Sony Group - Company History

A laboratory of twenty, and a patent as the first barrier to entry

Sony’s predecessor was the Tokyo Telecommunications Research Institute, which Ibuka Masaru (井深大), a former navy engineer, started in October 1945 with about twenty colleagues from the old Nihon Sokuteiki (日本測定器, Japan Measuring Instrument Company), researching and building communications equipment and measuring instruments in a corner of the Shirokiya department store in Nihonbashi, Tokyo[1]. Its products were taken up by the Ministry of Transport and the Ministry of Communications and orders grew; in May 1946, joined by Morita Akio (盛田昭夫), the son of a sake-brewing family, they incorporated Tokyo Tsushin Kogyo Co., Ltd. with capital of ¥190,000 and a little over twenty employees[2]. The first of the objectives Ibuka set out in the founding prospectus was the establishment of an ideal factory, free-spirited and convivial[3], and from the war years he had held the idea that if we survive and can begin new work, that will be the moment to take up consumer products aimed at the great mass of ordinary people[4]. Maeda Tamon (前田多門), a former Minister of Education, was brought in as nominal president and Bandai Junshiro (万代順四郎), a former head of the Imperial Bank, as adviser, so that the firm could borrow their standing[5]. Technical strength alone, however, was not enough to stand with the majors, and the first weapon the company laid hold of was a barrier to entry in the form of a patent.

The company began with measuring instruments such as vacuum-tube voltmeters, but chose to develop the tape recorder as a product the majors were not making and its own technology could serve, and in 1949 it succeeded in prototyping magnetic tape and a recording machine[6]. In 1950 Ibuka acquired the patent on the high-frequency bias method from Anritsu Electric and Nippon Electric for ¥250,000 and entered the tape-recorder market[7]. That patent ran until 1960[8], and it became a shield that in effect barred Toshiba, Hitachi and Matsushita Electric Industrial from the market for ten years. In the year to October 1951 the company recorded sales of $283,333 (¥102m), raised its capital to ¥20 million[9] and bought the land adjoining its head-office plant. In August 1959 the press called it the champion of small and medium-sized enterprises — Sony, riding the wave of technological innovation, noting that thirteen years ago this company was an ordinary small back-street works; today it has climbed to a firm of two thousand employees[10], and it was treated as the representative post-war venture.

Choosing a technology because it was difficult, and narrowing the frontage

In February 1952 Ibuka travelled to the United States for the first time, heard that Western Electric would license the transistor patent for ¥9 million, and opened negotiations[11]. Tokyo Tsushin Kogyo then had about 120 employees, more than a third of them engineers[12]. Ibuka later admitted that it was the sheer difficulty of the thing that drove him to it: The tape recorder did not seem to me a technology of any great depth, and I was troubled about what to do with all those engineers afterwards. The transistor, on the other hand — this looked genuinely hard[13]. The Ministry of International Trade and Industry, however, would not entertain it — how could a little back-street works possibly manage anything as presumptuous as developing a transistor radio?[14] — and approval did not come until the end of January 1954[15]. Regency of the United States put a set on sale first, at the end of 1954[16], and Japan’s first transistor radio, the TR-55, did not go on sale until August 1955[17].

The first radio cost ¥18,900 a set[18] and, being no smaller than the miniature-valve portables then in fashion, sold poorly at home. Ibuka set as his target a size that would fit in a pocket, and went to Mitsumi Electric and Foster Electric to have new small speakers, capacitors and transformers made, down to a dedicated six-volt battery[19]; in 1957 the company put the world’s first pocketable radio on the market[20]. Morita Akio moved with his family to New York, turned down an offer of OEM supply from a large American distributor, and staked everything on exporting under the company’s own brand, SONY[21]. Japanese manufacturers of the day exported as subcontractors to American firms as a matter of course[22], and to sell under one’s own unknown name was an extraordinary choice. In January 1958 the company renamed itself Sony Corporation, and in December of that year it listed on the Tokyo Stock Exchange[23].

The company did not take the road of expansion into general electricals. Yoshii Hei (吉井陛), a managing director, told a lecture audience in October 1966 that if you widen the frontage, something will be lacking in the concentration of your technology, resting the case for staying a specialist on that concentration[24]. In colour television, Ibuka introduced the Chromatron system of Paramount, which he had seen at an American conference in March 1961[25], but the yield in volume production never reached one in ten and each set carried a loss of ¥100,000[26]. To switch to RCA’s shadow-mask system would have damaged the company’s technological standing[27], so Yoshida Susumu (吉田進), who led the development, asked Miyaoka Senri (宮岡千里) for a structure that would fire three electron beams horizontally from a single electron gun[28]. A prototype gun was ready at the end of 1966[29], Ogoshi Akio (大越明男) completed the aperture grille in the summer of 1967, and in April 1968, six years after the original idea, Sony announced the Trinitron[30].

Scaling up, and a first step outside electronics

In March 1970 Yoshii disclosed that the company had committed ¥20 billion of capital investment to bring the Trinitron into volume production[31], describing it as a sum equal to the cumulative total of all investment over the past twenty-three years, to 1968[32]. In the same lecture he showed that exports accounted for 60 per cent of total sales, with the United States alone taking 37 per cent[33]. Foreign shareholdings had reached 24.5 million shares, or 32.14 per cent, all but touching the 33 per cent ceiling then permitted[34]. Since issuing American Depositary Receipts in June 1961 the company had raised money through issues at market price, and free allotments had come to 35.6 million shares, equivalent to 44.4 per cent of all shares issued[35]. The portable player launched in 1979, the Walkman, sold heavily around the world[36], and Morita later put the test of a consumer product this way: A product is not the real thing unless an amateur can pick it up and enjoy using it[37].

In August 1979 the company set up Sony Prudential Life Insurance in a joint venture with Prudential Life of the United States, taking a 50 per cent stake[38] and entering a financial business that looked to have nothing to do with electronics. It was renamed Sony Life Insurance in April 1991 and became a wholly owned subsidiary in March 1996[39]. Complementing an earnings structure weighted towards equipment sales, this business — together with Sony Bank and Sony Assurance, founded later — came to occupy a corner of the group[40]. In April 2004 Sony Financial Holdings was established to bring them together, and in October 2007 it listed on the First Section of the Tokyo Stock Exchange[41]. While the core electronics business swung, finance supplied steady earnings, and its operating profit reached $1.2B (¥130bn) in the year to March 2020[42].