Sony is back on top - mostly. The company reported an operating profit, its best in ten years, mostly from sales of digital products in Sony’s core electronics business. 1997 marked the previous high in sales of mostly cathode-ray tube TVs and MD players in its (analog) electrical and electronic appliances business.

Steve Sechrist
Senior Analyst and Editor

In its heyday, Sony rose to cult status in the US riding one hit electronics product after another, such as the Trinitron Color TVs (1968), the first Walkman (1979), and the graphics display monitor GDM (1983?). But its stumbling badly after its success in the CRT TV business, by completely missing the transition to digital and the move to thin-flat TVs.

With this news, Sony appears to have successfully transitioned from analog to digital products that are now driving the Sony recovery, and a 10-year operating profit high. But the company is not totally out of the woods yet. In fiscal-07 the LCD-TV business still suffered losses of 73B yen, or $700M. To get the TV business into the black, the company needs to sell 17M LCD-TV units in 2008 and continue with its cost cutting measures, according to Sony’s chief financial officer Nobuyuki Oneda.

How did the TV business get this bad for Sony? Back in 2001 when things first started going sour, the company suffered a third-quarter net loss of 13.2B yen ($126M) with a dire forecast in the wings as the company had already missed the transition to LCD-TV manufacturing.

About two years prior, while Sony was still reaping benefits from its Trinitron CRT-TV business, then president of Sharp, Katsuhiko Machida announced his commitment to invest heavily in LCD technology by moving all TV production to LCD by "the early 21st. century." The investment and timing couldn’t have been better as Sharp caught the HD - DTV transition wave just as new high volume fabs were coming on-line.

Meanwhile Sony continued to hemorrhage and by 2004 the parent company lost money for the first time in 10 years. In a drastic move, the board hired an outsider, Sir Howard Stringer, the first non-Japanese to run the company. He was seen as one who could cut through the bloated bureaucracy and even affect the taboo job cuts from an employee base rooted in a culture of jobs-for-life. And cut he did, to the tune of over 10,000 jobs and closing eleven of 65 unneeded factories.

In recognition of its missteps in TV manufacturing, the company stunned many Japanese by going to Korean LCD panel maker Samsung for an LCD panel partnership that flourished into the joint venture S-LCD, launching the now famous Bravia Brand TVs. Sony’s courting of its Korean rival was a brilliant stroke on several levels. It would have been far easier - both economically and culturally - for Sony to look to the Taiwanese, and with Sony’s revenues towering over that of the Taiwan tigers, the Japanese company could have leveraged a sweet deal with any one of these manufacturers.

But in making its choice of partner, Sony seemingly focused, and rightly, on the better technology. Samsung had been pouring billions of dollars into LCD R&D and manufacturing and had the best shot at toe-to-toe competition with Sharp - a rival with a two-year head start and its Gen6 "Kameyama 1 fab", a (1500×1800mm) production facility with monthly capacity of 45K substrates optimized for 32- and 37-inch displays.

By 2006, things began to look up for the company as Sony reported record third quarter profit and revenue numbers, and booked its highest-ever quarterly net profit and second-largest-ever operating profit ($1.5B and $1.8B) on revenues of $64.3B that year.

Now with the format wars behind it and Sony’s Blu-ray the heir apparent in fixed media distribution, and the Bravia brand consistently claiming the number one or two spot in worldwide LCD-TV sales, Sony’s May-14th earnings report showed company broke a ten year record in operating profit in fiscal 2007 with a whopping 356B yen. That translates into $3.4B for the company, mostly on in sales (175B yen) of digital products in Sony’s core electronics business that includes LCD-TVs.

So Sony is back in the money, setting the pace for the next new trend in consumer electronics. And there is much reason to believe Sony will again claim the king of TVs, as it has a legacy few can match. With a forty-year track record and 280M Trinitron tubes sold (including PC monitors) from 1968 until just this year when the last Sony CRT factory closed its doors, the brand is synonymous with the best quality displays and will probably remain so for a long time to come.