Sony Shake-Up Brings Clearer Picture - TheStreet

The upheaval in


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executive suite and boardroom could be a good thing for its stock.

The electronics giant said Monday that Sir Howard Stringer, chairman and CEO of its American division, will become chairman and CEO of the entire company as of June 22.

The promotion of Stringer, who will replace longtime CEO Nobuyuki Idei, is the most prominent move in a shake-up that involves the elevation of two other executives, the resignation of seven board members, the nominating of three director candidates, and the demotion of one prominent insider.

Analysts and investors reacted positively to the widespread changes. Noting Stringer's experience at heading Sony's efforts in the U.S. market, Goldman Sachs analyst Yuji Fujimori, for instance, said the move is a good one for the company.

"We consider his appointment positive from the standpoint of managing the business from the perspective of the United States, Sony's most important market," said Fujimori in a report Monday. (Sony has been an investment banking client of Goldman Sachs in the last year.)

Investors are likely to cheer the moves, given Stringer's background in directing the company's movie and music operations, said James McGlynn, portfolio manager of the Summit Everest Fund. Stringer's promotion to CEO and chairman should help highlight those business lines at Sony and encourage investors to give it a bigger valuation multiple, said McGlynn, whose fund is long Sony shares.

"Most investors who really like the stock care more about

the media operations anyway," he said. "This shows where the future growth should be for them," he said.

Indeed, the market reacted favorably to the report. In recent trading, Sony ADRs were up 80 cents, or 2.1%, to $39.34.

Despite long being one of the world's leading electronics firms, Sony has struggled in recent years amid increased competition. While the company ignited the portable music craze in the 1980s with its Walkman and Discman tape and CD players, its products have trailed far behind


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iPods in the digital music player market. Likewise, the company has

been plagued in recent quarters with falling sales of or declining prices on its video cameras, televisions and DVD recorders. And last fall, the company had trouble shipping enough of its PlayStation 2 game consoles to meet demand.

Due largely to these factors, the company in January

lowered its full-year outlook for operating income and revenue.

The company's stock has reflected its struggles. Sony ADRs are up just 1% this year after rising 13% last year. But since peaking in 2000, they are off more than 77%.

While many companies saw unsustainable highs during the dot-com boom, some of Sony's media and electronics competitors have since seen their stocks post stronger recoveries than Sony has. Over the same time period, for instance, Apple's shares are up 49%,


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shares are off just 14% and



stock is off 36%.

As part of the changes announced Monday, Idei is stepping down as Sony's chairman and CEO and resigning from the board. An employee of Sony since 1960, Idei has headed the company since 2000 and been a board member since 1989. After June 22, Idei will become the company's chief corporate adviser.

In addition to Stringer, Sony is promoting Ryoji Chubachi and Katsumi Ihara. Currently the head of Sony's Micro Systems division, Chubachi will become the head of Sony's semiconductor operations. Ihara, currently the company's CFO, will add to his duties by becoming the head of the company's home electronics division.

In addition to Idei, two other executives are losing out in the management shuffle: Ken Kutaragi, who headed up the company's PlayStation group and who currently serves as head of the company's semiconductor operations, is getting demoted. Kutaragi is losing his board seat and handing over the reins of the semiconductor division to Chubachi. He will remain in charge of the division that oversees the company's PlayStation operations.

The other ousted executive is current President Kunitake Ando, who will lose both his executive title and his board seat. Ando will serve as a corporate adviser after he hands over his current positions.

The company did not specifically comment on why it was demoting Kutaragi, who some had seen as a candidate for the top job at Sony.

"This is a pivotal year for Sony Corporation, and this new structure will enable the company to streamline its operation, and provide a more cohesive focus for operating its businesses around the world in a proactive and strategic manner," the company said in a statement.

Some analysts wondered what the shake-up might mean for the company's electronics operations and for its PlayStation division.

"The incoming executive team needs to formulate a new business plan and explain their underlying logic as soon as possible," said Hitoshi Kuriyama, an analyst with Merrill Lynch, in a note Monday. "The proposed changes in areas of executive responsibility suggest major strategic revisions for the semiconductor and home electronics businesses. The role of Kutaragi is unclear."

Sony has been an investment banking client of Merrill Lynch in the last year.

Still, on the whole, investors and analysts seem to believe the moves point the company in the right direction. The direction in which the previous management team was pointing the company was inscrutable, said Fujimori.

The move to a new team "could raise stock market expectations and act as a catalyst for short-covering," he said.