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Saturday, September 24, 2005

Sony's Restructuring Plan Brings Praise, Skepticism

Sony's Restructuring Plan Brings Praise, Skepticism

"Analysts say cutting jobs and shutting plants will do little if the company doesn't revive gadgets.

TOKYO — Sony Corp. Chief Executive Howard Stringer on Thursday called on the ailing electronics and entertainment giant to "be like the Russians defending Moscow against Napoleon" as he unveiled a broad restructuring plan.

But many analysts say Sony remains a company besieged by rivals that have outflanked it in the Digital Age. Cutting 10,000 jobs, closing manufacturing plants and trimming product lines will do little, they say, if Sony can't develop the sort of innovative gadgets that were once its stock in trade.


In his first major action since taking over Sony in June, Stringer acknowledged that nimbler rivals had eaten away at Sony's dominance in key businesses such as televisions and portable audio.

And he pledged to break down the "silos" of business divisions that have existed for much of the company's 59 years as a consumer electronics icon and galvanize its vast resources to once again create "champion products."

"Sony operates today with a fragmented structure that has impeded communication and success," he told a crowd of 500 analysts and journalists in a Tokyo hotel ballroom. Although the company makes movies as well as the devices that play them, it has been largely unsuccessful at making its divisions work together.

Sony, renowned for its Walkman music players and Trinitron television sets, has been overtaken in recent years by low-cost Chinese TVs and Apple Computer Inc.'s iPod music players.

Because electronics account for about 70% of Sony's $67 billion in annual revenue, Stringer described turning around the division as "our No. 1 priority."

To achieve that, Stringer plans to cut 6.6% of Sony's global workforce, shutter 11 of its 65 manufacturing plants and divest the company of real estate and stock assets valued at about $1.1 billion. In addition, Stringer also promised to kill or scale back 15 of the 130 product categories and 20% of the about 3,000 models it currently sells.

Stringer declined to identify which businesses or products Sony would phase out, but analysts said the company might give more detail Sept. 30 when it holds another news conference in New York.

The restructuring, projected to cost $1.9 billion and be completed by March 2008, is expected to trim annual expenses by 200 billion yen, or $1.8 billion.

For the current fiscal year, Sony said, restructuring charges will result in a loss of $90 million, contrasted with the company's previous forecast of a $90-million profit.

Sony's shares lost $2.02 to $33.95 on the New York Stock Exchange, reflecting skepticism of analysts who questioned how Stringer's plan differed from previous efforts to revive Sony.

The most recent, dubbed Transformation 60, eliminated 20,000 jobs in the last two years.

"We all went through this more than a year ago," said Richard Doherty, an analyst with Envisioneering Group. "There isn't a radical difference between what was said today and what was said last year under a different chairman and CEO."

The Welsh-born Stringer, Sony's first non-Japanese CEO, faced similar doubts in Tokyo.

But Stringer arrives not just with the advantage of his own successful track record as the head of Sony's U.S. operations but also insulated by the staggering success in Japan of Nissan boss Carlos Ghosn, the first foreign chief executive to troubleshoot a crippled Japanese corporate icon back to health.

Citing Apple's example of linking its iPod player and its iTunes music store, Stringer said, "Apple would not have sold its devices if they didn't have their agreements with music companies. Sony did not do that, even though we own the music business."

He pointed to the company's PlayStation Portable hand-held game device as a model of cross-company cooperation. Although the PSP is primarily a game console, it also plays movies and music. And its ability to connect to the Internet gives Sony a platform to sell digital entertainment on the go.

Analysts said Stringer had the right idea.

"Creating a seamless link between the device and the service is crucial," said Mike McGuire, an analyst with Gartner Inc. "That's what Apple has done, and that's what Sony wants to do with the PSP. Consumers are nothing if not foragers of digital content. With the PSP, you can connect to the Internet, browse and download content other than games."

Making that work, though, will be difficult." [more]

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