/ 22 January 2009

Sony warns of $2,9bn loss

Sony warned it would post a bigger than expected ,9-billion operating loss this business year due to sliding demand.

Sony warned it would post a bigger than expected $2,9-billion operating loss this business year due to sliding demand, a stronger yen and costs to restructure its ailing electronics operations.

The maker of Bravia LCD TVs and PlayStation game consoles said it would give further details of its restructuring plans at a briefing late on Thursday in Tokyo. Chief Executive Howard Stringer will attend.

Sony said earlier on Thursday that it was considering consolidating TV production in Japan into one plant, while keeping the other for distribution and other purposes, as part of a broader restructuring unveiled last month.

The electronics and entertainment conglomerate said it now expects an operating loss of ¥260-billion ($2,9-billion) for the year ending March 31, down from an earlier projection for a profit of ¥200-billion.

A cut to its earnings outlook had been expected, but the scale of the revision was much bigger than the ¥100-billion loss previously reported by media.

The consolidation of TV production into one factory in Japan would likely lead to 2 000 job cuts, the Nikkei business daily reported earlier. That would be part the plan unveiled last month, which included cutting 8 000 regular employees, or 4% of its global workforce.

But analysts say the electronic and entertainment conglomerate, which generates two-thirds of its revenue outside Japan, may need to take more drastic steps.

”Its business model and operational issues account for 80% to 90% of Sony’s poor earnings. Domestic production costs are a concern but this move is not something that would bring it back to the black or cut losses in half,” said Nomura Securities senior analyst Eiichi Katayama.

”Sony has to consider ways to lower fixed costs not only for its TV business but for the whole company,” he added. ”It will have to start cutting development costs in addition to production costs.”

Sony’s shares closed down 2,6% at Â¥1 938, underperforming a 1,9% rise in the benchmark Nikkei average.

Illustrating the problems Sony faces, Japanese exports plunged 35% in December from a year earlier, with electronics sales to China and other parts of Asia among the worst affected as Western orders from Asian assembly plants dry up.

The yen rallied nearly 20% against the dollar last year and it hit a 13-year high of ¥87,10 on Wednesday.

Rival Samsung Electronics this month reorganised itself into two major groups in response to the global downturn, while Panasonic has also cut its outlook and stepped up restructuring measures. — Reuters