Sony has been skewered for its lack of innovation for the last half decade. Its last big consumer electronics hit was the Walkman which went on sale in June 1979. Sony had another hit in 2000 when it launched the PlayStation 2 which has sold over 140 million units, but game consoles are not a mainstream electronics business, no matter how profitable they are. Video games don’t sell across the broad spectrum of consumers the way that PCs, TVs, and handsets do.

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Sony’s problems have now affected the company’s earnings. Revenue dropped 17% in the last quarter to $17.6 billion and the company lost $343 million. The firm’s digital camera and TV operation sales fell 27% to $8.1 billion. Sony is up against products from China and Korea which can be made less expensively. Brands don’t count much in the flat screen TV business and may count even less in the camcorder and digital camera markets. Consumers are interested in what works more than the name on the label.

Sony’s PC and video game division’s revenue was down 37% to $2.6 billion. Sony’s PC sales are nowhere near those of Dell (DELL), HP (HPQ), Lenovo, or Acer. Its PS3 game console has been in third place behind the Nintendo Wii and Microsoft (MSFT) Xbox 360 for two years. It is hard to believe that Sony, which dominated the video game business for several years, would fall behind what was a small Japanese electronics company and Microsoft, which has not done anything right in the hardware business since the company was founded.

It is more interesting to look at what Sony has not done in the last decade than what it has done. Al Gore invented the internet during that period, and a lot of consumer electronics devices have been launched that really should have been created by Sony.

Sony would have been the perfect company to invent and market satellite radio. The business almost took Sirius XM under, but Sony had more access to capital and a golden brand that would have helped to push adoption. Sony is already in the content business through its ownership of one of the world’s largest studios and its history in the record industry. Sony should have been the premier if not the only satellite radio company.

Sony’s biggest embarrassment comes when it is compared to Apple (AAPL) which launched the iPod in 2001, just after Sony introduced the PS2. The PS2 is a symbol of Sony’s best days, now long gone. The iPod is the symbol of Apple’s resurrection. Sony’s VAIO PC line had a tiny share of the market. Apple’s Mac has the premium end of the PC market, the end where machines sell for over $1,000, almost to itself. That position should have belonged to Sony.
Sony had a modest handset business. It was so modest that the company combined it with Ericsson’s cellular phone business. The joint venture is doing badly and the Apple iPhone is in such high demand that the company cannot make enough of its latest product to keep its distribution partner, AT&T (T) fully stocked.

Sony looks even worse in the handset business because it missed the consumer success of Apple in the wireless market and the enterprise market success of RIM’s (RIMM) Blackberry. Sony’s brand would have made it a natural leader in the smartphone business. Instead it has no independent position in the sector at all.

Another consumer electronics business that has taken off is the GPS industry. Tiny companies like Tom Tom (TRMB) and Garmin (GRMN) turned themselves into successful operations by pioneering a fairly simple satellite-controlled device that had a terrifically broad market. Sony missed the satellite electronics opportunity twice by failing to see the satellite radio and GPS markets emerging.

One of the most important chances Sony had to stay at the center of the electronics business was to develop software to control key features and functions on PCs and wireless devices. Google (GOOG) recently launched its Android operating system. It works on smart phones and PCs. Sony created OS products for video games, home electronics, and, years ago, for PCs. Sony clearly never saw that software would eventually dominate the hardware world. Now it is too late.

Sony may be remembered as the largest consumer electronics company failure in history. No other company had the Sony brand at that critical period in the late 1990s and early this decade when most of the products that dominate the market today were born. Sony was not in on the ground floor of a single one of them.

Douglas A. McIntyre

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