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Sony to cut 16,000 jobs, largest by Asian company so far

(Agencies)
Updated: 2008-12-10 09:12

TOKYO -- Japan's Sony Corp said it will cut 16,000 jobs, curb investment and pull out of businesses to save $1.1 billion a year as the financial crisis ravages demand for its electronics products.

The job cuts are the biggest announced by an Asian company so far in the crisis and underscore the challenges facing Sony, which has fallen behind Apple Inc's iPod in portable music and is losing money on flat TVs.

Sony said it would cut 8,000 regular workers, or roughly 4 percent of its workforce of 185,800, and an equal number or more temporary and contract staff.

People look at Sony TV sets at an electronic shop in Tokyo December 9, 2008. [Agencies]

But analysts warned the measures may not be bold enough to streamline a sprawling empire that ranges from semiconductors to movies and insurance. The cuts are also risky because they mean Sony will be investing less in future growth.

"The number sounds big, but this staff reduction won't be enough. Sony doesn't have any core businesses that generate stable profits," said Katsuhiko Mori, a fund manager at Daiwa SB Investments.

"After the workforce reduction, the next thing we want to see is what is going to be the business that will drive the company."

Sony is not the only one suffering. Japanese rival Panasonic lowered its earnings forecasts last month while South Korea's Samsung Electronics Co said on Monday it would cut capital investment and warned of tough times.

Sony's US shares, which have fallen more than 60 percent this year, rose 2 percent to $20.45 in early trading in New York. In Frankfurt, its shares rose 4.83 percent to 16.07 euros.

Sony flagged the need for restructuring in October when it more than halved its annual profit forecast, blaming slowing demand for its Bravia liquid crystal display TVs and Cyber-shot digital cameras and a firmer yen.

The restructuring is a setback for Chief Executive Howard Stringer, who had implemented a major make-over after taking the helm in 2005, and until recently seemed to have put the company on a recovery track.

It also underlines the grim outlook for Sony and its rivals during the year-end shopping season and into next year as the financial crisis grows into a recession that has already engulfed the United States, parts of Europe and Japan.

"The outlook for the global economy suggests that things would become tougher for Sony next year, and it cannot expect a recovery without these restructuring measures," said Fujio Ando, senior managing director at Chibagin Asset Management.

CURRENCY IMPACT

Sony, along with other Japanese exporters, has also been hit hard by a surging yen against the dollar and euro, which cuts into the value of its profits and makes its products less competitive in overseas markets.

Sony said it would raise prices on some electronics products in Europe in response to the weak euro.

South Korean competitors Samsung and LG Electronics have found some relief in the weaker won.

Both companies have adjusted production to cope with falling orders and say they do not plan to cut staff, but analysts are not so sure.

"Japanese electronics makers suffer more than their rivals in South Korea because of the stronger yen," said Lee Min-hee, an analyst at Dongbu Securities in Seoul. "But going forward, Korean manufacturers could consider more drastic measures."

Sony said it would delay boosting output for LCD TVs in Slovakia and outsource production of image sensor chips, as it aims to cut electronics investment 30 percent in the next business year compared with a prior plan.

It also unveiled plans to reduce its network of 57 manufacturing sites by five or six through outsourcing and by shifting and consolidating factories to low-cost areas. Earlier this week it announced the closure of a videotape plant in France.

Sony said it would detail the effect of the restructuring on earnings in its third-quarter results in January. It has already warned that it may need to revise down its profit forecasts further due to yen strength.

Other technology and auto manufacturers could follow suit in the coming weeks with their own restructuring plans, raising the prospect for industry realignment.

"Sony's restructuring might be followed by other Japanese manufacturers. With the stronger yen, a lot more companies will probably need to do similar reductions. There will be more mergers, sales of units and restructuring in Japan," Daiwa SB's Mori said.