Sony announces restructuring, $2.9 billion loss
[UPDATE 2] PlayStation 3 maker says it will cut TV division by 30% worldwide as operating margins plummet; game losses to increase $338 million.
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That Sony will be cutting a significant portion of its workforce is a certainty. The Japanese electronics giant announced the move in December, saying that it would eliminate approximately 16,000 part- and full-time jobs in a bid to save $1.1 billion through its next financial year, which ends March 31, 2010.
However, what remains to be seen is which divisions these reportedly "sweeping" and "sacred-cow-slaying" cuts will impact. The Financial Times reports today that Sony plans to announce the specifics of its restructuring efforts sometime this week.
As previously revealed, CEO Sir Howard Stringer has faced stiff resistance from entrenched Sony management, who oppose the company's first British-born executive's plan. The FT notes that Stringer believes the stalwart electronics company should shift its focus toward the software market, whereas dissidents maintain the value of its hardware-creation business. Another reported cause for tension between Stringer and upper management is his belief that Japanese staff should be subject to head-count reductions.
Japanese financial news service Nikkei (subscription required) corroborates the FT's report. Nikkei notes that Sony will announce on Thursday that it plans to close one of its two television-manufacturing facilities in Japan by the end of its current fiscal year, which runs through March 31. Along with the factory closure, Sony will reportedly announce that it plans to cut more than 2,000 jobs in Japan, as well as lower its fiscal-year earnings outlook. However, as with Microsoft's reported cost-cutting measures, Sony will eliminate the 2,000 jobs by way of natural attrition, or employees leaving the company of their own accord, according to Nikkei.
The Japanese factory wouldn't be the first that Sony plans to shut down. After Sony's restructuring announcement in December, Pennsylvania governor Ed Rendell confirmed that Sony's flat-screen television-manufacturing facility located in his state will close, leaving approximately 560 employees out of work. In total, Sony said that it plans to close 10 percent of its 57 manufacturing facilities.
Sony's cost-cutting measures have been spurred by the PlayStation 3 maker's grim fiscal outlook. Earlier this month, Nikkei reported that Sony will post its first loss since 1995, only its second since the company went public in 1958. Sources told the Japanese news service that Sony's net losses for the current fiscal year will hit ¥100 billion ($1.1 billion), a figure that could double depending on the electronics company's January-March retail performance.
[UPDATE] As expected, Sony's restructuring announcement has come to pass. The electronics company today confirmed much of Nikkei's initial report, saying that it will close one of its TV-manufacturing facilities in Japan, as well as reduce its global headcount across the division by 30 percent during its next fiscal year, ending March 31, 2010.
In a further effort to cut costs, Sony said it would be substantially reducing executive bonuses for the current fiscal year, introduce an early retirement plan, and outsource more of its software development. In all, the publisher expects its cost-cutting measures to amount to a savings of ¥250 billion ($2.8 billion) by the end of its next fiscal year, more than doubling the target it set out in December.
Along with the restructuring announcement, Sony drastically lowered its current fiscal-year earnings forecast. Coming in significantly lower than already dismal projections, the company said it now plans to post a ¥260 billion ($2.9 billion) operating loss for the year ending March 31, 2009. Previously, Sony had expected to make a ¥200 billion ($2.2 billion) profit for the year. For the year, Sony now expects to post a ¥150 billion ($1.7 billion) net loss on ¥7.7 trillion ($86.5 billion) in revenue.
[UPDATE 2] In addition to providing a company wide earnings revision, Sony also broke out its expected results for its PlayStation-led computer entertainment division. Not surprising considering the PlayStation 3's third-place finish in the 2008 console race, Sony revealed that its games segment will increase its losses by approximately ¥30 billion ($338 million) for the fiscal year. Of that figure, Sony attributed ¥15 billion ($169 million) to lower-than-expected sales, with the remaining half due to an appreciation of the yen.
Following its earnings revision announcement, the Japanese company discussed its move with analysts and investors. While the bulk of the conversation dealt with the aforementioned turmoil in its electronics division, Sony did offer up a few tantalizing clues on the future of its PlayStation brand.
After bemoaning the company's slowness to market in certain areas, Stringer commented that it is vitally important for Sony "to advance a number of our strategic priorities." One of those priorities could be the company's PlayStation-branded handheld, with Stringer noting, "We will tap our unique strengths in gaming, entertainment, digital imaging and telephony to fast track a lineup of next generation mobile devices."
Stringer also indicated that the company plans to more deeply integrate its television and computer entertainment products. "First, we will accelerate the transition of our televisions from being passive displays offering linear entertainment chosen by conventional gatekeepers to becoming network entertainment centers providing rich content alternatives organized by consumers [based] and called directly from the broadest and most open network in the world, the Internet," the executive said.
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