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Sony's New Plant Signals Departure From 'Asset-Light' Strategy

Sony's New Plant Signals Departure From 'Asset-Light' Strategy
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After brushing aside demands from Daniel Loeb's hedge fund Third Point to spin off its semiconductor business, Sony reaffirmed their dedication to the sector by pressuring forward plans to establish a 100 billion yen ($918 million) factory in Japan. The action not merely made clear its rejection of Loeb's suggestion, but in addition marked a shift away from an ''asset-light'' strategy the company had been pursuing in recent years.
Behind the decision was the fierce competition in entertainment from the likes of Google and Walt Disney. Sony, which strives to be a ''creative entertainment company with a solid foundation of technology,'' is progressively more dependent on its market-leading image sensors. The semiconductor business, which includes the image sensors, accounts for 15% of the company's overall profits.
The fresh investment was made possible by a succession of moves to lower down sectors and cut costs. It reported an all-time high group operating profit of about $8.2 billion last fiscal year, with solid results across most of its business portfolio, including games, music and flat-screen televisions coupled with semiconductors. Operating cash flow, not including financial services, topped $6.8 billion.
The investment also shows Sony's confidence in the future of image sensors. The Japanese company considers demand for the chips beyond smartphones to a wide range of new connected devices as the superfast fifth-generation wireless technology takes center stage. But it was a tough decision. Sony's management has discovered from experience that a downturn in demand, specifically with the outlook for smartphone demand uncertain, could leave it saddled with heavy costs without bringing the expected benefits from its investment.
The outlook for the sensor market, nonetheless, has been brightening. Some industry estimates show global demand broadening 60% between 2018 and 2023. This owes partly to the trend of installing multiple cameras in smartphones, and partly to an anticipated rise in demand for ''internet of things'' applications, like self-driving vehicles and factory robots, once 5G fully gets off the ground.
Sony showed off the lowlight performance of its image sensors at the Tokyo Motor Show that kicked off here Thursday. Its booth featured a diorama in a dark room that made the details all but invisible to the naked eye. But when a staffer turned on a monitor above the display, viewers could clearly see the characters on the screen.
By selling the sensitivity of its sensors, Sony looks to draw to automakers developing self-driving vehicles, for which cameras that can identify details even under poor lighting conditions are crucial. At the Ceatec electronics expo this month, which Sony returned to after a six-year hiatus, the company focused on the potential of the chips in medical devices. It showcased a surgical microscope system with 3D imaging capabilities.
Sony has such applications in mind as it works on sensors incorporating artificial intelligence. Autonomous vehicles with AI-equipped cameras, for example, would be able to process data locally instead of having to upload it to the cloud, saving precious time if it detects an obstacle and needs to stop quickly.
AI sensors would open the door to a new business model for Sony's semiconductor business, with recurring revenue from data processing services along with chip sales. Though the segment is profitable now, earning 143.9 billion yen in operating profit last financial year, it lost money as recently as fiscal 2016, and Sony strives a steady stream of recurring revenue to help ensure it stays in the black.

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