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Sony's Hirai to extend PlayStation strategy

By Tim Kelly

TOKYO (Reuters) - Incoming CEO Kazuo Hirai aims to re-shape Sony Corp by linking hardware and software through online networks -- a model he used at its PlayStation unit -- dismissing any suggestion the battered brand would revert to a gadget-centered strategy under his management.

In the meantime, he said, he would focus on paring costs at its TV unit and look to squeeze expenses elsewhere to return Sony to profit.

The Sony Computer Entertainment model "is a bigger concept we can grow into a bigger space," Hirai, 51, said in a group interview at the company's Tokyo headquarters. "Hardware drives software and software drives hardware," he added, referring to online sales of games and other content PlayStation owners.

Hirai oversaw the phenomenal rise of the PlayStation gaming system in the United States and since last March headed Sony's consumer products and services business.

He didn't say what changes the wider application of that strategy would have on Sony, which unlike its consumer electronics rivals such as Samsung Electronics and Apple Inc, owns significant content in movies, music and games software.

A more immediate task for Hirai, however, is to stem losses with cost savings that will add to cuts made by outgoing boss, Howard Stringer.

Hirai formally succeeds Stringer as CEO on April 1, with the once-stellar consumer electronics brand heading for what it warned last week would be a much bigger-than-expected $2.9 billion annual loss, its fourth in a row.

The surge of red ink has put Hirai under intense pressure from investors and ratings agencies to quickly staunch losses at the sprawling electronics group. Hirai pledged not to flinch from tough decisions to trim costs and renewed a promise to return the TV business to profit in two years.

"We have to make some hard decisions on where there are some redundancies and reduce the fixed costs in a variety of different areas," he said, pointing to sales units in Japan, Europe and the United States, supply chains and Tokyo headquarters functions as areas where cuts could be made.

Credit rating agency Standard and Poor's on Wednesday cut its long-term debt rating on Sony and warned it may drop it another notch within a year if Hirai fails to stem TV losses and deliver a significant boost to profitability. [ID:nL4E8D861P] Sony was also downgraded by Moody's last month.

BIG BLEED

The TV division has lost more than $11 billion over eight fiscal years. Together, Sony, Panasonic and Sharp expect to lose $17 billion this year alone, highlighting the savaging of Japan's electronics industry by foreign rivals led by Samsung, weak demand and a strong yen.

A goal for Sony to end that bleeding in two years was "tracking where we said it would be at the end of the year, or a little ahead of that," Hirai said.

Better products would, he said, add as much as 40 billion yen ($520 million) in profit, with cost improvements adding another 50 billion yen, as part of a strategy he described as "defense and offense."

As well as weak global TV demand, Sony has been hammered by last year's flooding in Thailand that ruptured supply chains, a big one-off charge for exiting a flat-panel joint venture with Samsung, and smart competition from Apple and Samsung that has squeezed market share in TVs, smartphones and other gadgets.

Hirai predicted that LCD technology would remain the main battlefield in TVs for at least three years, before next generation technology takes hold.

STRATEGY ROLE

Hirai has yet to reveal his management line-up, naming only Tadashi Saito, a former Sony chief financial officer at Sony Electronics in the United States, as the company's first chief strategy officer since 2005.

Saito will work with senior managers "to formulate strategies for group companies overall, as well as giving us a lot of input and advice on M&A activity," Hirai said.

Hiroshi Yoshioka, previously identified by Stringer as one of "Four Musketeers" who could succeed him, along with Hirai, will take Sony into the medical imaging business and head up the group's innovation center, "seeking out new business opportunities," Hirai said.

As of Thursday's close, Sony shares had gained 13 percent to a 14-week high of 1,544 yen since Hirai was named as the next CEO, outperforming a 2.1 percent gain on the benchmark Nikkei average.

The stock, which slumped more than 60 percent during Stringer's seven-year reign, was down 0.4 percent in early trading Friday.

A Sony veteran of 28 years, Hirai was credited with reviving the PlayStation gaming operations through aggressive cost-cutting, in competition with Nintendo's Wii and Microsoft's Xbox.

A year ago, Hirai, a fluent English speaker, was promoted to head the consumer products and services business, overseeing Sony's network operations. He was also at the forefront of efforts to counter hackers who accessed Sony customers' personal details.

He takes over after a period of cost-cutting by Stringer, a rare foreign CEO in Japan who sold off TV factories in Spain, Slovakia and Mexico and outsourced more than half of the group's production to outside companies, including Hon Hai Precision Industry, a Taiwanese contract electronics maker whose key customer is Apple.

($1 = 76.8950 Japanese yen)

(Editing by Jeremy Wagstaff)

This story update corrects the share movement since Hirai's appointment

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