RSSNow, it's Sony's turn to take the hit: What it means, and why
By Scott M. Fulton, III | Published December 9, 2008, 11:26 AM
Sony was already suffering from internal issues, but now the global economy is forcing the CE giant to consider not only scaling down, but scaling back its innovations for next year.
That the global economic predicament should impact Sony, headquartered in one of the hardest hit countries, should surprise no one. This morning, the company admitted that it, too, is taking its medicine. It will cut 8,000 jobs in its electronics divisions worldwide, which is bad but not catastrophic news, and it will reduce temporary or seasonal employees as well.
For the corporation that consistently defines the state of global consumer electronics every year, the fact that the world's economy must focus its efforts away from consumer goods and toward infrastructure and durable goods, could eventually mean a long-term shift in strategy. Think of a company which two years ago touted one of its most important contributions to society as being the producer of "Wheel of Fortune," now devoting more of its efforts to helping the world to simply cope and overcome bad fortune.
To its credit, this morning's statement from Sony was without euphemism. Right up front, the company said it plans to spend 30% less on growing its electronics business than it had planned at mid-year. Every year, Sony presents investors with what it calls its "mid-term strategy," in an effort to be up-front about its goals. Last June, CEO Sir Howard Stringer announced a comprehensive effort to infuse its businesses with the stimuli they needed to become profitable again, with electronics -- including HDTV and Blu-ray Disc -- among that program's core focus.
Sony had planned to invest 1.8 trillion yen in those core businesses, and much of that investment had already begun. Now it may have cut that allocation by the end of its fiscal year -- the end of March 2009 -- by 540 billion yen, or about $5.82 billion at current exchange rates.
If you're already an extraordinarily diversified company, you start trimming expenses by getting out of businesses that simply can't grow very much more than they already have. This morning, it's made one obvious choice: It's ceasing the production of tape recording media from its Sony Dax factory in France, including VHS and (yes, you're reading this right) Betacam SP cassettes. In a bit bolder move, Sony is postponing its investment in the Nitra LCD flat-panel production facility in Slovakia, which makes HDTVs for Sony including some of its Bravia models. Sony had owned that plant outright before enabling its ownership to shift to the independent Nitra firm, which now depends mostly on Sony for its survival.
Hampering Sony's efforts at this point and likely for some time to come, ironically, is the strengthening position of the Japanese yen against the American dollar. While the value of currency everywhere is tumbling, the relative value of the dollar is historically soft. That's bad news for the Japanese economy, which depends so heavily on exports to US consumers. A recent article in The Economist explained that, for every decline in the dollar's value by as much a single yen, Toyota's annual profits alone must be adjusted lower by the equivalent of $350 million.
The cost of cost-cutting, as anyone who's reduced headcount is aware, can be painfully high. Once it's all done, Sony said this morning, its objective is to end up with an expenditure reduction by next March of 100 billion yen ($1.08 billion). To accomplish this, it says without any candy coating, it will have to adjust the prices of its products higher to compensate for the dollar's weakened purchasing power, and then reduce production levels as well as inventories. That means lower availability for some key consumer items, and this year, it's a safe bet that Bravia displays will be the prime example.
Whether the games division, which maintains the PlayStation 3 and its software, will be similarly impacted is not entirely clear, but this morning's statement implies that the electronics division will be affected more. At Sony, those two divisions are separate; while general electronics sales revenue declined 0.6% annually in the last quarter, PS3 sales rose by over 10%. Unfortunately, the two effects won't cancel each other out. Sony did not say this morning that it plans to curtail its plans to roll out its online gaming network, or its Blu-ray promotions.
I bet it won't be long before they start charging for PS3 online services. Someone is going to see the large amount of revenue it can bring in and want to cash in on it.
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|More like "scaling back the copying of it's competitors innovative products for next year."
Much better :-)
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|Not good for Ico 3. Not good at all.
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|*grins*
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|Nice!
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|well, instead of raising the price of their products because of the falling dollar,
they should continue utilizing even cheaper grade and poorer quality components for their products because it is the "same difference".
anyways we all know that everything made in china regardless of its costs are built to last a mouse's lifetime.
rhetorically, how could sony or any company survive if they build products to last a lifetime?
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|actually, most of sony's electronic equipment is outsourced to Mexico ... not china
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|ay carumba!
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|@Danno,
POS3? Is there anyway to ban these people? Clean up the place.
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|Typical fanboy. I own a POS3, I can say whatever I like.
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|Why would you defend such behavior? Very backwards. Sad to see people think like this.
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|You can say whatever you like, but as an owner, clearly you should know its not a POS. It just makes you sound fanboyish and less credible.
I own 360, PS3 and Wii. They are all great in their own way. PS3 for me is 95% blu-ray and 5% games. 360 is 100% games as is Wii.
The PS3 is a great system and has good games - I just completely prefer the exclusives on the 360, Xbox live and the controller. On the PS3 however, I do like the web browser and integrated memory card slots (unfortunately they no longer have these). I just rarely game on it since all the games I tend to buy are for my 360.
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|Exactly Hollywood!
My POS3 collects dust currently!
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|Too funny that Sony's brilliant idea is the total opposite of the norm.. instead of cutting the costs on your products raise them in an attempt to make them more attractive. Well done Sony!.
I am sure that the POS3 will be affected by this cut / price INCREASE. Especially with the TV adds claiming that this is more of a computer system than an actual console. Yet still suffers in the gaming aspect vs the Xbox or the WII
Grim news for the 8000 employees. I do feel for them and I have been asking the same questions of Toyota since they seem to be staring at a dwindling market yet still say they're posting record sales.
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|Simple: Toyota makes consistently good products across most of their product lines. If they have a failure, they evaluate why it was and pull out or retool and make it better. Honda is even more impressive in this regard (why Honda doesn't have the biggest share is very strange to me. People are stupid and buy inferior cars, methinks.
Sony releases crap, overpriced, spyware laden hardware and their reputation has suffered in many of its markets. It obviously lost a terrific opportunity with the wii and Blu-Ray. (Two markets gaming and movies that they really should pretty much dominate currently, but don't.)
Perhaps I'm just a bitter old geek but I actively recommend against buying Sony hardware and media, and I will do so for the rest of my life due to the malware fiasco. We CANNOT let companies treat us like criminals and get away with it.
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|To accomplish this, it says without any candy coating, it will have to adjust the prices of its products higher to compensate for the dollar's weakened purchasing power...
Now there's a grand idea, why didn't I think of that? Oh yeah that's right...because there's a frikin' recession so consumers aren't interested in paying more for less--they're interested in paying less for more. I'm curious as to how Sony expects to gain more profits by such a move at such a time as this.
How is my reasoning faulty here?
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|another bulls*** global crisis news.. the same excuse to lay off people... same story different actors... how far do these damn corporations want to take this mess?? every time they need to restructure or to reorganize, firing people is involved. Why??? cut the damn prices for you damn expensive products or find a cheaper production process... stop laying off people!! who the hell would buy a bluray disk at 20$ a piece? are you insane?? and don't tell me that the process of making blurays is 50 times more expensive than the one making DVDs.. that's bull crap... it's too bad that every time this s*** happens the average people have to suffer!
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|fire 8,000 people, or 3 top executives ...
guess which one seems more opt to them...
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|Executives of major corporations in america make way too much money. They should all have their salaries cut in half or more.
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|I don't see any issue with execs making a lot of money. It all comes down to rewards for making a company successful. The problem is that too many of these execs have huge salaries regardless of performance.
If a company brings in a ton in profit, why shouldn't the person in charge get a nice bonus from it?
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|I agree - suits them right for "buying" the movie production companies and forcing BluRay (and it associated costs) down our throat!
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