Consumer electronics and media giant Sony (NYSE:SNE) released news over the weekend that, while relatively small, nevertheless provides a window into management's strategy for the future.
One of the announcements coming out of its "Corporate Strategy Meeting" was the company's plan to buy the part of Sony Computer Entertainment (SCE) it doesn't already own, making the division a wholly owned subsidiary. (It's a "plan" only technically, since the deal doesn't require stockholder approval.)
The transaction, set to take place April 1, will have minimal financial impact on Sony, which already owns more than 99% of SCE. (You couldn't have invested in it if you'd wanted to.) It's worth pointing out something that's NOT happening: The small bit of SCE not owned by Sony is owned by Ken Kutaragi, the well-respected Sony executive who runs the business -- but he isn't going anywhere. He's simply getting regular Sony shares in exchange for his SCE stock.
The SEC filing reporting this news says the company wants to "promote growth through the convergence of group resources and technology. By making SCE a wholly-owned subsidiary, Sony aims to accelerate this growth strategy by creating new markets through the convergence of electronics and game technology and by strengthening Sony's semiconductor development."
Whatever this may mean, it certainly makes some sense: SCE's game console and software business is one of the company's key drivers of operating profit. Its electronics segment, meanwhile, which includes semiconductors, has seen revenues decrease in recent years -- though it makes up the lion's share of Sony sales -- and has struggled to maintain operating profitability.
It's perhaps telling that Sony's latest annual report indicates that the electronics business is responsible for the upcoming launch of the PSX converged gaming and media system. With indications that sales of the current round of gaming consoles may be slowing, it seems likely we'll be hearing early reports of the "next-generation" hardware soon -- and it will be counted on to advance entertainment at least as much as PlayStation 2 improved upon the original model.
If this latest SCE news is to be interpreted as much more than a shuffling of papers, it might be taken as a sign that Sony believes very firmly in the games business as a long-term growth driver -- and will count on its ability to generate high-performance hardware as much as its brand and marketing acumen to succeed against Microsoft (NASDAQ:MSFT), Nintendo, and whoever else may come its way.
Dave Marino-Nachison can be reached at [email protected].
