Market woes make Sony predict another year of loss

Last Updated 06 November 2011, 15:48 IST

The Japanese electronics and entertainment giant recently said that it expected to post a loss for the fiscal year ending next March of 90 billion yen ($1.2 billion) in contrast to a previous profit forecast of 60 billion yen.

Sony reported a loss of 27 billion yen for the quarter ended September 30, in contrast to a profit of 31.1 billion yen in the period a year earlier. Sales fell 9.1 per cent, to 1.58 trillion yen. The somber numbers put pressure on Howard Stringer, the Welsh-born American chief executive who is in his seventh year at Sony’s helm, to take more drastic measures to turn around the manufacturer.

Stringer, 69, had suggested that he would lay the foundations for a strong recovery at Sony. But with its bottom line decimated by the global financial crisis and more recent problems, the handover could be a messier affair.

Sony has, in fact, been making progress in revamping its sprawling empire, closing some factories and paring its supply chain. It said last week that it would spend 1.05 billion euros ($1.5 billion) to take full control of its struggling cellphone venture with Ericsson of Sweden, and announced plans to realign its money-losing television business.

Kazuo Hirai, an executive vice president considered to be a strong contender to succeed Stringer, offered more details recently of Sony’s plan to turn around its television operations, saying it would incur costs of 50 billion yen to streamline production and other fixed costs. Sony will also reduce the number of television models it offers, said Hirai, who leads the company’s consumer electronics business.

“The entire Sony management feels a grave sense of crisis that we have continued to post losses in TVs,” Hirai, 50, said at a news conference. “We urgently want to escape this chronic loss-making state,” he said. But 2011 has been a painful year for Sony, with much of its troubles caused by misfortune. It was forced to halt production at 10 factories in the aftermath of Japan’s earthquake and tsunami in March, including a Blu-ray Disc plant completely overrun by waves. A few weeks later, a huge computer hacking attack that compromised more than 100 million accounts on the PlayStation Network exposed embarrassing weaknesses in the company’s online defenses, forcing Sony to halt the popular video game service for more than a month.

In August, rioters in Britain set fire to a north London warehouse containing CDs and DVDs, burning it to the ground. More recently, devastating floods in Thailand submerged a digital camera factory and forced Sony to halt production at a semiconductor plant because of supply shortages. All the while, the punishing strength of the yen against the dollar and euro has weighed on Sony’s earnings, making its products less competitive globally and eroding its overseas earnings. The yen soared to a post-World War II record earlier this week, prompting the Japanese government to intervene in currency markets to try to tame its rise. Sony has also long had its hands tied in trimming its global work force of almost 1,70,000. A third of those employees are in Japan, where large-scale layoffs by top companies are highly controversial. “We are fighting against strong headwinds,” said Masaru Kato, the chief financial officer of Sony.

Those woes have hindered what Stringer has called Sony’s “four-screen strategy,” focusing on its smartphones, tablet computers, personal computers and televisions. The idea, according to Stringer, is to bring content from Sony’s music and movie companies exclusively to those gadgets, spurring both hardware and software sales.

Helping to marry the two sides of the strategy would be Sony’s online content delivery platforms, like the PlayStation Network, which has more than 90 million accounts and is perhaps the world’s only serious rival to Apple’s iTunes.

But Sony has been late to the market with tablets, having finally introduced one in September, a full year and a half after the arrival of Apple’s iPad. In the smartphone market, Sony has also struggled to keep up with the Apple iPhone, though its Xperia phones, fitted with Google’s Android platform, have found some success.

Sony’s biggest headache is its television business, which has lost money for seven consecutive years amid tough competition from Samsung Electronics of South Korea.

Hirai, the consumer electronics chief, said that Sony would cut its annual sales forecast for liquid-crystal display TVs by 9 per cent, to 20 million units. He said the company would focus less on increasing unit sales and more on coming up with the right mix of models to improve profitability.

(Published 06 November 2011, 15:48 IST)

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