Sony Slashing Workforce

It came as no surprise that Sony Tuesday said it plans on cutting 20,000 jobs, or 13 percent of its total worldwide workforce. The announcement in Tokyo was part of the company’s restructuring strategy and future plans.

Sony’s restructuring plan will take three years to implement and cost close to $3.1 billion, and comes after successive quarters of somewhat shocking losses at the Japanese electronics giant. Beyond slumping sales, the rapid rise in the Yen has hurt Sony making its products more expensive around the world.

While Sony has been experiencing a serious slump in financial results for some time, several of its Japanese electronics rivals, including Matsushita and Sharp are benefiting from an upturn in the sales of digital cameras, DVD recorders and other popular consumer electronics items.

One interesting aspect of Sony’s restructuring plan is its decision to enter into a joint venture with its longtime South Korean competitor Samsung to make flat screen TV’s and liquid crystal displays together. The joint venture is said to be worth close to $2 billion and will be setup in South Korea in early 2004.

Flat screen TV’s are one area that Sony has fallen behind its rivals, and the company hopes the joint venture will revive its fortunes. In the past, Sony has rarely, if ever, entered into joint ventures with other Asian electronics manufacturers. Sony had focused on the more expensive, and less popular plasma TV screens.

Sony said only 7,000 of the job cuts would be in Japan, with the other 13,000 positions being eliminated from Sony facilities around the world.

The company says its restructuring is designed to cut costs and aims to boost the company’s operating margins, which have slipped in recent quarters. Sony’s stock price was over $45 a share a year ago. It is now hovering at $35.

Beyond trouble with its own corporation, Sony is facing a number of outside challenges, including a plunge in sales at its movie and music divisions, as well as a continued slump in electronics purchases, and sales for its PlayStation 2 video game console.

Nobuyuki Idei, Sony chief executive announced the restructuring, which he said aims to get the consumer electronics and entertainment groups back to 10 percent operating margins, even if sales of its electronics division remain flat.

Sony said it will also consolidate nearly a third of its production, distribution and service facilities. The number of factories making cathode-ray tube (CRT) TV’s and Trinitron TV’s will be reduced from 17 to 5 by the end of fiscal 2006.

Sony has identified flat panel TV’s and DVD recorders as two consumer electronics products it will put emphasis on in the near future.

Sony is currently developing PlayStation 3, the next version of its video gaming system. PlayStation 2 has been negatively impacted by the growing popularity of Microsoft’s Xbox video game platform.

Sony also said it is developing new home server products and the PSX, a gadget the company says is a cross between audiovisual equipment and the PlayStation 2 video game console.

Idei said he didn’t think it was necessary to reorganize Sony’s video games, music and movie businesses in the U.S., but did say it could consider a variety of possible options in the future.

As part of the restructuring, Sony is also expected to split off its semiconductor division and to setup a holding company that will incorporate its three financial businesses: Sony Life Insurance Co., Sony Assurance and Sony Bank. Analysts say it is possible that Sony could take the financial holding company public at some point in the future.

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