Tempus: More will get it

Sony is to slash more than 16,000 permanent and part-time jobs from its worldwide electronics division and raise prices for its gadgets in the face of dwindling consumer spending.

The draconian restructuring scheme, which will also see Sony shedding an unspecified number of “unprofitable or non-core” divisions from its sprawling portfolio, is the biggest of its sort announced in Asia since the financial crisis took hold of the world economy.

It is, however expected to set the tone for similar moves by Sony’s domestic and regional rivals, and even the likes of Samsung and LG, which have been less damaged by currency -related carnage.

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As business conditions plunge, and citing an "acute downturn in the economic climate", Sony acknowledged that may also be forced to make equivalent cost cuts from its video games and movie businesses – the company said that the situation was “under simultaneous review”, and that an announcement would be made early next year.

Worsening the impact of what is already an international consumer spending collapse, Sony said that the severe currency conditions would force it to raise European prices for its electronics products in the immediate aftermath of the Christmas shopping season.

The move will not affect its flagship Playstation3 games console, but will push up prices of Blu Ray disc players and batter the competitiveness of core Sony products at a critical time. “At this stage we cannot keep pace with the sudden change of currency and the strong yen,” admitted a spokesman.

Sony’s plight comes as the yen continues to rise against the US dollar, the euro and other important currencies for Japanese exporters.

To the surprise of markets, and despite the visible agony the yen’s appreciation is causing Japan Inc, Tokyo has so far avoided intervening to weaken the Japanese currency.

Sony said yesterday that it had made representations to the government explaining the financial pain it was suffering as the yen lurches towards Y90 against the US dollar.

The Sony layoff scheme, which despite its suddenness and severity was attacked by some analysts as “too little, too late”, will see the 5 per cent reductions in permanent staff completed by 2010.

Short term contract workers and other non-staff positions will be wound-down over a similar 18-month period. Around 10 per cent of the company’s 57 manufacturing sites will be closed entirely in the restructuring, with an overall reduction in new investment in electronics of 30 per cent.

The job cuts will hit throughout Sony’s worldwide electronics empire and are part of a bid by the company’s president, Sir Howard Stringer, to save around Y100 billion by the end of the next financial year. It is the British-born chief executive’s second major round of restructuring – he undertook a similarly fierce programme of job-cuts and business realignments after taking Sony’s helm in 2005.

An analyst at KBC Securities said that, under Sir Howard’s leadership, Sony had got rid of “the stupid stuff” that had accumulated within the company over the years – robotic dog divisions, chocolate and gift emporia and other other legacy follies. That leaves fewer obvious targets for a cull, he said, and may see more fundamental parts of Sony's electronics supply chain being outsourced.

Despite the difficulties suffered in the core electronics division, Sir Howard has long held that the games and movie business are well geared towards a recession, arguing that people tend to spend more on going to the cinema or entertaining themselves at home during economic slumps in what he called the “Shirley Temple” effect.

The announcement was made earlier today in Tokyo and came within six weeks of a massive profits warning, where Sony said that full year earnings would come around 57 per cent lower than originally forecast.

The company was not alone: shortly after Sony’s announcement, its largest domestic rival, Panasonic, hit investors with an even bigger forecast downgrade as the bleak reality of the financial crisis and its impact on consumers rumbled into view.

The soaring yen, which has surged to a 13-year hight against the US dollar since the summer, has anihilated the profit lines of Japan’s exporters and made their products less competitive with those of rivals in Korea.

The very swift purse-tightening by consumers in Europe and the US has affected Sony’s investment plans: a planned factory in Slovakia which was to have produced large LCD televisions will be postponed because of the acute falloff in demand for what amounts to a luxury item.

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