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Sony hands U.S. reins to Schulhof

In the wake of a bottom-line bolstering performance by its Hollywood-based entertainment division, Sony Corp. announced Monday it plans to integrate software and hardware operations in the United States under the supervision of 20-year company loyalist Michael P. Schulhof.

In the move, Sony official renames two of its companies: The U.S. holding company becomes Sony Corp. of America, while the hardware unit becomes Sony Electronics Corp.

Schulhof, the 50-year-old former president of Sony Software Corp. and vice chairman of Sony USA, will take the reins as president and chief executive of Sony Corp. of America June 1.

The appointment marks a dramatic departure for Sony, which previously entrusted U.S. supervision of its core hardware operations to Japanese executives. Schulhof will replace former hardware president Ken Iwaki, who has been appointed to the company’s newly formed International Executive Committee. Iwaki was deemed best suited for the role because he has headed electronics and strategic planning operations in Asia, Europe and the U.S.

“This is an example of Sony practicing what others have preached,” said Stephen Unger, who as managing director of the worldwide entertainment division for the executive search firm SpencerStuart & Associates consults for numerous international entertainment companies. “A number of companies have threatened to integrate their software and hardware companies. Now one of the leaders is really doing it.”

The move follows Sony’s report last Thursday that its U.S.-based movie and music companies — Sony Pictures Entertainment and Sony Music — contributed roughly 50% of its reported $ 1 billion in operating income last year (Daily Variety, May 21).

In addition, the integration of software and hardware operations signals that Sony Corp. president and CEO Norio Ohga is confident that its billion-dollar acquisitions of Columbia Pictures Entertainment and CBS Records can augment its core business of selling televisions, stereos and portable electronics. That’s according to Roy Furman, president of investment banking and institutional brokerage firm Furman Selz Inc. in Manhattan.

“There has always been a recognition that hardware and software overlapped, but putting the two areas under one umbrella says it in a more dramatic way than we’ve seen in the past,” Furman said. “It is one thing to buy a division, as Sony did with entertainment; it is quite another to put one head over the entire (hardware and software) effort.”

An architect of Sony’s acquisitions of Columbia Pictures Entertainment and CBS Music, Schulhof’s overall responsibilities will include businesses that churned out roughly $ 13.5 billion in revenues for Sony Corp. — more than $ 7 billion from entertainment and $ 6 billion in U.S. electronic.

Schulhof has supervised the sexier software companies from the get-go, but the company’s U.S. hardware operations have proven to be a dogged contributor to the bottom line. Sony Electronics Corp. employs 18,000 people in the U.S. and Mexico.

For example, Sony Electronics Corp. assembles televisions in Mexico, Pittsburgh and San Diego, compact discs in Terre Haute, Ind., stereo speakers in Boca Raton, Fla., and Delano, Penn., and operates the world’s largest blank audio/videotape manufacturing facility in Dotham, Ala.

Furman said the appointment also salutes the “continued ascendancy” of Schulhof in the Sony ranks. “This suggests that they are exceptionally pleased with what he has done thus far,” he said.

So what’s ahead? Schulhof said the focus will be on leveraging “electronic and entertainment assets more closely in the future.” He pointed to Sony Pictures Entertainment’s use of the coming Arnold Schwarzenegger-starrer “Last Action Hero” to introduce the new hardware technology Sony Dynamic Digital Sound as an example of the growing alliance between entertainment and electronics.

Schulhof also cited Sony Music’s work with the company’s electronics arm on the introduction of the MiniDisc — the company’s new sound delivery system. He said Sony Music helped gain support for the new technology throughout the record industry (except Polygram) with the release of more than 500 titles in the MiniDisc format.

Schulhof said music from Michael Jackson, Mariah Carey, Michael Bolton and 10 ,000 Maniacs has helped spur sales of the new MiniDisc, which he estimates will sell 100,000 units in the first 12 months after its introduction in December. By contrast, 35,000 CD players were sold in the first year.

Schulhof said the electronics division has “done an excellent job maintaining double-digit sales growth” over the last decade, but “there should also be a recognition of the role that the integration of hardware and software has to play over the next decade.”

Schulhof, who will continue at his New York base, will report to Sony Corp. of America’s board of directors: Sony Corp. chairman Akio Morita, Ohga and Iwaki. He also will have a seat on the board.

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