Sony Fighting to Define its Future

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At some point things went wrong for Sony (NYSE: SNE). So wrong that Sony’s next few devices might end up making or breaking the company’s future success. It is clear Sony is paying attention, breaking its old habits to deliver a mobile line and an update to its Playstation line designed to impress. The question is, can either make a big enough impact to let Sony chart its own path?

There was a time when Sony was the inspiration of consumer electronics. It was Sony that inspired Apple (NASDAQ: AAPL) to embrace industrial design and work on delivering a product that not only worked well but also looked good while doing so. At some point Sony fell behind, its brand and market position slowly eroding as the markets it dominated became increasingly irrelevant. What went wrong? In hindsight it appears that the company’s structure is what hindered its ability to adapt with the times and maintain its leading position. Thanks to its company design, units were separated into fiefdoms that didn’t work well together and lacked the incentive to do so. Each product group had its own profit and loss line and protected it fiercely, effectively eliminating gains the company could have had from collaboration.

In the mobile space there was an additional issue, born from its partnership with Sweden’s Ericsson (NASDAQ: ERIC). The two companies worked together on mobile phones, but because of this Sony had little incentive to invest all its tech into the mobile space. Even if they were successful they’d have to give up hard earned intellectual property for just 50% of the profits. It’s likely Ericsson felt it was in a similar position, ultimately leading to the underperformance of the partnership. This is what spurred the company to pay $1.4 billion in 2012 to end its partnership with the Swedish company. The Xperia line, which includes a tablet and the Xperia Z smartphone, is the first to be developed by the company post-partnership.

Sony has put every bit of its considerable prowess into the line, and it shows. Sony assigned its top engineers across product groups to aspects of the line in hopes of building competitive devices. This is a huge change from Sony’s old approach and signals the importance of mobile.

Both devices are targeted toward the premium end of the market, sporting Google’s (NASDAQ: GOOG) Android OS. The choice of Google’s OS was an obvious one, as Android currently runs nearly 70% of smartphones. It makes sense for Sony to adopt the popular OS, particularly since it lacks the expertise and time to build its own.

The smartphone, the Xperia Z, boasts a 5-inch screen and a 13-megapixel camera. The tablet, the Xperia Tablet Z, has a 10.1-inch high def screen and an 8-megapixel camera. They both support 3G and LTE, have microSD slots, and remarkably, are water and dust-proof. Sony hopes that pulling out all the stops will help it capture some of the mobile market. As it stands, Apple and Samsung dominate the market and everyone else is stuck fighting over scraps.

Apple and Google aren’t just a concern in the mobile space; there has been some evidence that they’re cutting into other Sony lines. Two major ones are gaming and TVs, through the introduction of smart TV. As smart devices have become more available, so too have games designed for them, threatening the traditional gaming console. While app based gaming isn’t a full-fledged threat yet, as Google and Apple push into the living room with smart devices, another Sony stronghold is threatened. That is a major reason the next Playstation, the PS4, is so important.

The company recently confirmed the PS4, showing off its hardware and discussing its expected capabilities. Notably the company has opted to use lighting modified computer hardware, a major shift from its previous Playstation design. The PS3 had a custom chip that increased performance and cost. This time around the company is making use of a chip from Advanced Micro Devices (NYSE: AMD), which should be materially cheaper. Sony could have opted for AMD over its much larger competitor, Intel, so that it could exert additional pricing pressure. Even if Sony does exert pressure on AMD, the chip maker will likely come out ahead, particularly if the PS4 is a success. The AMD chipset in question also excels at low power consumption, which may point to Sony’s other plans for the device.

Microsoft has used its current generation gaming console to establish a base in the living room, in part due to non-gaming functions. A low power chipset may indicate Sony has similar aspirations. Sony isn’t the only one with a next generation console on the horizon; Microsoft is expected to reveal its own at a press conference in April.

Sony has suffered at the hands of competition and its own problematic business structure, but recent moves indicate the consumer electronics giant has finally woken up. The next few devices, particularly its mobile offerings offer real insight into the company’s future. If they perform well it indicates a brighter, more nimble future ahead.

TigerAnalyst has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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