Not so smart

Sony backtracks on China smartphone strategy

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The year 1978 was a key one for China – marking the beginning of its reform process and the country’s reintegration into the global economy – it also holds a significant place in the corporate history of the Japanese electronics firm Sony.

It began with its co-founder Ibuka Masaru telling his engineers that he wanted to listen to opera during his frequent flights to America. So Sony’s audio specialist Kihara Nobutoshi came up with a portable cassette player called the Walkman. It was a huge hit – the iPod of its generation – and proved the must-have gadget for the young and the trendy. It was also the first tech product to focus on a consumer theme that is hot today: mobility.

Fast forward three decades and Sony was in very different shape, trailing Apple as an innovator by some distance. In 2005 it tried to regain the initiative with a mobile phone that carried the Walkman brand. Combining a digital music player with a cellphone, it preceded the iPhone by two years. But it wasn’t a smartphone – no touch screen, no apps – and ultimately it failed to inspire consumers.

In the years that followed, Sony’s phone division has struggled to stay relevant in the face of an onslaught from Apple and Samsung.

Then almost a year ago WiC reported on Sony’s latest turnaround strategy: a bold gambit to expand in China by producing handsets specifically for the world’s fastest growing smartphone market.

In WiC217 we noted how Sony had released the Xperia Z Ultra model, which was compatible with China Mobile’s new TD-LTE network. Nikkei Business Daily said that Sony’s device would be one of the launch handsets when China Mobile finally got its 4G licence (a milestone passed last December). This, Sony hoped, would substantially improve its 0.5% share of China’s smartphone market.

Personnel changes also indicated that Sony was serious about getting China right this time round, with Nikkei noting that Huang Guoqiang, former chief of Nokia’s sales in China, had joined as head of its mobile business. Huang joined Nokia in 2000 and was instrumental in devising the Finnish company’s marketing strategy at a time when it became the industry leader.

“Huang knows the game better than almost anyone else,” an industry executive told Nikkei.

But 12 months later Sony’s increasingly stop-start mindset has reappeared once again, with its Chinese expansion plans culled. Announcing losses in the latest quarter and writing down the value of its mobile unit by $1.65 billion, company CFO Yoshida Kenichiro told analysts that its smartphone strategy wasn’t working and there would be widespread job losses, particularly in China. “We are at a phase where we need to rebuild our shaky earnings. We are planning a significant reduction in China,” he said.

Southern Metropolis Daily has subsequently confirmed that the Japanese firm won’t be making a total withdrawal from China, where Sony has a factory making handsets. However, it will stop producing smartphones tailormade for Chinese consumers. Most of the redundancies will come at its Beijing offices, with a local employee telling the newspaper that R&D jobs would be “hardest hit by lay-offs”.

The floundering division has not made the gains it hoped following China’s 4G launch. Instead it has been caught in commercial no-mans land. At the premium end of the market Apple has reaped new profits after launching an iPhone compatible with China Mobile’s fourth generation network. Meanwhile a new market leader has emerged in the guise of domestic firm Xiaomi – which is offering phones that marry cool design and great value for money. The Financial Times describes Sony’s handsets as being “pummelled” by Xiaomi, as well as other Chinese rivals like Huawei, whose handsets match Sony’s for functionality but at lower prices. Indeed, in the third quarter Sony dropped out of the top 10 list of Chinese smartphone makers by shipments, according to research firm Canalys.

In another humbling statistic for the Japanese giant, Bloomberg reports that Xiaomi – which sold its first product in 2011 – is in talks for a new fundraising round that values the smartphone maker at between $40 billion and $50 billion.

Sony’s current market capitalisation is closer to $21 billion, having declined an incredible $100 billion since 2000.

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