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Recession and Strong Yen Drive Sony to Annual Loss
From The New York Times - May 15, 2009
By HIROKO TABUCHI
TOKYO — Sony on Thursday reported its first annual loss in 14 years and forecast another grim year ahead, as the prolonged economic slump and a strong yen dashed hope for a quick recovery.
Facing more losses ahead, Sony said that it would close three factories in Japan, part of a continuing effort to trim production costs and rebuild a business that has been ravaged by the sharp cutback in consumer spending throughout the world.
Sony expects a net loss of 120 billion yen ($1.26 billion), in the business year ending in March 2010, after a loss of 98.9 billion yen ($1.03 billion) in the fiscal year that just end.
That shortfall, while substantial, beat Sony’s forecast of a 150 billion yen loss ($1.6 billion), partly because of a one-time gain from a change in Japanese tax laws.
Like other Japanese exporters, Sony is reeling from a decline in sales overseas as well as in Japan, which is mired in its worst recession in decades. A stronger yen, which erodes overseas revenue and inflates production costs at home, has also weighed heavily on its bottom line.
Sales for the 2009 financial year fell 12.9 percent from a year earlier, to 7.73 trillion yen ($80.5 billion). The slump deepened in the most recent quarter, falling 22 percent, to 1.52 trillion yen ($15.9 billion). But those factors mask more fundamental problems at the manufacturer.
Once an electronics powerhouse and stylish innovator, Sony’s dominance has been usurped in almost everything it makes by rivals with sharper marketing and less expensive products that are easier to use.
Sony long ago gave up the lead in personal music players to Apple’s popular iPod and is struggling to develop a serious competitor to the iPhone. Similarly, Nintendo has outsold Sony’s powerful PlayStation 3 video game console with the Wii, a simpler console for novice players.
Sony said it had brisker sales of PlayStation 3 and PlayStation Portable machines in the financial year that ended in March and expects sales to increase in the current year. Still, low profitability is leading to losses at Sony’s video game business.
Meanwhile, Sony has lost money for five straight years in televisions, trailing Samsung Electronics of South Korea, which dominates major markets with a lean production and aggressive pricing. Even Sony’s stronghold, camcorders, has come under pressure from low-cost alternatives like Flip Video, sold by the American start-up Pure Digital Technologies.
A problem plaguing Sony is that it has focused on Japanese consumers willing to pay high prices for cutting-edge technology. Sony also makes many of its products in Japan, where production costs are high and vulnerable to currency swings.
Mounting losses at Sony’s mobile phone venture with the Swedish company Ericsson are a new headache for the company. Sony Ericsson posted a loss of 293 million euros ($399 million) for the first three months of 2009, causing speculation that one or both parent companies were looking to sell their stakes.
Sony’s chief executive, Howard Stringer, has tried to shift emphasis away from hardware to networked products and services, but change has been slow. Mr. Stringer, a Welsh-born American who took the helm at Sony four years ago, has also talked of breaking down internal barriers that separated various product efforts.
In an effort to speed up the process, Mr. Stringer announced a management reshuffling in March that replaced older executives with younger ones. He also redrew Sony’s corporate structure to encourage engineers from all projects to work together.
At the same time, Mr. Stringer has pushed ahead with aggressive cost-cutting, eliminating 16,000 jobs and reducing its network of 57 factories. But some analysts warn that those measures could further slow innovation at the company.
Sony said it would close three plants in Japan by the end of December that make cellphone cameras, video recorder parts and smart cards. Sony has said it intends to close six more factories around the world. The company said any jobs lost at those factories would be part of the 16,000 total.
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