. This new company has already generated profits for its first quarter since it began its operations in October last year.
Next, with regards to our Entertainment/Content Business, we have been frequently questioned about the merit of Sony owning a U.S.-based entertainment business. As I will talk about in just a few moments, the Content Sector, including our music and pictures businesses, is one of the key elements in Sony's broadband strategy.
Last but not least, Fiscal Year 2001 was a year in which we achieved positive cash flow.
This accomplishment can be attributed to enhanced inventory control and wide acceptance of EVA as a management tool even by our music and pictures companies.
Now, let me change gears and talk about Sony's group-wide strategy for the broadband age. We believe that broadband and wireless Internet will reach critical mass by the year 2005. And by 2010, broadband and wireless will be the given environment allowing individuals and communities around the world to experience rich content and services from anywhere, anytime. The shift from narrowband to global, broadband and wireless Internet can either be an opportunity or a threat to a company, depending on how well it can adapt. Broadband Internet is not simply an extension of the current narrowband Internet.
For Sony this means that we make prudent investment in the development of a new business model for the broadband age, in addition to maintaining a steady cash flow from our current model based on AV/IT products and packaged media. It means that we must devise a new profit-making strategy involving broadband-ready products and global delivery of content and services in the realm of both B2C and Peer to Peer. And furthermore, it means that the collaboration between our technology and content businesses are most critical.
Sony is prepared to meet these challenges and come out a winner in the broadband age through a three-part strategy. We will strengthen and maximize the economic and brand value of our core sectors. Each of our core sectors has a unique mission to realize.
Electronics Sector. To develop attractive products for the home and mobile environment to become a number one Network Consumer Electronics Company.
Game Sector. To evolve the current game business and to develop a completely new broadband entertainment industry comparable to or bigger than the size of Hollywood.
Contents Sector. To become the premier producer and distributor of content in the broadband age.
As you will be hearing from Kuni Ando, Ken Kutaragi and Howard Stringer, each sector is in charge of devising their own strategy to accomplish their mission. What they will do in common is to identify what businesses are key in realizing their strategy and effectively deploy their resources accordingly. We believe that this process will result in strengthening the competitiveness and maximizing the overall economic and brand value of the respective sectors. Sony as a group must work together as a single entity to create an appealing broadband environment.
In order to effectively develop and provide the necessary technologies and platforms across our three sectors, we formed a new and independent sector called Network Application & Content Services (NACS) on April 1. Because it is important for NACS to have a smooth interface with all of our sectors, we have assigned Yuki Nozoe, as the President of this sector. Yuki has extensive knowledge of both our Electronics and Content businesses. Prior to becoming President of this sector, Yuki was Co-President of Sony Pictures Entertainment. With his leadership in promoting collaboration between the Electronics, Game and Content Sectors, I am confident that NACS can develop a new global infrastructure to distribute entertaining content and services in a secure fashion over the broadband wireless network.
Last but not least, Sony is actively seeking partners who will work together with us in creating an exciting broadband environment for individuals and communities around the globe.
Through our partnering efforts called Soft Alliances, our aim is to develop an open environment that is attractive and beneficial to all parties involved.
Already, we have formed Soft Alliances with companies such as AOL/TW, Apple, Bertelsmann, IBM, Nokia, RealNetworks, Sun, Vivendi Universal and Yahoo!. With Microsoft, our relationship is one of cyber competition and cyber collaboration. We have a friendly relationship with Microsoft especially in the realm of our personal computer. We will continue to seek Soft Alliance partners in all regions around the world who share our vision of the future.
Through the execution of the three-part strategy that I have just gone over, I am confident that Sony can become a leading Global Media and Technology Company in the broadband age and achieve further increases in our shareholder value. During the period between September 28, 2001, through April 18, 2002, Sony's share has risen 55.4%. This figure shows that we have outperformed the Electronics, Semiconductor, Entertainment and Game industry indexes. Sony's Electronics, Game and Content sectors are united by a common vision to enable individuals and communities to share their creations and dreams. By utilizing Sony's size and diversity as an asset and not a liability, we will continue to seek ways to enhance our shareholder value.
I would just like to say that this is an exciting time for Sony to be in New York. "Spider-Man," our latest release from Sony Pictures Entertainment has enjoyed the highest grossing debut in motion picture history. "Spider-Man" is a movie set in New York and it is about a character symbolizing mastery of the web. I hope the success of this movie at this time just prior to our corporate strategy meeting here in New York is a sign that Sony's Global Web Strategy will also be well accepted.
