SONY TAKES HUGE HIT TO REVERSE SLIDE
ANALYSTS UNIMPRESSED Electronics giant to cut workforce, sell US$1B in assets
TOKYO • Struggling electronics and entertainment conglomerate Sony Corp. said yesterday it would cut 7% of its global work force, sell more than US$ 1- billion in assets and post a loss this year.
With a restructuring plan that failed to excite some analysts, Sony hopes to reverse its fading fortunes and catch up with rivals such as Matsushita Electric Industrial Co. and Sharp Corp. in flat TVs and Apple Computer Inc. and its popular iPod player in the portable music industry.
The inventor of the Trinitron TV and Walkman cassette player said it would book ¥210-billion (US$1.9-billion) in restructuring charges in the two business years through March, 2007, as it closes plants and slashes 10,000 jobs.
Mizuho Securities analyst Koichi Hariya said there was little surprise in the company’s latest turnaround strategy, potentially putting a lid on Sony shares.
“ These are pretty moderate plans,” he said. “Sony’s shares gained in the run-up to today’s announcement and feelings of disappointment may emerge. There could have been some investors who had expected more drastic measures from the new foreign CEO.”
Sony estimates the restructuring will produce cost savings of ¥200-billion by the end of the business year to March, 2008, when it aims to achieve an annual group operating profit margin of 5% and more than ¥8-trillion in revenue.
That would be similar to Matsushita’s 5% profit margin target for 2006/07, up from 3.5% last year. Matsushita recently finished a major restructuring and its earnings are improving, helped by robust sales of appliances and plasma TVs.
“Sony and its peers all face tremendous pressure in the marketplace, but we have a sense of urgency and we have a sense of purpose. We can and will compete vigorously,” Howard Stringer, Sony’s new chief executive, told a news conference.
To help boost efficiency, Sony abolished the company system that Mr. Stringer said was preventing different business units from communicating freely and working together for common goals. This caused overlap and missed opportunities in the market.
The electronics group will be reorganized to place centralized decision-making under Ryoji Chubachi, who became president and electronics CEO in a management reshuffle in June.
“ We are going to achieve our goals by breaking down the existing silo walls and eliminating the highly decentralized structure we’ve maintained in the past,” said Welsh- born Mr. Stringer, a former journalist and the first non- Japanese at the helm of a major Japanese electronics company.
Sony said it now expected to post a group operating loss of ¥20-billion in the current business year to March due to an increase in restructuring charges. Sony’s previous estimate was for an operating profit of ¥30-billion.
Sony unveiled plans to sell real estate, stocks and non-core assets worth ¥ 120-billion by 2007/08, vowed to reduce the number of product models by 20% and close 11 of its 65 global factories.
Sony said it would postpone the planned listing of its financial unit until the 2007/08 business year or beyond. It had originally eyed a listing in 2006.
It said it would continue restructuring its money-losing TV unit by closing production lines for traditional cathode ray tube (CRT) sets and shifting resources to fast-growing liquid crystal display (LCD) and rear-projection TVs.
Sony plans to bring the TV unit back to profitability in the second half of 2006/07 through various cost-cutting measures such as procuring more parts for rearprojection TVs from China and concentrating its design operations for LCD models in Japan.
The firm has been investing aggressively in chips and other core parts such as LCD panels to achieve a vertically integrated production structure, which it believed was key to differentiating its products from low- cost rivals.
It plans to invest ¥340-billion on semiconductors over the two business years to March, 2008. That compares with an estimated ¥500-billion over the three years through next March.
The company also unveiled plans to establish a display group to further its development efforts on organic light emitting diode (OLED) displays, a promising next-generation flat panel that could one day replace LCDs in some applications.
Mr. Stringer said Sony would cultivate revenue growth by focusing on expanding its presence in high-definition camcorders, DVD recorders and TVs. Another key product will be the PlayStation 3, its next-generation game console due in early 2006, he said.
Mr. Stringer also talked to the packed news conference about the potential for the cell chip, a high-powered microprocessor jointly developed with Toshiba Corp. and International Business Machines Corp., which it hopes will be used in a wide range of audio-visual products.
But investors have heard a similar story before.
Sony has already cut 20,000 jobs and significantly lowered fixed costs under a previous three-year restructuring plan that was scheduled to end in the current business year.
Instead of boosting profitability, Sony’s earnings have dwindled under the plan, hit by sliding demand and prices for ageing product lines such as CRT TVs and CD Walkmans in which it has relatively high market shares.
Yet Jun Nishizaki, chief portfolio manager at Nissay Asset Management, said Sony seemed to be on the right track this time. “I think Sony is heading to the right direction,” he said. “But whether it is attractive enough to buy or not is a question to be answered a bit later when things get clearer.”
Before the announcement, shares in Sony closed down 2.2% at 3,940 yen after touching a three-month intraday high this week. The Tokyo stock market’s electric machinery index was down 1.45%.
Reuters