Sony to Sell Semi Unit and Cut PS3 Prices as Part of Electronics Unit Turnaround

By Jason Simpkins
Staff Writer

Sony Corp. (SNE) is selling its advanced computer chip operations to Toshiba Corp. (TOSBF), a proposed $858 million deal that's the latest element of Sony's ongoing turnaround efforts, The Associated Press reported yesterday (Thursday).

In a separate-but-related development yesterday, Sony slashed the U.S. price of its PlayStation 3 gaming system by $100, or 17%, and introduced a lower-priced version in an attempt to jump-start lackluster sales.

Sony's plans were detailed by The AP and were attributed to an unnamed Sony official. This is the latest in a series of moves Sony has made in an effort to pare operations and revive its struggling electronics business.

Reportedly, the sale will include the manufacturing business for the Sony "Cell" chip used in its PlayStation 3 gaming console.  Sony has pinned much of its future on the success of the gaming console, which has struggled against the Nintendo (NTDOY) Wii and Microsoft Corp.'s (MSFT) Xbox 360, the platform for the wildly popular Halo 3.

Chip production is capital-intensive and also demands aggressive, ongoing research - two factors that also make it expensive. And if the chips are being produced for a limited set of items, that can make it tough to be cost competitive. Sony hopes to have the sale completed by March, The AP reported.

Long viewed as one of the most innovative electronics company on the planet, Sony has made a name for itself through repeated innovation. Indeed, it's one of the rare players that has actually rolled out paradigm-shifting products - and not just once, or even twice, but several times. Some of those products have even affected American society's popular culture.

Sony was founded as a radio-repair shop by Masaru Ibuka in a bombed-out building in Tokyo, Japan, immediately after the end of World War II. Akio Morita joined the company the next year, and soon the firm had produced its first real product, a tape recorder known as the Type-G - Japan's first domestically produced recording unit.

After traveling to the United States in the early 1950s, Ibuka heard about Bell Labs and its invention of the "transistor," and persuaded the American firm to license the technology to his company, then called Tokyo Telecommunications Engineering. Sony started making transistor radios, and by the middle 1950s, it had leapfrogged U.S. radio leaders Regency and Texas Instruments to build the first commercially successful transistor radio.

"Pocket-sized" transistor radios soon followed - just as a new style of music called rock-and-roll swept across the United States and then the world. Teens everywhere could be seen walking around with a transistor radio held up against one ear. Yearly transistor radio sales soared from about 100,000 units in 1955 to 5,000,000 by the end of 1968, creating the consumer-electronics industry and vaulting Sony into the No. 1 position.

The year 1979 saw Sony craft a blockbuster encore, introducing a portable tape player that was "listen only." Called "The Walkman,"  Sony USA recalls that those early "personal stereos" confounded critics both inside and outside the company who emphatically held that "without a recording function, it won't  sell." But it did, and was actually another huge success, "proposing new lifestyles [such as walking, jogging and private listening] which became popular around the world," Sony says.
Video gaming had been its latest success story, with its PlayStation series.

Chief Executive Howard Stringer told the Financial Times that the company is planning to distribute video and music through its PlayStation network. Sony's goal would be to turn the PS3, already Blu-ray disc compatible, into a multimedia device capable of networking with other Sony hardware, such as TVs, MP3 players, and PlayStation Portables (PSPs).

"We are trying to get our devices to talk to each other efficiently," Stringer said. "PlayStation Network should migrate from gadget to gadget. But initially it starts with PlayStation devices then to TV and beyond. That's the goal."

He gave provided no timetable for the implementation of these developments, but said, "We won't know how effective [the effort] is until early next year."

Sony has already unveiled a device that lets the PS3 act as a digital TV tuner and recorder, as well as software that enables the PSP to make voice and video calls.

As consumers edge closer to the holiday season, Sony has confirmed the Nov. 2 release of two new PS3 models. Both will have a Blu-ray drive, HDMI output, an integrated Wi-Fi connection, and an expanded memory.  A 40-gigabyte version will retail for $399 ($100 less than the 20GB model that launched last year), while an 80-gigabyte bundle will sell for $499. A Spiderman 3 Blu-ray disc will be included with the consoles.

The success of the PlayStation 3 is paramount to the success of Sony, but the company has also had a strong resurgence in other areas. Stringer took the helm in 2005, as the first foreign-born leader of the Japan-based company. He immediately set to work slashing jobs, closing down plants, and abandoning unprofitable divisions.

Sony has bolstered its flat-panel TV business with a joint venture with Samsung Electronics Co. It also floated Japan's most profitable initial public offering (IPO) of the year when it launched Sony Financial Holdings Inc. The offering generated approximately $2.99 billion (348 billion yen), 10 times the proceeds of any other Japanese IPO this year.

Sony Financial counts on insurance premiums and fees for 90% of its revenue, and includes Sony Life Insurance Co., Sony Assurance Inc., and online lender Sony Bank Inc. The company started operations in 1979 as a joint venture with Prudential Insurance Co. JPMorgan Chase & Co. (JPM) and Nomura Holdings Inc. (NMR) managed the share sale. Sony's 100% stake in the company was reduced to approximately 60%.

Sony's second quarter net profit was $570 million (66.46 billion yen), more than double that of last year.  It is expected to release its most recent quarterly earnings next week.

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