SHANGHAI—Sony Corp., a household name in consumer electronics, has failed to make a dent when it comes to smartphones, trailing far behind Apple Inc. and Samsung Electronics Co. for the past few years. But with improving financial conditions and a series of new products this year, the Japanese company's mobile chief says that Sony is finally on the right track to become a major smartphone player.
The success of Sony's mobile business, which is still unprofitable, is critical for the company's recovery as it struggles to turn around its core electronics operations.
Sony posted its first net profit in five years for its fiscal year ended in March, but the profit was due in part to gains on asset sales. Amid lingering concerns about its future, U.S. hedge-fund investor Daniel Loeb, whose firm owns about 7% of Sony shares, has proposed that the company list part of its movie and music businesses.
In an interview with The Wall Street Journal, Sony Mobile Communications Chief Executive Kunimasa Suzuki said that he has "great confidence" that the mobile unit will be able to turn profitable in the current fiscal year that began in April.
On Tuesday, the company unveiled in Shanghai the Xperia Z Ultra, a massive smartphone with a 6.4-inch screen, and the SmartWatch 2, a new version of its wristwatch device that connects with smartphones that run on Google Inc.'s Android operating system. Edited excerpts:
WSJ: Why has Sony struggled so much in the smartphone market?
Mr. Suzuki: If you look at history, we had a major delay in the shift to smartphones. In 2007, the Sony Ericsson joint venture posted record revenue with strong profit. Then Apple introduced the iPhone and Google's Android started growing. Sony Ericsson delayed the introduction of smartphones, because we were sticking to the success of our feature phones like Walkman phones and CyberShot camera phones. We couldn't deny our past. That's why we couldn't change. Our sales decreased and our smartphones couldn't catch up.
In 2011 the business hit the bottom. We bought out the joint venture [with Ericsson] at the right time. Now we are in a healthier situation.
WSJ: What are you doing to turn around the mobile unit?
Mr. Suzuki: First, we had a lot of redundancy within our company. That's why, in August, we made an announcement about our transformation involving painful job cuts.
The other part is being efficient. If we try to do everything all at once without any strategic thinking, we can't gain market share.
The first step was to develop better products. We gathered all the technological assets from all parts of Sony. The Xperia Z was the first product we developed that way, and the next was the Tablet Z. And now, we have the Xperia Z Ultra.
Once the products are strong enough, even though our marketing money may not be enough yet, word-of-mouth helps. Gadget lovers started talking about our products online, and that's a very important development.
WSJ: What are some key areas of investment?
Mr. Suzuki: The new SmartWatch 2, for example, is one of the areas where we need to invest. With the previous generation of our SmartWatch, as you can imagine, we didn't make so much of an investment. At that time, there wasn't much awareness of smartwatches as a genre. And now is the right time for us to start emphasizing those companion products to our smartphones. We are definitely getting more active in this area than before.
WSJ: The Xperia Z, your flagship phone, hasn't been released by U.S. carriers yet. How is the phone doing globally?
Mr. Suzuki: For Sony, the Xperia Z has been the fastest-selling smartphone to date. In Japan, it was the best-selling smartphone for the first six weeks after its launch. Sales are also strong in Europe, such as Spain and the U.K.
If we make investments everywhere all at the same time, we may lose in every market. That's why we've decided to take a step-by-step approach. As we are already strong in Japan and Europe, we are seeking growth in Asia with the new Xperia Z Ultra. Our U.S. business has lagged other regions but we are now starting to take bigger steps with the launch of the Xperia Z with T-Mobile.
WSJ: What is Sony doing to differentiate its smartphones?
Mr. Suzuki: We are taking the technology developed for other product categories like TVs and cameras, and applying it to smartphones. And there's no end to the evolution of technology in each area, be it digital imaging or sound quality.
So it's just a matter of how we integrate all the technology into mobile. Technically, integrating each technology into mobile takes a lot of work in terms of engineering.
WSJ: What's the biggest challenge you see?
Mr. Suzuki: Our competitors are strong. Their investment is huge in many areas. Samsung has a huge amount of money, and so does Apple. Yes, we know that. So shall we prepare that level of money from the beginning? That's impossible.
But we are already starting to grow, and we have a chance to grow more. We don't have a huge amount of dollars to spend yet. So we have to think of a very efficient way to use our money.
The success of Sony's mobile business, which is still unprofitable, is critical for the company's recovery as it struggles to turn around its core electronics operations.
Sony posted its first net profit in five years for its fiscal year ended in March, but the profit was due in part to gains on asset sales. Amid lingering concerns about its future, U.S. hedge-fund investor Daniel Loeb, whose firm owns about 7% of Sony shares, has proposed that the company list part of its movie and music businesses.
In an interview with The Wall Street Journal, Sony Mobile Communications Chief Executive Kunimasa Suzuki said that he has "great confidence" that the mobile unit will be able to turn profitable in the current fiscal year that began in April.
On Tuesday, the company unveiled in Shanghai the Xperia Z Ultra, a massive smartphone with a 6.4-inch screen, and the SmartWatch 2, a new version of its wristwatch device that connects with smartphones that run on Google Inc.'s Android operating system. Edited excerpts:
WSJ: Why has Sony struggled so much in the smartphone market?
Mr. Suzuki: If you look at history, we had a major delay in the shift to smartphones. In 2007, the Sony Ericsson joint venture posted record revenue with strong profit. Then Apple introduced the iPhone and Google's Android started growing. Sony Ericsson delayed the introduction of smartphones, because we were sticking to the success of our feature phones like Walkman phones and CyberShot camera phones. We couldn't deny our past. That's why we couldn't change. Our sales decreased and our smartphones couldn't catch up.
In 2011 the business hit the bottom. We bought out the joint venture [with Ericsson] at the right time. Now we are in a healthier situation.
WSJ: What are you doing to turn around the mobile unit?
Mr. Suzuki: First, we had a lot of redundancy within our company. That's why, in August, we made an announcement about our transformation involving painful job cuts.
The other part is being efficient. If we try to do everything all at once without any strategic thinking, we can't gain market share.
The first step was to develop better products. We gathered all the technological assets from all parts of Sony. The Xperia Z was the first product we developed that way, and the next was the Tablet Z. And now, we have the Xperia Z Ultra.
Once the products are strong enough, even though our marketing money may not be enough yet, word-of-mouth helps. Gadget lovers started talking about our products online, and that's a very important development.
WSJ: What are some key areas of investment?
Mr. Suzuki: The new SmartWatch 2, for example, is one of the areas where we need to invest. With the previous generation of our SmartWatch, as you can imagine, we didn't make so much of an investment. At that time, there wasn't much awareness of smartwatches as a genre. And now is the right time for us to start emphasizing those companion products to our smartphones. We are definitely getting more active in this area than before.
WSJ: The Xperia Z, your flagship phone, hasn't been released by U.S. carriers yet. How is the phone doing globally?
Mr. Suzuki: For Sony, the Xperia Z has been the fastest-selling smartphone to date. In Japan, it was the best-selling smartphone for the first six weeks after its launch. Sales are also strong in Europe, such as Spain and the U.K.
If we make investments everywhere all at the same time, we may lose in every market. That's why we've decided to take a step-by-step approach. As we are already strong in Japan and Europe, we are seeking growth in Asia with the new Xperia Z Ultra. Our U.S. business has lagged other regions but we are now starting to take bigger steps with the launch of the Xperia Z with T-Mobile.
WSJ: What is Sony doing to differentiate its smartphones?
Mr. Suzuki: We are taking the technology developed for other product categories like TVs and cameras, and applying it to smartphones. And there's no end to the evolution of technology in each area, be it digital imaging or sound quality.
So it's just a matter of how we integrate all the technology into mobile. Technically, integrating each technology into mobile takes a lot of work in terms of engineering.
WSJ: What's the biggest challenge you see?
Mr. Suzuki: Our competitors are strong. Their investment is huge in many areas. Samsung has a huge amount of money, and so does Apple. Yes, we know that. So shall we prepare that level of money from the beginning? That's impossible.
But we are already starting to grow, and we have a chance to grow more. We don't have a huge amount of dollars to spend yet. So we have to think of a very efficient way to use our money.