Sony's New CEO Promises Big Cuts

Sony's new chief executive Howard Stringer, the first foreigner to head the Japanese electronics and entertainment company, promised a decisive turnaround Thursday centered on cutting jobs, closing plants and shedding unprofitable businesses.

But analysts said his plan lacked vision and creativity, although they didn't deny the need for the cost cuts, which included slashing 10,000 jobs, or about 6 percent of Sony Corp.'s global work force by the end of March 2008.

The shake-up also called for closing 11 of its 65 manufacturing plants and shrinking or eliminating 15 unprofitable electronics operations by the same deadline. Sony refused to say what those businesses were.

Stringer, a British-American dual citizen and former president of CBS News, acknowledged that times have changed. Unlike the old days, when Sony ruled electronics with its manufacturing finesse, it now faces tough competition and cheaper prices that are turning Sony products into mere "commodities," he told reporters at a Tokyo hotel.

"Staying ahead of this curve by offering the consumer truly differentiated products where we can maintain our standing as a premium brand is a fundamental strategic imperative," Stringer said. "We need to focus selectively and aggressively on being the No. 1 consumer electronics and entertainment company on the planet."

Sony said it would focus now on so-called "champion products" including the PlayStation 3 next-generation video-game console, Bravia liquid crystal display televisions and the Walkman MP3 music players — which have fallen miserably behind Apple Computer Inc.'s iPod.

Analysts were not impressed. Instead of deciding on spin-offs or outlining a clearer way of relating electronics with entertainment, Sony's proposal sounded all too similar to other plans to streamline company structure to avoid duplication, they said.

"If I had to give a grade to Howard Stringer, I'd give him a C-plus," said John Yang, analyst with Standard & Poor's in Tokyo.

"Sony still wants to be the master of the universe. They want to conquer entertainment; they want to conquer consumer electronics; they want to conquer games," Yang said in a telephone interview.

Founded more than a half-century ago, Sony over the decades has symbolized Japan's stunning modernization exemplified in the Walkman and PlayStation video-game consoles.

But the company has never really made good on its promise to generate a dynamic ballooning of profits by linking its electronics operations with its movies and music units, although the popular "Spider-Man" series have helped maintain profits in troubled times.

The company has been criticized for falling behind in slimmer TV models, such as liquid-crystal and plasma display sets, losing market share to South Korea's Samsung Electronics Co. and domestic rivals Sharp Corp. and Matsushita Electric Industrial Co., which makes Panasonic brand goods.
Sony also has been soundly beaten by Apple's iPod in what should have been its forte — portable music players — by clinging to CD and mini-disk formats and its own proprietary but unpopular format for digital music files. It also fell behind Apple's iTunes online music store.

The PSX, which combined the PlayStation2 console with a DVD recorder and player, has bombed since going on sale less than two years ago. It was never sold outside Japan and Sony won't disclose PSX sales figures.

And it has been battered by competition from cheaper Asian rivals, seen in the dramatic rise of South Korea's Samsung Electronics Co. Ltd.

All that has taken a toll on Sony's earnings. Its electronics sector has lost money for two straight fiscal years.

And on Thursday, the Tokyo-based firm said it now expected a group net loss of 10 billion yen ($90 million) for the year through March 2006, far worse than its initial forecast for a 10 billion yen profit, citing restructuring costs for the latest plan.

President Ryoji Chubachi, who heads up the electronics division, conceded that his company wasn't making products that people wanted to buy and that Sony's technological prowess had declined.

It was no longer enough just to make a nifty gadget that produced dazzling images or quality sound, Chubachi said, when consumers were looking for smart ways to link to the Internet and enjoy digital content.

"If there had been good surprises in the announcement, the news would have been positive," said Mitsuhiro Osawa, analyst at Mizuho Investors Securities. "There weren't any surprises and so the news was neutral."

Still, Osawa said the direction Sony had laid out was fundamentally sound, and all Sony must do now is show results, especially during the Christmas shopping season.

Under the plan that Stringer said will cut costs by $1.8 billion by the end of March 2008, Sony will reduce 4,000 workers in Japan and 6,000 outside the nation, while factories would be cut from the present 65 to 54.

Sony, which did not give a country breakdown for overseas job cuts, employs more than 151,000 workers worldwide. Half of the job cuts will be from headquarters and administrative staff, while the other half will come from other areas, Sony said.

Over the last five years, Sony shares have lost two-thirds of their value.

Stringer said Sony's "basic strategy" has not changed, but that the difference will come with faster decision-making and a commitment to getting things done.

"We have made promises before but we failed to execute them," Stringer said. "We must fight like the Sony warriors that we are."