How Sony Got Game?

Sunday, Nov. 19, 2006 By DAREN FONDA

The Sony Playstation 3

Sony Playstation 3

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Correction Appended: November 21, 2006
Burning batteries are two words that Sony CEO Sir Howard Stringer would never like to hear again. Before reports surfaced in August that Sony-made lithium-ion batteries had an occasional tendency to fry Apple, Dell and other laptops, the boss of the sprawling Japanese media conglomerate was having a great year. For four quarters, Sony had beaten financial expectations (though it wasn't always profitable). The firm was leaner, following more than 10,000 job cuts and the closure of nine factories. The consumer-electronics division was back in the black. And the movie studio was riding high, led by The Da Vinci Code. Meanwhile, investors had sent the stock up more than 8% through July. It was a nice vote of confidence for Stringer, Sony's first non-Japanese boss, who has probably acquired permanent jet lag traveling between Tokyo, New York City and his family home in London.

Yet after a massive voluntary recall of laptop batteries, Stringer turned opportunist, using the smoking cells as cover to clear out the vestiges of Sony's change-resistant culture. In Stringervision, the new Sony is led by software and linked horizontally across its vast product line. No more will the folks in the camera group not know what the TV-set guys are doing, he vows. He named a new boss of the consumer-electronics unit, Katsumi Ihara, to see to that. Software design is getting an overhaul too, so movies, MP3 players, TVs and cameras aren't strangers. The shining example is PlayStation 3, the fully loaded game machine that debuted in the North American market last week. "We've put a young guy in charge of the technology group to develop core software and media technologies, which we have not been good at," Stringer told TIME. Likewise, the components and semiconductor divisions have a new boss. And a global product-safety officer will make sure a battery fiasco doesn't recur. Out of this crisis, Stringer promised, "we're going to come out stronger and better organized."

Although not immediately more profitable. In mid-October Sony revised forecasts for its 2007 fiscal year, which ends in March, predicting a 38% decline in net income, to about $435 million. The losses are partly owing to charges for the battery recall and delays in launching the highly complex PS3. For fiscal 2008, Stringer is still predicting a profit margin of 5%, though he admits he's not sure how he'll achieve it. "But I am not altering the profit target."

The big question is whether the PS3 is the herald of Stringer's revitalized company, or a techno-turkey. The machine is off to a rocky start. Sony plans to ship just 2 million units this year, about half its initial projections. Customers queuing to buy one braved a shooting incident outside a store in Connecticut last week. And the lucky few who do snag one may be disappointed, since the PS3 can't play some older games without software upgrades that Sony is promising. (For a full review, go to TIME.com).