Battle is on at electronics and media giant to save US$1.1b a year
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(TOKYO) Japan's Sony Corp said that it will cut 16,000 jobs, curb investment and pull out of businesses to save US$1.1 billion a year as the financial crisis ravages demand for its electronics products.
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| Rainy days ahead: Sony will cut 8,000 regular workers, or roughly 4 per cent of its workforce of 185,800, and a comparable number of temporary and contract staff |
The job cuts are the biggest announced by an Asian company so far in the crisis and underscore the challenges facing Sony, which has fallen behind Apple Inc's iPod in portable music and is losing money on flat TVs.
Sony said that it would cut 8,000 regular workers, or roughly 4 per cent of its workforce of 185,800, and an equal number of or more temporary and contract staff.
But analysts warned that the measures may not be bold enough to streamline a sprawling empire that ranges from semiconductors to movies and insurance.
The cuts are also risky because they mean that Sony will be investing less in future growth.
'The number sounds big, but this staff reduction won't be enough. Sony doesn't have any core businesses that generate stable profits,' said Katsuhiko Mori, a fund manager at Daiwa SB Investments.
'After the workforce reduction, the next thing we want to see is what is going to be the business that will drive the company.'
Sony is not the only one suffering. Japanese rival Panasonic lowered its earnings forecasts last month while South Korea's Samsung Electronics Co said on Monday that it would cut capital investment and warned of tough times.
Shares in Sony, which have fallen nearly 70 per cent this year, rose 3 per cent to 15.8 euros (S$30.71) in Frankfurt after the announcement.
Sony flagged the need for restructuring in October when it more than halved its annual profit forecast, blaming slowing demand for its Bravia liquid crystal display TVs and Cyber-shot digital cameras and a firmer yen.
The restructuring is a setback for chief executive Howard Stringer, who had implemented a major restructuring after taking the helm in 2005 and until recently, seemed to have put the company on a recovery track.
It also underlines the grim outlook for Sony and its rivals during the year-end shopping season and into next year as the financial crisis grows into a recession that has already engulfed the United States, parts of Europe and Japan.
'The outlook for the global economy suggests that things would become tougher for Sony next year, and it cannot expect a recovery without these restructuring measures,' said Fujio Ando, senior managing director at Chibagin Asset Management.
Sony, along with other Japanese exporters, has also been hit hard by a surging yen against the dollar and euro, which cuts into the value of its profits and makes its products less competitive in overseas markets.
Sony said that it would raise prices on some electronics products in Europe in response to the weak euro.
South Korean competitors Samsung and LG Electronics have found some relief in the weaker won.
Both companies have adjusted production to cope with falling orders and say that they do not plan to cut staff, but analysts are not so sure.
'Japanese electronics makers suffer more than their rivals in South Korea because of the stronger yen,' said Lee Min Hee, an analyst at Dongbu Securities in Seoul. 'But going forward, Korean manufacturers could consider more drastic measures.'
Sony said that it would delay boosting output for LCD TVs in Slovakia and outsource production of image sensor chips, as it aims to cut electronics investment by 30 per cent in the next business year compared with a prior plan.
It also unveiled plans to reduce its network of 57 manufacturing sites by five or six through outsourcing and by shifting and consolidating factories to low-cost areas. Earlier this week, it announced the closure of a video-tape plant in France.
Sony said that it would detail the effect of the restructuring on earnings in its third-quarter results in January. It has already warned that it may need to revise downwards its profit forecasts even more due to the yen's strength.
Other technology and car manufacturers could follow suit in the coming weeks with their own restructuring plans, raising the prospect for industry realignment.
'Sony's restructuring might be followed by other Japanese manufacturers. With the stronger yen, a lot more companies will probably need to do similar reductions. There will be more mergers, sales of units and restructuring in Japan,' Mr Mori said.
Meanwhile, in the US, chipmakers Texas Instruments Inc and smaller rival National Semiconductor Corp slashed current-quarter revenue forecasts to far below Wall Street expectations as demand for mobile phones and analog chips came to a virtual standstill.
Also, smaller chipmakers Broadcom Corp and Altera Corp warned on Monday of weaker-than-expected demand.
'Conditions (are) likely to get worse before they get better,' TI's head of investor relations Ron Slaymaker told analysts on a conference call. -- Reuters
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