Email: Stock News Reports “Game Over for Sony”

Hey Sean,

 

Spotted this in some stock news: Sony doubles its annual loss forecast to US$6.4 billion.

 

Two telling statements in the report:

 

Japanese analysts were pessimistic regarding Sony’s recovery prospects. “Japan’s consumer electronics industry is facing defeat,” stated Fujio Ando, a senior managing director at Chibagin Asset Management. Others believe that Sony is too diversified, with 14 business segments spanning music, medical equipment, video games, televisions, portable electronics, semiconductors and computers – which weaken the company, like an over-diversified mutual fund, rather than strengthen it. Yuuki Sakurai, CEO of Fukoko Capital Management, remained pessimistic regarding the company’s valuation. “The market’s expectation about Sony is for the company to again become a creator of the Walkman,” Sakurai stated. “That’s a tough goal as the times have changed.” (emphasis mine)

 

I find it intriguing that they mentioned the Walkman, an example of disruptive innovation AND a noted Blue Ocean product which competed against transistors and bulky stereo components, and how people wanted them to start doing this again. The actual quote is from Sony’s announcement that they would take steps to “win back customers from Apple“.

 

And this:

 

Prior to his appointment to the top post, Hirai turned around Sony’s ailing Playstation segment, which had been drained from several consecutive quarters of negative video game sales. Hirai promised to take “painful steps” in order to return the company to profitability, and his reduction of 10,000 employees backs his promise. 5,000 employees would be laid off, while another 5,000 would come off the company’s payroll with the sale of its chemicals business and a small LCD fabricator. “We have heard a multitude of investor voices calling for change,” Hirai appealed to journalists. “Sony will change.”

 

If that doesn’t convince the hardcore, nothing will.

 

It’s definitely a huge red flag, and they indeed need to take “painful steps” to get back into shape.

Sony isn’t an example of Blue Ocean but is the posterboy for disruption. And instead of saying ‘game over for Sony’, it is more like ‘game over’ for all of Japan.

Why has Japan lost its innovative edge? What happened to the disruption? Christensen’s acolytes suspect Japan’s disruptive nature was only temporary which was triggered by the aftermath of World War 2. Whatever culture or ways Japan had were really shaken by World War 2.

Wars are destructive and bad. So why would a war’s aftermath spark innovation? I do not know.

However, in the United States, World War 2 completely transformed the southern states into economic powerhouses. Many of these states went from being poor farming communities nursing bitterness from ancestors of Reconstruction blues of the Civil War to becoming technological centers for the world.

If things like World War 2 did spur innovation, the question becomes why? I believe the question is beyond the disruption writers’ heads as their minds bend toward more economic matters. One thing wars do a very good job of is removing political machines. The Japanese political machine that ruled during World War 2 was totally removed. Innovation began to spark. But the problem with removing a political machine is that another one takes its place in time. And the current political machine over Japan today has spent that nation into debt second only to Zimbabwe. That could be the source of the troubles.

“But Malstrom, if the removal of a political machine sparked innovation, then why didn’t the Civil War spark innovation in the southern American states?” It is not well known but the political machines were not removed. It was only until after World War 2 when these political machines began to get stomped on by ‘bigger matters’ like winning a war that a process of change occurred. It still took decades to finally uproot and remove them. Some still exist today.