Sony: Lessons On Business And Passion Learned In Japan

Sony photographic business
Digital Photo Pro was among a select group of U.S. media invited by Sony to make a trip to Japan to visit the company’s Kumamoto sensor factory and its Tokyo-based global headquarters. At the meetings at the locations, Sony revealed quite a bit about its recent sales successes, as well as some of the missteps it has made along the way and some business policies that have previously been unaddressed.

Specifically, I wanted to find out about Sony’s future plans for producing sensors for other camera manufacturers. Sony is known for producing most of the sensors for camera phones and security cameras, but it also produces sensors for most of the camera companies. This is a practice that it started before it had intentions to become the top name in professional digital cameras, so I was especially interested in finding out if Sony would share its best technology with what are now its direct competitors.

This visit to the factory was a first for U.S. journalists—the sensor facility is usually a highly guarded location—and while we had limited access to the factory floor (being a robot-driven cleanroom), we had access to a number of Sony’s top executives and engineers, and a walkthrough of the sensor-manufacturing process and its accompanying business.

In full disclosure, Sony paid for the trip to Japan for four of the invited journalists, though the company made it clear that what (if anything) we write is completely up to us, and while the Sony factory and headquarters were certainly impressive, the tours left us with some questions about the company’s global branding. At the conclusion of the meetings in Tokyo, executives asked for our feedback, and we covered a number of Sony’s practices that were leaving customers confused. While the gathered execs were slightly guarded, they were receptive to the pain points we covered.

By The Numbers

The company was eager to talk about its market position and equally eager to dispel conceptions of its successful first quarter of 2017 being due entirely to the pent-up demand from the back orders caused when its sensor plant was shut down by a massive earthquake. When the media reported that Sony held the No. 2 spot in interchangeable-lens cameras in the U.S. full-frame market, a lot of online forums opined that it was simply because the company caught up on orders for the a7 series camera. While Sony confirmed in the meetings that it did have a boost from the delivery of back orders and from a large earthquake insurance payment, the company said that it had anticipated a (more modest) profit and an increase in market share regardless.

To follow up on those original numbers, Sony’s executives shared that they still hold the No. 2 spot in interchangeable full-frame cameras in the U.S. market. According to the NPD Group, Sony held the spot year-to-date through its latest reporting in June 2017. (This figure, and any figure following this, are measured in USD; no data was provided on unit sales.)

NPD Group has also released data showing that Sony sales grew 42 percent year-over-year in the first half of 2017 compared to the first half of 2016 and that Sony also holds the No. 1 spot in interchangeable-lens mirrorless cameras for the first half of 2017, up 26 percent over the previous year

Sony also used the Tokyo meetings to share some other findings from the NDP Group, including the stat that the DSLR market declined 11 percent in 2017 while the mirrorless market rose 36 percent, and in the full-frame interchangeable-lens market Sony’s sales were up 42 percent while the competitors’ dollar sales declined by 5 percent.

Without providing too much commentary on those numbers (I’ll let the forum threads and Facebook pages dissect them), I will say that this challenges a decades-old role of the companies in the photographic market and that Sony has made it clear it doesn’t intend this to be a fluke.

Visiting The Disaster Site

The purported focus of the trip was a visit to the Sony imaging factory in Kumamoto, Japan. Officially the Sony Semiconductor Manufacturing Corporation Kumamoto Technology Center, the massive building is at the center (literally and figuratively) of the company’s entire core photography business. The sensors produced at Sony’s sensor factories are found in billions of products globally, but the entire production came to a sudden and violent halt in 2016 when a series of earthquakes, including a massive 7.0 main shock that struck in the morning of April 16th, destroyed the Kumamoto plant.

While I’d seen photos of some of the damage, the magnitude (pardon the pun) of the destruction wasn’t clear until the company showed us an internally produced video that showed the quake and the recovery. When I mentioned to the company that sharing that video would help people understand how big the disruption was, Sony made it available, and you can find it here:

 

Watching the video of holes ripped in the ceiling of the cleanroom, structural steel “h-beams” twisted and the foundations of the building shattered, I suddenly realized that this was the company (and the region’s) 9/11, with the quake leaving thousands homeless and a whole industry shut down. It’s no wonder that the company wanted to have journalists tour the factory—that it got back up and running at all in under a year is impressive—and see the production at full pace and fulfilling orders. When you consider that all the suppliers and logistics companies located near the factory were also destroyed or severely damaged, it’s a miracle that the region has recovered at all.

The Kumamoto factory is massive, six (large) stories tall, two buildings across and equally as deep—it’s like a major American mall covered in shiny glass windows. While we were told unofficially that the factory has thousands of employees, we saw very few in the production areas. The factory is incredibly automated, with ceiling-mounted robots bringing in the silicon wafers from delivery and shepherding them through a hands-free process of polishing and lithography and testing.

Due to the limited access to the factory floor, the process of creating the sensors in digital cameras and smartphones is still a bit of a mystery to me, but the questions asked by the more manufacturing-savvy journalists present revealed that the processes are extremely advanced, and the facility can do things with impressive precision and automation. (For the curious, Sony said its core competence steps are film uniformity, boundary level control and metal contamination control.)

It’s probably no surprise to anyone following Sony’s cameras that the company has advanced manufacturing processes, but the amount that pour into its sensor division helps explain its market position. Because the company makes so many sensors for so many markets, it has an economy of scale in production and the ability to spent vast sums on R&D, as advances in one of its markets helps its other industries.

In 2015, Sony announced it was investing nearly a billion dollars (105 billion Yen) into new CMOS manufacturing at its three sensor plants and purchasing rival Toshiba’s semiconductor operations. As a result, any technology developed for one division is beneficial to the rest and gives it a fast turnaround time. When the execs were asked about the way that cameras are designed, they explained that the camera division and the sensor division coordinate so that a body will be ready by the time a new sensor comes online. Meanwhile, competitors that rely on Sony’s sensors don’t have nearly as much access to the sensor division’s roadmaps.

At The Top

The more illuminating of the two meetings was at the Sony headquarters in Tokyo, where we met with several senior staff members, including Kenji Tanaka, business head of ILC Body; Masanori Kishi, sub business head of ILC Lens; and Hiroshi Sakamoto, Senior General Manager, Marketing Division.

In a question-and-answer session and a follow-up feedback session, a few topics came up repeatedly, most notably whether Sony would make available sensors to its competitors with the same features as those found on its marquee cameras. This becomes an increasingly interesting question as Sony seeks to distance itself from the competition through engineering and product differentiation.

While the original a7 camera was a groundbreaking system in that it was the first full-frame mirrorless camera, the sensor in it wasn’t particularly advanced. The a7R added a very high-resolution (for 2013) 36-megapixel sensor, but other than the resolution, it wasn’t particularly advanced.

By the time the second generation of Sony a7 E-mount cameras came around, the company had started to differentiate its products from DSLRs not just with the removal of the mirror but with the addition of technology on the sensors and processors.

The a7S II, for example, had the ability to capture 4K video with no pixel binning—a space-saving technique for recording data that lowers image quality in video like JPEG does for stills—and the ability to output the video the sensor captured across HDMI. The a7R II had a Sony-designed Backside Illuminated (BSI) sensor that gave it impressive low-light/high-ISO performance, and the a9 has a Sony-designed stacked CMOS that puts memory right at the sensor in order to radically speed up capture processing.

Since Sony makes sensors for other companies, giving competitors the same sensors it uses in its top-end cameras would create a situation where the company is competing, essentially, against itself. This is naturally a very guarded detail at Sony. We’ve never been able to get anyone to answer this question before, or even come close. We put this question to Sony execs in Tokyo a number of different ways, and found out some interesting things about their business operations.

When asked directly if Sony would be sharing its latest sensors with other companies, the most telling response was still a bit of a deflection-via-non-answer, but the response was that the fact that the a7R II sensor has been out for two years and no other camera has it should answer our question.

That seems like a pretty good way of saying that Sony won’t give competitors its best sensors, but some follow-up statements make me wonder just how much the digital imaging division knows the real answer to that question.

To explain, some background is necessary. The sensor in Hasselblad, Phase One, Fujifilm and Pentax medium-format cameras are all made by Sony. There are some minor differences in the way the companies utilize those sensors, with some of them generating 16 bits of data and some of them generating 14 bits, so there are some differences in the way that the companies implement the same Sony sensor.

When we asked if Sony’s camera division learned anything from the sensor design requests of the manufacturers that use Sony sensors, the answer was that the divisions are separate and the sensor division is bound by NDAs (non-disclosure agreements) with the manufacturers the company acts as a sensor vendor to. This makes sense based on the way that Sony is structured—Sony Pictures Entertainment is a different group than Sony Electronics Corporation or Sony Corporation of America, for example. As a result, it’s possible that the digital imaging group has absolutely no idea whether or not the sensors found in Sony cameras will end up in competing systems. While the fact that the a7R II sensor hasn’t shown up in other bodies is a good indicator, as the company says, it doesn’t mean that they won’t.

It seems to me very unlikely that competitors will get the best sensors Sony has to offer. More likely we’ll see the latest generation of sensor inside its own bodies and a previous-generation or custom OEM sensor inside that of a competitor. (OEM is a manufacturing term that means Original Equipment Manufacturer, and it refers here to Sony’s role as a third-party supplier.)

Thanks to the acquisition of Toshiba’s sensor business, Sony is thought to produce the sensors found in the Nikon D5, D500, D750, D810 and D800 (and other models). The spot that Sony occupies in U.S. mirrorless ILC cameras belonged to Nikon, so really there’s no reason to stop selling it sensors. The company makes money on its own product line and makes money as an OEM manufacturer.

The sensors for medium-format cameras don’t affect the company’s full-frame sales very much, as medium-format systems traditionally target a different market segment. Even with Fujifilm’s SLR-sized GFX 50S, the sensor in the system isn’t as advanced as that in the a7R II or a9, so that’s not much competition.

While this statement from Sony seems to indicate that the competitors won’t sell the same sensors OEM as the company’s own flagship models, my best guess is that Sony will continue to produce OEM sensor equipment for competitors as long as it’s not harming the sales of its full-frame digital cameras. If Sony continues to occupy the second spot in full-frame interchangeable mirrorless cameras, there’s a lot of market share to pick up. If the company ever reaches the No. 1 spot in the market, there will still be a lot of market share to pick up. However, if the company struggles to keep that No. 2 spot or the top spot in the market, it might not make so much sense to sell competitors the very heart of the systems that are beating it.

The Fate Of Sony’s Other Cameras

In the wake of the launch of the Sony a9, I’ve heard a lot of customers wonder aloud about the fate of the company’s APS-C cameras and the A-mount cameras like the a99-series. All of Sony’s PR focus of late has been on the position of the company’s full-frame ILC mirrorless cameras, not the company’s ILC APS-C cameras or its full-frame semi-transparent mirrorless (SLT) A-mount systems.

Sony updated the a6000 to the a6300 last year and then rapidly released the a6500 a few months later, but that was almost 11 months ago. That’s not a particularly long time to go between announcements in a system, but with all the focus on full-frame bodies, some people wonder about Sony’s plans for the system. More importantly to the professional community, though, is the A-mount system, which was Sony’s professional tool for some time. I reviewed the a99 II in October  2016 and liked the system quite a bit—it seemed like Sony’s answer to the pro DSLRs. When the a9 came out, it looked more like that would be the company’s answer to pro DSLRs.

I asked the executives about the A-mount system and their commitment to it, mentioning the feeling among some users that the system will be discontinued at some point when the mirrorless cameras are sufficiently advanced and have penetrated the market to a certain point. This came right after a discussion about the APS-C camera line and a similar concern that the APS-C platform isn’t part of Sony’s long-term goals, and the executives seemed a bit concerned with that notion.

As recently as April of this year (at CP+ in Japan), Sony announced that its A-mount and E-mount systems will be continued, so the company has publicly stated that it plans to produce A-mount cameras. We questioned the logic of that plan, producing full-frame mirrorless, APS-C mirrorless and full-frame SLT cameras. After all, the company makes a big deal out of its belief that mirrorless digital cameras have advantages and potential that SLR cameras don’t. So why would it need an SLT camera, which is halfway between a mirrorless camera and a DSLR?

While we have a slightly different take on this part of the conversation than do some of the other outlets attending this meeting, Sony made it clear that both APS-C and the A-mount cameras are important to it and that it values their “vision” over “profit,” which seems to indicate that the company doesn’t mind producing systems to maintain its customer loyalty even if they’re not profitable. That said, I can’t imagine a scenario where Sony would run a part of its digital imaging division at a loss for a prolonged period of time, while Imaging Resource’s Dave Etchells concluded that this means that Sony has dedicated itself to “APS-C Forever.”

Messaging On Lenses

When the a7R II was launched in 2015, there was a lot of discussion amongst the media and shooters alike about Sony’s acknowledgement that third-party lenses from companies like Canon would work on the a7R II. At the time, this was a big issue because Sony had very few professional-grade lenses available for the system. While there was a 35mm ƒ/1.4, the G Master lenses wouldn’t be announced for another eight months, so the 35mm ƒ/1.4 was the primary professional-oriented lens in the system.

During the a7R II announcement, Sony mentioned that the AF system in the camera would allow the camera to work with third-party lenses—an uncharacteristic yet welcome announcement from a manufacturer that acknowledged the market conditions around its flagship product. While Sony tried to make it clear that its main focus would be on expanding its own lens lineup, many people (including much of the press) concentrated on the idea of using Canon lenses on its Sony system. This got a boost in 2016, when Sigma announced its own MC-11 adapter, allowing its Canon-mount lenses to work with Sony’s E-mount cameras.

When we brought this up at the Tokyo meeting with the executives, they bristled noticeably at our questions about third-party gear and instead talked about their native lenses. This is understandable, though a bit surprising based on the number of customers who we know switched because of the ability to use their existing lens inventories on the new platform.

Sony has spent a lot of time bolstering the professional lens lineup, and based on the conversation with executives, we’re unlikely to see the company address third-party compatibility going forward. That’s a bit of a shame, as I think that the ability to use a wide variety of lenses designed for other systems is an asset, but certainly for Sony shooters. It’s better to have Sony developing native professional lenses for the system than relying on other companies, but it’s still nice to know that you can couple a Canon-mount lens on Sony cameras and get acceptable levels of performance.

Market Trajectory

It’s pretty clear that Sony’s working to take the top spot in the full-frame ILC market and that it’s going to put a lot of resources into this effort. Having cast off the low-end TV, audio and video product lines, the company is refocused on capturing the pros in each of their key markets. It doesn’t seem like the company would be putting so many resources into an effort to be the Pepsi of cameras.

To crack that top spot, Sony will have to keep up the pace of innovation and the buzz that it’s maintained for the last two years, something that will be difficult—but not impossible—to do. When the company went from one professional-caliber lens to a whole line of pro glass, it was able to pick up a customer base that was waiting for the right moment to make a switch. It will also have to not only pick up new professional shooters but woo customers who have decades of loyalty to other brands.

This glimpse into Sony’s operations was clearly designed to give selected members of the media a look behind the curtain and to show us the resources the company is putting into its professional photographic efforts. Whizzing robots, automated sensor production and corporate skyscrapers are a great way to communicate your long game.

For the professional customer, Sony’s participation in the space is a good thing because competition is always good—especially if a competitor is looking to shake up the space. We’re already seeing camera systems that are being designed and marketed to exploit opportunities created by this competition, and we’re likely to see a lot more.

We’re also likely to see a continued flurry of products from Sony, though I’m not sure how it could keep up the pace and intensity of the last two years. Thanks to the relative newness of the mirrorless camera systems, there is a lot of room for growth in this market both for Sony and for the competitors in the space. That means we’ll all end up with better equipment, no matter what platform we’re using and no matter what type of photography we enjoy.

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