By Takashi Mochizuki
TOKYO -- The latest push by investor Daniel Loeb to break up Sony Corp. presents a dilemma for Chief Executive Kenichiro Yoshida, who is generally sympathetic to Wall Street's thinking but wants to keep his conglomerate intact.
In a letter to investors Thursday, Mr. Loeb's hedge fund, Third Point LLC, said Sony should spin off its semiconductor unit, which is known for making components for Apple Inc.'s iPhones. It also said Sony should consider shedding stakes in Spotify Technology SA and a Sony financial unit that sells life insurance in Japan.
A Sony spokesman declined to comment on Mr. Loeb's letter but said the company values input from financial markets on how to achieve long-term growth.
Mr. Loeb's challenge highlights the breadth of businesses into which Sony has expanded over the decades, many of them lacking an obvious connection to each other. The company owns a Hollywood studio and a music company, makes the PlayStation videogame consoles, sells life insurance to Japanese consumers and invests in health-care companies. And it still manufactures televisions and Walkmans.
Investors welcomed the possibility of some pruning, lifting Sony shares 3.1% in Friday trading in Tokyo.
The image sensors made by Sony's semiconductor unit are used in most of the world's smartphone handsets including those made by Apple and Huawei Technologies Co. The unit is poised for growth as car makers add imaging devices to enable autonomous driving.
Ace Research Institute analyst Hideki Yasuda said a spinoff would allow the unit's management to make aggressive investments without being slowed by the conglomerate.
"If Sony's semiconductor unit truly believes it can be a major player in the car industry, it should act quickly," especially since the smartphone market has become saturated, Mr. Yasuda said.
Toshiba Corp. adopted a similar idea in 2018 by selling a majority of its NAND flash-memory unit to investors led by Bain Capital of the U.S.
This is the second time Mr. Loeb has gone public with demands on Sony. In 2013, he called on the company to split off its music and movie units. Sony rejected the idea, saying those units had synergies with videogames and Sony hardware such as televisions and headphones.
This time, Mr. Loeb focused his proposals on parts of Sony that could be hived off without disrupting the synergy between entertainment hardware and software.
Mr. Loeb said he had invested $1.5 billion. He didn't say what percentage of Sony he owned, but the company's market capitalization as of Friday's close was just under Yen7 trillion or about $64.6 billion.
Mr. Yoshida, the Sony CEO, long served in the company's finance division and helped the company's revival in recent years by making cuts to loss-making divisions. Along with Chief Financial Officer Hiroki Totoki, he has emphasized the importance of having a good relationship with investors.
Mr. Yoshida has been disclosing more details about cash flow in response to investor calls for more focus on that measure. And his recent deal with Microsoft Corp. to work together on internet technology for videogames was welcomed by investors who wanted a robust response by Sony to a foray into the game business by Alphabet Inc.'s Google.
Mr. Yoshida said last month that discussions with investors, including those with Mr. Loeb in 2013, benefited management by giving another perspective on strategy -- a warmer tone toward Wall Street than many Japanese CEOs adopt.
But he also gave little indication he was willing to break off big chunks of Sony. He said the image-sensor business was central to developing new businesses in artificial intelligence.
Atsushi Osanai, who used to work at Sony and now is a professor at Waseda Business School in Tokyo, said the company's wide portfolio of businesses helped tamp down volatility, especially since the movie unit has its hits and misses.
Also, Mr. Osanai said Sony's image sensors could take advantage of insights from the movie makers about how best to capture images. "In fact, sensors are at the heart of Mr. Yoshida's mantra about serving the creators of content better," he said.
Write to Takashi Mochizuki at firstname.lastname@example.org