Sony
Corporate History & Strategy

Ibuka Masaru (then 38), a former naval engineer, had lost his job when the military was dissolved at the end of the war. Seeking a place to apply his technical skills, he decided to start a company with Morita Akio, an acquaintance from his navy days. Morita's father ran a sake brewing company in Aichi Prefecture, and provided full financial support, including investing startup capital and personally guaranteeing Tokyo Telecommunications Engineering's debts.

In May 1946, the company established its headquarters in a corner of the Shirokiya department store in Nihonbashi, Tokyo, which had been burned down in air raids, and founded Tokyo Telecommunications Engineering Co., Ltd. In its early days, it was a small company that undertook repair of NHK broadcasting equipment and electrical miscellaneous work, and did not have a specific flagship product until it entered tape recorder manufacturing in 1950.

For two engineers' small company to get its business on track, external credibility was essential for both sales channels and funding. Ibuka and Morita brought in Yorozo Mandai (former president of the Imperial Bank = Mitsui Bank) as an advisor, and formally installed Tamon Maeda (former Minister of Education) as the first president. By incorporating business and political elites into management, they built a formation that would facilitate sales introductions, lobbying, and financing from financial institutions.

This personnel arrangement was a structure in which the founders held real power while borrowing external credibility from respected public figures. Ibuka handled technology development, Morita handled sales and finance, and Maeda and Mandai functioned as points of contact for external negotiations. The division of labor between technical capability and credibility became the foundation that enabled the company to evolve from a small enterprise to a manufacturer.

Ibuka Masaru saw an American-made tape recorder at NHK and decided to commercialize it. However, manufacturing tape recorders required the patent for recording technology called the 'high-frequency bias method.' Ibuka purchased this patent from Anritsu Electric (now Anritsu) and NEC, which held it, for ¥250,000, converting an entry barrier into his own weapon. The patent acquisition shortened development time to just one year, and in 1950 the Type G tape recorder was released.

The patent was valid until 1960, and during this period it effectively prevented major electronics manufacturers from entering the tape recorder market. A small company securing a monopoly position for ten years by using a legal barrier as a shield had decisive significance for early Sony.

Tape recorders expanded their sales channels to government offices and educational institutions, steadily growing orders. In the fiscal year ending October 1951, the company recorded sales of ¥102 million and profit of ¥9 million. With a dividend of 30%, it demonstrated high profitability for a company so early in its existence. A department head meeting that year decided a policy of 'devoting the entire company to recording device manufacturing,' concentrating management resources on tape recorders.

In preparation for increased production, capital was doubled to ¥20 million in 1951, and adjacent land at the headquarters factory was acquired to expand manufacturing capacity. Against the backdrop of patent barriers to entry, the company entered a phase of simultaneously building mass production capacity and expanding sales channels. Tape recorders became the core business supporting early Sony and formed a funding base for next product development.

The transistor, invented at Bell Labs in the US in 1948, was attracting attention as a next-generation electronic component to replace vacuum tubes. Ibuka Masaru was quick to notice this technology and entered negotiations with Western Electric (WE), which held the manufacturing patents. In February 1954, a 'license agreement for semiconductor device patents' was concluded. The contract term was 10 years, and the patent fee was a lump sum of ¥9 million plus 2% of sales.

For Tokyo Telecommunications Engineering at the time, ¥9 million was a huge sum, requiring the investment of most of the profits earned from the tape recorder business. WE imagined hearing aids as the application for transistors, but Ibuka envisioned application to radios. The fact that from the patent acquisition stage, he had an original product vision that went beyond existing applications would shape the subsequent development.

Domestic major electronics manufacturers had also begun transistor research, but the path to product commercialization was long. Transistor manufacturing required high yields, and building a mass production system was considered technically difficult. Whether a small, late-entering company could commercialize first depended on proprietary technical innovation in the manufacturing process.

In 1955, Tokyo Telecommunications Engineering released Japan's first transistor radio, the 'TR-55.' The transistor yield problem was overcome with a proprietary method of introducing antimony into the manufacturing process, successfully commercializing a compact radio ahead of major electronics manufacturers. However, in the domestic market, the price of ¥20,000 per unit was too high for consumers, and sales were sluggish.

Morita Akio, facing domestic struggles, found an outlet in exports to the American market. In 1956, he developed the further miniaturized 'TR-63' and began selling in European and American markets ahead of domestic release. Morita moved to New York with his family and worked to gain credibility from American buyers by using first-class hotels as meeting venues.

The core of the export strategy was the development under the proprietary brand 'SONY.' While most Japanese companies at the time supplied products as OEM for US companies, Morita refused OEM supply and insisted on selling under his own brand. Since 'Tokyo Telecommunications Engineering' was difficult for foreigners to pronounce, 'SONY,' combining the Latin word SONUS and the English word SONNY, was adopted as the brand name.

US exports of transistor radios expanded rapidly. Around 1960, approximately 40% of sales came to be accounted for by exports to America, and Tokyo Telecommunications Engineering transformed into one of post-war Japan's leading global companies. The fact that few companies in the world had successfully commercialized transistor radios helped the SONY brand penetrate the market.

During this period, the division of roles between co-founders became clear. Ibuka led technical development of new products, and Morita took charge of overseas sales and marketing. This division of technology and sales would continue to be the foundation of Sony's competitiveness in subsequent product developments such as the Walkman and Trinitron.

Morita's decision to develop overseas markets under his own brand rather than OEM was exceptional for Japanese companies at the time. This strategy initially required time to build distribution networks, but in the long term brought accumulation of brand value, making Sony the starting point for being recognized not merely as a manufacturer but as a global brand.

Due to the expansion of transistor radio exports, Sony's business scale had expanded rapidly. In fiscal year 1960, the number of employees exceeded 3,600, an exceptional growth rate for a company founded in the post-war period. To accelerate the strengthening of production capacity and overseas expansion, funding that could not be covered by bank loans alone was becoming necessary.

In 1958, Sony listed its shares on the Tokyo Stock Exchange. At the same time, the company name was changed from 'Tokyo Telecommunications Engineering' to 'Sony Corporation.' By adopting 'SONY,' which had become established as a transistor radio brand in overseas markets, as the official company name, the company aimed for unified brand development at home and abroad. At the time, few Japanese companies used katakana in their company name, and it attracted attention as a pioneering decision.

In 1961, Sony issued Japan's first post-war ADR (American Depositary Receipt). The lead underwriters were Smith Barney and Nomura Securities, the public offering was 2 million shares (200,000 ADRs), and the offering price was $17.50 per ADR. Applications flooded in, and it sold out immediately after the offering began. The subscription ratio reached 10 times.

Further, in 1970, the company became the first Japanese company to list on the New York Stock Exchange. By establishing a system to raise funds directly from overseas institutional investors, by 1970 the ratio of overseas investors among Sony's shareholders reached 32%. The consistency of Morita Akio's global management vision is evident in his simultaneous advancement of globalization in both products and capital markets.

Following radios and color televisions, the market for video cassette recorders as home electrical appliances was about to take off in the 1970s. Sony released the home VTR 'SL-6300' adopting the Betamax format in 1975, aiming to establish an industry standard. Other competing companies were called upon to adopt the Betamax format, but Matsushita Electric and its subsidiary Japan Victor Company advocated the 'VHS' system, splitting the format into two camps.

The format competition called the 'Video War' continued throughout the 1980s, but while Japan Victor expanded adoption by other companies through OEM supply and support for long recording times, Sony fell behind in building alliances. Around 1988, Sony began parallel sales of the VHS format, effectively acknowledging its disadvantage in the format competition.

The disadvantage in the Betamax format competition brought a structural transformation to Sony's management strategy. From the lesson that hardware performance alone cannot control format leadership, a policy emerged to add securing video content as an axis of competition. The recognition that format superiority is determined not by technical performance but by the volume of content supply and the number of affiliated companies permeated management.

This strategic shift became the groundwork for the acquisition of Columbia Pictures in 1989. By bringing a movie studio under its umbrella, Sony began exploring a transition to a business model that would provide hardware and software integrally. The experience of the Betamax format competition was the starting point for Sony's transformation from a pure electronics manufacturer to an entertainment company.

Due to the global economic recession following the Lehman Shock and the progression of yen appreciation, Sony's electronics business saw its profitability deteriorate rapidly. The television business was drawn into price competition in LCD panels, and the domestic production system built during the CRT era had become excess capacity. By the end of fiscal year March 2008, Sony's consolidated employee count had reached approximately 180,000, but large-scale workforce adjustment had become unavoidable due to structural business changes.

From fiscal year 2008 to fiscal year 2014, Sony promoted company-wide workforce reduction. Through solicitation of voluntary retirement and business sales, the number of employees at the end of fiscal year March 2015 was approximately 131,000, a reduction of approximately 50,000 over seven years. This scale of reduction was among the largest of Japan's electronics manufacturers, indicating that Sony's business structure was fundamentally changing.

In parallel with workforce reduction, domestic factory closures proceeded in stages. In 2009, Ichinomiya Tech, a production base for CRT televisions, was closed, and in 2013, closure of the Minokamo factory in Gifu Prefecture was decided. At the Minokamo factory, measures such as transfers and solicitation of voluntary retirement were taken for 840 regular employees, but approximately 1,600 contract and non-regular employees had their contracts terminated.

There were no other businesses in Minokamo City capable of absorbing large-scale employment, and the factory closure dealt a blow to the regional economy. Domestic factory closures continued thereafter, and in 2023, closure of the Kosai Site (Shizuoka Prefecture), a production base for professional video equipment, was decided. Sony's reduction of manufacturing bases mirrors the process of shifting the center of gravity from mass-production consumer electronics manufacturing toward entertainment and semiconductors.

In fiscal year ending March 2009, Sony fell into net loss, and losses continued for 4 consecutive years through fiscal year March 2012. After returning to black once in fiscal year March 2013, it fell into loss again in fiscal years March 2014 and 2015, resulting in the abnormal situation of net losses in 5 of 6 fiscal years from 2009 to 2015. The causes of losses were complex, compounded by the global economic recession following the Lehman Shock and the simultaneous deterioration of the mainstay businesses of televisions, mobile phones, PCs, and batteries.

Particularly severe was the net loss of ¥455 billion in fiscal year March 2012, Sony's largest-ever loss. Deterioration of profitability in US operations led to a reversal of deferred tax assets, and recording of approximately ¥300 billion in valuation allowances inflated the losses. In the television business, the market was taken by Sharp's LCD televisions; in the mobile phone business, Sony could not compete against Apple's iPhone; and in the lithium-ion battery business, it failed to achieve supply to the iPhone.

Following four consecutive years of losses, Representative Director and CEO Howard Stringer resigned in 2012. Stringer had become CEO in 2005, advocating integration of electronics and entertainment, but could not stop the structural deterioration of the electronics business. The global management system under a foreign CEO ended, along with the expansion of losses.

Kazuo Hirai was appointed as successor CEO. Hirai had a track record of leading the turnaround of the PlayStation 3 from its loss-making structure in the game business, and was appointed for his skill in rebuilding struggling businesses. He was entrusted with overall management reconstruction of the Sony Group, but at the time of his appointment, the difficult tasks of sorting out loss-making businesses and choosing growth areas were piling up.

While the electronics business continued to post losses, Sony secured stable revenues in its film, music, and financial businesses. Particularly in the financial business, Sony Financial Holdings' operating profit through Sony Life's investment gains expanded due to the recovery in stock markets, supporting the group's revenues.

The structure where successful businesses internally subsidize struggling businesses was simultaneously the reason Sony could maintain its conglomerate structure and a factor that postponed fundamental reform of the electronics business. Under the Hirai administration, divestiture and withdrawal from unprofitable businesses such as televisions, PCs, and batteries would proceed, but that process is described in subsequent history entries.

Under Kazuo Hirai's administration, Sony began divesting unprofitable businesses from 2014. The targets were the PC business and battery business, both of which had chronically posted losses within the electronics division. However, these businesses had manufacturing bases in rural areas such as Azumino City, Nagano Prefecture and Koriyama City, Fukushima Prefecture, and simple business closure would mean mass unemployment and a blow to regional economies.

To minimize criticism from local governments, Sony chose the method of selling businesses rather than closing factories. By transferring businesses to investment funds and operating companies and having them take over manufacturing bases and employment together, the company adopted a policy of reducing social friction associated with withdrawal. It was a decision to resolve the dilemma between withdrawal from unprofitable businesses and maintaining regional employment through a business sale scheme.

In July 2014, Sony sold the PC business 'VAIO' to Japan Industrial Partners, an investment fund. The new company 'VAIO Corporation' after the sale withdrew from overseas production and established its headquarters in Azumino City, Nagano Prefecture, the former Sony domestic manufacturing base. It was a fresh start under the fund's umbrella with a structure of 240 employees. The brand continued but the business scale was significantly reduced.

In 2017, the battery business was sold to Murata Manufacturing. The Koriyama factory, a domestic production base, was transferred, and agreement was reached for approximately 8,000 battery business employees to continue employment at Murata Manufacturing. With the sale of two businesses—PCs and batteries—Sony's electronics business was structurally lightened. In the fiscal year ending March 2019, after these withdrawals were complete, Sony recorded operating profit of ¥916.2 billion, its highest ever.