Sony Slashes Forecasts as Global Downturn Hits Home

Sony revealed on Thursday the extent to which the global economic downturn is hurting its business, as it slashed its annual sales forecast by US$15 billion, reversed a forecast profit to a loss and readied its domestic workforce for job cuts.

The company said sales are now expected to be ¥7.7 trillion (US$86 billion), a 14 percent cut from its previous forecast of ¥9 trillion, and net income will drop from an expected profit of ¥150 billion to a loss of the same amount.

Sony, which is a major exporter, has been hit by recession in many of its biggest markets, a tightening of consumer credit and the appreciation of the Japanese yen, which makes its products more expensive overseas and reduces the value of profits made overseas when they are brought back to Japan.

"We can and will navigate through this but it will not be easy," said Howard Stringer, CEO of Sony. Stringer hasn't appeared at a financial news conference since assuming the role of CEO almost four years ago so his attendance may say as much about the seriousness of the situation as the indicators he presented.

Demand for products has fallen in several major areas causing Sony to cut sales forecasts made three months earlier.

Sony now expects to sell 15 million Bravia TVs this year, down 1 million [m] on its previous forecast; CyberShot digital camera sales are predicted to be 21.5 million, a drop of 2.5 million on its last forecast and Vaio PC sales expectations have been reduced by a million units to 5.8 million. In the games sector Sony cut its PlayStation Portable sales forecast from 16 million to 15 million but left its PlayStation 3 target untouched at 10 million.

"Over the past quarter we have experienced a significant deterioration in the profitability of our core electronics business," said Stringer.

In answer to the dire market conditions Stringer reaffirmed plans to push the company and its products into the network era. Last year he said Sony would add network connectivity to 90 percent of its product categories by March 2011, but now the company will speed up some of that work.

"We will accelerate the transition of our televisions from being passive displays offering linear entertainment chosen by traditional gatekeepers to networked-entertainment centers offering rich content alternatives organized by consumers tastes and culled directly from the broadest and most open network in the world: the Internet," Stringer said.

He also pledged to reform Sony's product planning process in the hope of making the company once again a leader rather than a follower with "me-too" products.

"We will execute more quickly and move beyond our traditional impulse towards consensus," Stringer said.

Since he arrived at Sony in 2005 Stringer has battled what he calls "walled silos" that built up over years around many areas of the company and meant that different parts of Sony worked on their own. That sometimes led to a situation in which two parts of the company would come out with competing products.

Last year, for example, owners of network-linked Bravia TV sets were able to watch the movie "Hancock" before it reached the DVD and Blu-ray Disc market thanks to a partnership with Sony Pictures.

"The march towards innovation and integration must be faster," he said.

On Thursday Sony said it plans to standardize global hardware and software design and integrate some R&D operations while outsourcing some software development to India. It also said it would consolidate design and manufacturing of Bravia TVs in Japan and close a plant in central Japan. The factory closure will result in job losses but the company did not immediately say how many.

Last month Sony said it plans to cut 8,000 staff from its regular payroll and another 8,000 part-time workers as part of its plan to deal with the poor economic situation.

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