Japan: Sony logs biggest ever loss in FY 2008

By Kana Inagaki

Tokyo, May 14 Kyodo - Sony Corp. on Thursday announced its biggest-ever group operating loss of 227.78 billion yen for fiscal 2008 ended in March and projected that sliding demand for its consumer electronics products will keep the company in the red for a second consecutive year.

For the business year ended in March, Sony's group net balance sank into the red for the first time in 14 years as its record-high fiscal 2007 group net profit of 369.44 billion yen was wiped out by a net loss of 98.94 billion yen. The figure, however, was smaller than its earlier forecast of a loss of 150 billion yen.

Sony outlined further its restructuring programme, saying it would end manufacturing at three more plants in Japan, one in Mexico and another in Indonesia by the end of this year, hinting that a reduction in its head count may lie ahead.

The company is anticipating a smaller group operating loss of 110 billion yen in fiscal 2009, but it is the first Japanese electronics giant to project red-ink figures on an operating level for the current business year. The operating balance is more reflective of the performance of its core businesses.

Other competitors like Toshiba Corp. and Hitachi Ltd. have also forecast annual losses for the year, but on a net balance level.

Sony said it is also expecting a group net loss of 120 billion yen for the current business year with restructuring costs of around 110 billion yen expected to weigh heavily on its earnings. Sales are expected to fall 6 per cent to 7.3 trillion yen.

"We have made these forecasts on the assumption that tough business conditions caused by the global economic recession will continue," Nobuyuki Oneda, the company's chief financial officer, said at a press briefing in Tokyo.

Like many Japanese manufacturers that generate a major part of their revenues overseas, Sony said its earnings were hammered by a stronger yen as well as an erosion of gadget prices brought on by fierce global competition.

In fiscal 2008, the foreign exchange rate averaged 99.5 yen per US dollar, up 13.8 per cent from the previous year, and 142.0 yen per euro, up 12.7 per cent. Pressure from the yen's appreciation is expected to continue as Sony is anticipating 95 yen per dollar and 125 yen per euro in the current business year.

Sales slid 12.9 per cent from the previous year to 7.73 trillion yen as consumer demand for its Cyber-shot digital cameras and Vaio personal computers dwindled on the back of the global economic recession.

Its TV division remained mired in the red for the fifth consecutive year with an operating loss of 127 billion yen on sales of 1.27 trillion yen, down 7 per cent from the previous year.

While sales of its Bravia liquid crystal display TVs in fiscal 2008 jumped 43 per cent to 15.2 million units, revenues were hurt by an erosion of prices, Sony said. It expects to sell 15 million units in fiscal 2009.

Oneda said Sony is aiming for its TV division to return to profitability by the latter half of the current business year and to return to the black on an annual basis by fiscal 2010.

The performance of its game division was also disappointing with sales dropping 18.0 per cent from the previous year to 1.05 trillion yen.

But Sony, which is competing with Nintendo Co.'s smash-hit Wii console, expects to sell 13 million units of its PlayStation 3 game console in fiscal 2009, up nearly 30 per cent.

To stem its losses, Sony has unveiled a wide-ranging restructuring programme including 16,000 job cuts globally, a 10 per cent reduction of its global manufacturing sites, consolidation of domestic TV production factories and pay cuts. The measures will allow Sony to save over 300 billion yen in costs.

In addition to ending production at a plant in Ichinomiya, Aichi Prefecture, Sony said it plans to end other manufacturing operations in Chiba, Shizuoka and Iwate prefectures. It will also end production of LCD TVs in Mexico and flexible flat cables in Indonesia, bringing the total number of manufacturing plants to be closed globally to eight.

Sony said it is on track to cut 8,000 regular workers in its electronics division through early retirement and other programmes and has already ended the contracts of more than 8,000 seasonal and temporary workers.

"We will carry out consolidation and termination of factories not only in fiscal 2009, but also in fiscal years 2010 and 2011 so there will continue to be more restructuring costs and reductions of expenses," Oneda said, adding a reduction in its head count will be included in those efforts.

But analysts said Sony will need to do more to improve its cost structure by outsourcing more of its TV production, a move Sony is considering but has yet to outline in detail.

"The hard part is, they need to redo their cost base, particularly in Japan," said David Gibson, an analyst at Macquarie Securities Ltd. in Tokyo, adding more assembly should be done abroad.

For fiscal 2008, Sony plans to pay a full-year dividend of 42.50 yen, compared with 25.00 yen in fiscal 2007.

Source: Kyodo News Service, Tokyo, in English 1030 gmt 14 May 09

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