Consumer-Goods Field Too Competitive, Chief Says : Sony Focuses on Business Products

Akio Morita, chairman of Sony Corp., describes Sony’s future with his familiar enthusiasm. But there is no mistaking that his outlook is tinged with caution.

It was only two years ago that the pioneering consumer-electronics company began recovering from a serious profit slump, and doubts remain about Sony’s ability to log sizable earnings gains through the rest of the 1980s.

But the white-haired Morita is confident that Sony’s strategy of relying less on consumer products, and more on business equipment, will provide the growth that the Japanese giant previously enjoyed from consumer products alone.

To be sure, Sony will remain a major player in consumer electronics, Morita told reporters at a recent luncheon here. Sony’s name, he said, is a powerful asset in an industry where brand awareness can still decide a sale.

Undercut by Rivals

But he acknowledged that “the consumer business is becoming very, very competitive,” and he complained that unlike a few years ago, most new consumer products now brought to market by Sony are usually matched by rival companies within a few months--often at lower prices.

Case in point: Sony’s Walkman, the stereo and-or cassette tape player that’s about the size of a cigarette pack and comes with lightweight earphones. Since the Walkman was initially welcomed in 1979 by huge demand, there are now dozens of similar players.

Such stiff competition not only tends to reduce Sony’s market share for each product, it repeatedly places downward pressure on prices, thereby reducing Sony’s profit margins in the process. In addition, some of the products within the consumer electronics business, save videotape recorders, are showing only modest annual growth.

As a result, Sony wants to turn much of its technological research toward the business marketplace, and to reduce its consumer operations--which now account for nearly 80% of its total sales--to about 50% by the end of the decade.

Sony’s approach likely will involve increased production of telecommunications products, data storage devices, professional broadcasting and the tiny integrated circuits and other electronic components used in various office-automation equipment, to name just a few areas.

“To continue growing and to secure our profits, it’s better for us to utilize our technology in components and industrial fields,” Morita said.

Earnings Skidded

Sony is anxious to erase the memory of its performance in the early 1980s. After profit hit a record high in its fiscal year ended Oct. 31, 1980, earnings tumbled in the following two years and its sales flattened.

The reversal shocked Sony, which has since conceded that the declines were caused in part by Sony’s own failure to recognize in time that the worldwide recession was resulting in surging inventories.

Regardless, the setback triggered a corporate austerity plan and reinforced Sony’s decision to aggressively pursue non-consumer markets. Sony, in an effort to quickly boost its sales, also dropped its tendency of selling only finished goods that carried the Sony name, and is now selling components for use in other companies’ machines.

Those actions, together with the U.S. economic rebound and subsequent consumer demand for electronics equipment, helped Sony bounce back in the year ended Oct. 31, 1984.

Profits Rebounded

Profit for that fiscal year jumped 140% from the previous year to 71.4 billion Japanese yen ($291.6 million at the exchange rate then of 245 yen to the dollar) and sales rose 14% to 1.26 trillion yen ($5.15 billion). The dollar currently is worth about 253 yen.

The rebound in earnings has given Sony breathing space to correct what it sees as its excessive reliance on consumer goods. But even in the consumer sector, Sony has high hopes.

Sony already has joined with a host of other Japanese companies in introducing a one-piece, camera-recorder that uses 8-millimeter videotape, which is roughly half the size of the standard tape currently used in most videocassette recorders.

Moreover, the companies have agreed on a standard for 8mm tapes and equipment in a bid to avoid the confusion experienced among consumers when two different videocassette recorder formats--VHS and Beta--were developed.

What evolved from the confusion was disaster for Sony, which developed Beta. Most other manufacturers adopted the VHS format, which now commands an estimated 80% of worldwide recorder sales.

And over the next few years, Sony is interested in providing consumers with advanced communications products, where the telephone might be replaced with computer-like devices that respond to voice commands, Morita said.

In the meantime, Sony’s directive to spread further into non-consumer areas is having a beneficial side effect: It has spurred Sony’s consumer-products work force to try harder, Kenji Tamiya, president of Sony’s U.S. subsidiary, told the reporters.

Said Tamiya, “That competition inside is very healthy.”