It’s the profit, stupid

NYT had an excellent profile of Sir Howard Stringer and the Sony turnaround over the weekend.

This great little nugget captures the essence of both Sony’s situation and the Japan restructuring case as a whole:

Of course, Sony’s future and Sir Howard’s legacy do not rest on his charm but on his stated goal of increasing the company’s sluggish annual profit margins to 5 percent from last year’s 2.6 percent by March 2008. By comparison, Samsung and Apple Computer rack up annual margins of 14 percent and 12 percent. Every percentage point that Sony adds to its margins could bolster its stock price by $8 a share, [Credit Suisse analyst] Mr. Drewry said. Sony’s shares closed on Friday at $46.81.

Sony doesn’t need to “beat” Apple or Samsung. It doesn’t matter when the new Playstation comes out or how much Da Vinci Code made last weekend. It just needs to make more money than it does now–and a benchmark of 2.6% isn’t hard to improve upon.

The same is true for Japan. It doesn’t need 10% growth like China or India to be a good investment destination. It just needs to improve, to become more efficient, and that’s happening too.

Still, it will be a looooong process because some people, sadly, think like this:

Kazukuni Kobayashi, a former Sony employee who has written five books about the company’s problems, including one called “Sony Sickness,” is among those who think that the company should install a Japanese chief executive. “In Japan, Sony is an engineering company,” Mr. Kobayashi said in an interview. “In America, it’s a brand.”

Sorry “Kaz”, but Sony is a brand in Japan too–and a good one. And good, global brands are incredibly valuable. Robot dogs are not.