A report from market analysts Standard & Poor suggests that new Sony CEO Howard Stringer may be planning to spin off the company's hardware business, with PlayStation boss Ken Kutaragi tipped to head up the resulting semiconductor firm.
Stringer, who will replace current chairman and group CEO Nobuyuki Idei on June 22nd, is widely expected to significantly restructure Sony's business, in an effort to recover the company's performance after a disappointing FY2005 and continued low margins.
According to the Standard & Poor research, Stringer is expected to spin off a major part of the firm's business into a separate unit - keeping either the hardware (semiconductors and consumer electronics) or software (movies, music and game software) business, while creating a new company to encapsulate the other.
S&P believes that Sony could focus increasingly on a number of headline hardware projects, such as the advanced Cell microprocessor and its CCD technology, used in digital cameras and other image capture devices, while demonstrating increased appetite for sourcing other more generic components outside the company.
One possible scenario is that the semiconductor business would be spun off into an independent operation, allowing it to seek capital from the market independently of the main company - and giving Ken Kutaragi, the "father of PlayStation" who is widely seen as being snubbed by Stringer's ascension to the CEO position, a new business unit to control.
Another possibility mentioned by the report is that the games business could also be spun off, but S&P considers this unlikely due to the success of the current PlayStation family of products and the expected strong launch of PlayStation 3. "Stringer may want to keep the division within the Sony group to protect secrecy and prevent any leakage of technology," the report explains.
One of the key motivations behind turning Sony's hardware-related divisions into separate businesses, and hence repositioning the parent company as a media firm, is that the sectors mentioned are hugely expensive in R&D terms - which Standard & Poor believes could lead to a cash shortage at the giant Japanese firm in the coming years.
The equity research group estimates that $2 to $3 billion in R&D money needs to be spent in the semiconductor and games divisions combined every year for the next couple of years, plus $1 to $2 billion annually in the electronics division.
"We believe that if the chip and games units can procure funds from capital markets rather than from internal resources, Sony as a group can prevent any cash shortage in the future," S&P concludes.