Sony to cut 10,000 jobs, $1 bn assets for revival

Nathan Layne

TOKYO: Struggling electronics and entertainment conglomerate Sony Corp. said on Thursday it would cut about 7 percent of its global work force, sell more than $1 billion in assets and post a loss this year.

With a restructuring plan that underwhelmed some analysts, Sony hopes to reverse its fading fortunes and catch up with rivals such as Matsushita Electric Industrial and Sharp Corp. in flat TVs and Apple Computer 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 yen ($1.9 billion) in restructuring charges in the two business years through March 2007 as it closes plants and slashes 10,000 jobs.

"These are pretty moderate plans," Mizuho Securities analyst Koichi Hariya said. "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 yen by the end of the business year to March 2008, when it aims to achieve an annual group operating profit margin of 5 percent and over 8 trillion yen in revenues.

That will be similar to Matsushita's 5 percent profit margin target for 2006/07, up from its forecast for 3.8 percent this financial year.

"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 press conference.

To help boost efficiency, Sony said it has abolished the company system that Stringer said was preventing different business units from communicating freely, causing overlap in development and missed opportunities in the market.

The electronics group will be reorganised to place centralised decision-making over key business areas under Ryoji Chubachi, who became Sony's new president and electronics CEO in a major overhaul of management in June.

"We are going to achieve our goals by breaking down the existing silo walls and eliminating the highly decentralised structure we've maintained in the past," said Stringer, a former journalist.

The company said it now expected to post a group operating loss of 20 billion yen 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 yen.

MIXED REVIEW

Sony also unveiled plans to sell 120 billion yen worth of real estate, stocks and non-core assets by 2007/08, vowed to reduced the number of product models by 20 percent and close 11 of its 65 manufacturing plants around the globe.

Sony has said it was considering further job cuts in its television unit as it closed production lines for traditional cathode ray tube (CRT) sets and shifted resources to fast-growing liquid crystal display (LCD) and rear-projection TVs.

Some analysts said there was little surprise in the turnaround plans, potentially putting a lid on Sony shares.

"After Sony shares had gained ground in the run-up to today's announcement, feelings of disappointment may emerge when the market reopens," Mizuho's Hariya said.

Sony has already cut 20,000 jobs and significantly lowered fixed costs under a previous three-year restructuring plan called "Transformation 60" that was scheduled to end in the current business year.

But revenues and profits have not recovered. Sony has been hit by steep price drops and weakening demand for ageing product lines such as CRT TVs and CD Walkmans in which it has a relatively high market shares.

It 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 differentitating its products from low-cost rivals.

Sony said it would invest a total of 340 billion yen in semiconductors in the two business years ending in March 2008, after investing about 500 billion yen over the three years through next March.

It also unveiled plans to establish a display group to work on developing organic light emmitting diode (OLED) displays, a promising next-generating flat panel that could one day replace LCDs in a number of applications.

Jun Nishizaki, chief portfolio manager at Nissay Asset Management, said Sony seemed to be on the right track.

"Whether (Sony stock) is attractive enough to buy or not is a question to be answered a bit later when things get clearer," he said.

Before the announcement, shares in Sony closed down 2.2 percent 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 percent.

(Additional reporting by Eriko Amaha, Kunihiko Kichise, Kiyoshi Takenaka and Risa Maeda)