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Letter to Shareholders: A Message from Howard Stringer, CEO
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Over the course of fiscal year 2006 (the year ended March 31, 2007), Sony has taken many
important and successful steps toward the completion of its revitalization plan announced in
September 2005. In the year that lies ahead, we expect to complete the transition from revitalization
to enhanced growth and profitability.
During fiscal year 2006, we achieved or exceeded many of the targets we had set for ourselves.
First, under Dr. Chubachifs leadership, our key Electronics business recorded an operating margin
of over 4% (excluding one-time and restructuring charges1) and, in doing so, achieved its goal a
full year ahead of our plan. Notable achievements included our Cyber-shot™ digital cameras
recording greatly improved profitability and our BRAVIA™ LCD televisions capturing the No. 1
position worldwide2. In addition, our Handycam® video cameras continued to perform extremely
well. Sony Ericsson Mobile Communications AB, our equity method joint venture with LM Ericsson
of Sweden, reported strong growth in profit and increased market share led by the great success
of its Walkman® and Cyber-shot mobile phones.
Second, during calendar year 2006 our Pictures division set a number of box office records
worldwide, including a record 13 No. 1 opening weekends and record total box office revenue in
the U.S. market and our most successful theatrical release year ever in markets outside of the
United States. Films such as The Da Vinci Code, Talladega Nights: The Ballad of Ricky Bobby,
Click and The Pursuit of Happyness were among the significant contributors to this success.
Third, we launched the newest PlayStation® platform, PLAYSTATION®3 (PS3™), and 5.5 million
units were shipped by fiscal year-end. The PLAYSTATION®Network (PSN), the online service
launched together with PS3, opens up new potential revenue streams for the company from
online transactions. The opportunity presented by PS3 is enormous, and we are very excited to
have recently completed the worldwide launch.
A number of our restructuring targets were also achieved more than a year ahead of plan.
These include our asset disposal and head-count reduction targets. We fully expect to achieve
all of the other targets established in September 2005, including a consolidated operating margin
of 5% for the year ending March 31, 2008.
While we are proud of what we achieved during the past year, there were also considerable
difficulties. In particular, we encountered problems with Sony-manufactured lithium-ion laptop
battery cells, which significantly impacted our financial results, and with the cutting-edge technology
of blue laser diodes critical to the Blu-ray Disc™ drive in PS3. We have taken aggressive steps to
ensure that any product safety or quality problems we identify going forward will be swiftly addressed.
The successes of the past year were achieved by the thousands of Sony employees who work
tirelessly to enhance the Sony brand. A number of key appointments were made which contributed
to our success. Within the Electronics segment, Dr. Chubachi and I named Executive Deputy
President Katsumi Ihara to the position of Officer in charge of the Consumer Product Group and
promoted Executive Vice President Yutaka Nakagawa to the position of Executive Deputy
President, Officer in charge of the Semiconductor and Component Business Group. In the Game
segment, we announced the promotion of Kaz Hirai from President and CEO of Sony Computer
Entertainment America Inc. to President and Group CEO at Sony Computer Entertainment Inc.
These individuals are but a few examples of superior executives assuming broader responsibilities
in our growing company, and interviews with each of them are included in this annual report.
As we look forward to the year ahead, there are many initiatives under way. First and foremost,
we must achieve all of the goals we outlined in September 2005 for completion by the end of
fiscal year 2007. Sonyfs executives and employees are united in this effort.
Second, we will continue to champion those products and services most in demand by the
consumer and most likely to drive shareholder returns. Future investments will be weighed
cautiously to be certain that they are focused on high return opportunities, and we will continue
our stringent focus on product quality and innovation.
Third, having nearly accomplished our revitalization plan, we must focus again on profitable
growth. Sony has many competitive advantages that we must harness. For example, Sony is the
only company to participate in the entire high definition (HD) value chain, from the lens to the
screen. From capturing images with our professional cameras, digital cameras, single lens reflex
cameras or video cameras to editing images on our VAIO™ computers or displaying the images
on our BRAVIA televisions or digital 4K projectors for movie theaters, no company offers as many
Full HD products as Sony. Complementing these products are our Blu-ray Disc players
(both stand-alone and in PS3) and all of the HD content we possess in Sony Pictures Entertainment
Inc. As content and technology converge, Sony is uniquely positioned to capitalize on this trend
and to create innovative new products and services. Our software and hardware engineers,
together with the managers of all of our digital content are united in this effort as well.
The current fiscal year will be important for our Game division. In addition to our hardware
engineers bringing down the cost of the cutting-edge technologies inside PS3, we have plans in
motion for the PSN to serve as a portal for game, movie and music content as well as a free,
global network for interactive gamers. We will also significantly expand our lineup of software for
the platform, and we have already announced the creation of PLAYSTATION®Home, an online
community where PS3 players can meet and interact in a virtual world. This virtual world will
present an exciting opportunity for Sony and its partners.
Sony has also launched a global marketing partnership with FIFA (Federation Internationale de
Football Association) as an official sponsor of more than 40 FIFA events, including the FIFA World
Cup™ due to be held in South Africa in 2010 and South America in 2014. The FIFA partnership is
a marketing platform with truly global reach and a unique opportunity to showcase all that Sony
has to offer to consumers worldwide.
Despite the challenges we faced over the past year, Sonyfs brand remains strong in the hearts
and minds of consumers. In the United States, we were No. 1 in the Harris Interactive® poll of
brands for the seventh consecutive year. In addition, AlixPartners LLP, in its survey of consumers
across all demographics in the United States, ranked Sony as the No. 1 most powerful brand in
its Brand Power Index. The strength of the Sony brand is not just a source of great products, but
also a distinct competitive advantage and one we work hard every day to maintain.
As we complete the transition from revitalization to driving long-term growth, we believe that
dawn is breaking on a new day at Sony. We serve large and growing markets with an array of
products and services most in demand by consumers. Our varied businesses complement each
other and present opportunities to create shareholder value that are unique to Sony.
On behalf of all of the employees at Sony, I would like to express our thanks for your continued
support of the company.
May 15, 2007 |
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Howard Stringer
Chairman and CEO
Representative Corporate Executive Officer |
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| 1 | Includes ¥37.4 billion of restructuring charges and a ¥51.2 billion provision for expenses relating to a notebook computer battery pack recall and our voluntary global replacement program |
| 2 | DisplaySearch, revenue basis for calendar year 2006 |
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