Quality control poser clouds Sony revelry

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The run-up to Christmas should have been a celebratory time for Sony’s management team this year.

In July, less than 18 months after Sir Howard Stringer’s appointment as chairman and chief executive, he had been able to report improved first quarter profits for the first time in four years, thanks to buoyant sales of its Bravia flat-panel televisions.

Next month, in time for the holiday season, Sony is due to release PlayStation 3, an eagerly awaited games machine that should also be a Trojan horse to get its Blu-ray high definition DVD technology into millions of homes. Sony’s latest digital cameras have been hits, and its Vaio PC range is selling well.

Yet Sony’s executives find themselves facing uncomfortable questions about quality control and execution following a highly publicised battery problem, which has led to a series of announcements of recalls by notebook manufacturers such as Dell, Lenovo, Toshiba and Sony itself.

On Thursday, the company confirmed that the recall would cost it Y51bn ($431m). This was not as large a provision as some analysts had begun to fear but it was accompanied by news of further issues that would drag on full-year results.

Losses in electronics would be exacerbated by having to cut the price of the PlayStation 3 in Japan, and by a “production adjustment” relating to the semiconductors used in PlayStation3 would depress the division’s operating income.

Sales and profits from the PlayStation Portable business would be less than expected. The device has underperformed expectations, forcing Sony to cut back shipments from 12m to 9m this year – a sharp contrast with the success of its main rival, the Nintendo DS.

For Sir Howard and Ryoji Chubachi, who was in charge of the electronics business before being appointed Sony’s president last year, the news is a blow to their progress in setting Sony back on track after the years in which it lost its lead in electronics.

Neither was available on Thursday as Sony will report earnings next week but each now faces the challenge of ensuring that the problems do not deal a lasting blow to its reputation as well as the short-term impact on its bottom line.

At Thursday’s press conference, questions were raised about how Sony intended to explain its failure to tackle the battery problem earlier and with better disclosure.

“Top management takes the issue very seriously,” Sony said, but its priority was to deal with the problems efficiently and there were no plans by top managers to take some form of responsibility for the incidents.

Ironically, it is because of Sony’s reputation for high manufacturing standards that there is so much at stake. The company is understood to have tried to settle the battery problems with a mass recall but the different issues faced by different manufacturers meant it has had to suffer a steady stream of bad news.

Sony has made a strong case that the battery problem is an isolated one, explaining that it arose as a result of metal particles unintentionally getting into batteries at the time of manufacture.

“The design and manufacturing process have been improved so the new batteries are significantly safer,” Sony said on Thursday.

It also denied that the batteries could face similar problems in other consumer electronics products. “The hardware of non-PC products is different. So this kind of thing will not affect other products and there have so far been no problem with other products,” Sony said.

The problems with PlayStation 3, while similar to the delays seen at Microsoft and elsewhere with past generations of consumer technology, are more troubling, because of Sony’s hopes for the device and because they raise questions about Sony’s manufacturing capabilities.

The PS3 delay stems from poor yields on the blue laser diodes needed for the Blu-ray disc technology. “This is new technology,” Sony said. “We believe that such things are inevitable when doing something new.”

Having staked their reputations on restoring Sony’s record for innovation, Sir Howard and Dr Chubachi will have to convince investors that it can get past such teething problems quickly.

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