Sony today unleashed a massive profits warning, predicting its first operating loss in 14 years and crushing hopes that cost-cutting and other restructuring efforts by its first non-Japanese chief executive, Sir Howard Stringer, will yield any immediate relief.

Within moments of the closing of the Tokyo Stock Exchange, the electronics and entertainment group said that it expected to suffer operating losses of some Y260 billion (£2 billion) by the end of the financial year on March 31.

That loss would be around Y340 billion lower than the earlier forecast, with the lion’s share of the damage coming from a “deterioration of business environment” and intensification of price competition, said the company.

“The massive economic upheaval being experienced across the globe is sparing no one in the consumer electronics world,” said Sir Howard, who later added: “We are not supposed to call it a depression, but it is pretty depressing,”

At an impromptu briefing in Tokyo, Sony’s embattled chief executive laid out what he called a “dramatically” accelerated cost-cutting programme in a bid to save Y250 billion a year.

Concrete measures, which analysts afterwards complained were few on the ground, included the closure of a domestic television factory at the cost of 1,000 jobs. Other restructuring efforts will involve outsourcing some software development to India and applying the so-called “asset light” model already imposed on the semiconductor division across the group.

One analyst at Nikko Citi said that the huge losses predicted by Sony were “the real thing”, portending worse misery ahead as long as fixed costs remained high. He said that the full-year loss in the coming financial year could amount to Y600 billion if nothing more drastic is done to restructure the company. Sony's cash flow could also plunge to below critical levels next year, said analysts.

The strong yen was also wreaking havoc on earnings and had damaged Sony’s competitiveness against rivals in South Korea and China, said the company. Around 80 per cent of Sony’s sales are made outside Japan, giving the company a particularly painful exposure to the currency volatility of the past six months.

The company’s forecast loss would be dramatically worse than many analysts were expecting, but brokers said that the difference may turn out to be “academic”: Sony is struggling to regain its competitive edge in a savage economic climate and few see any immediate prospects of a turnaround.

Sony insiders said that, in addition to the alarming collapse of consumer confidence in the United States, Japan and elsewhere, Sony’s results could continue to be battered by the strength of the yen against the US dollar. Some have suggested that, even if sales remained at their current levels through 2009, Sony would lose further billions if the yen continues to trade below the Y90 level against the greenback.

Repeated efforts by Sir Howard to impose a stronger culture of co-operation between divisions have met with obstruction by Sony’s well-entrenched old guard and frustration for those that have sought to shake the company out of its stupor.

Sir Howard’s comments were peppered with hints at what many believe could be substantial divisions within the company: he said that he needed to “develop a sense of urgency” among managers in Japan that was already well established in the US side of the business.”

Analysts at Nikko Citi said in a note published last month that Sony’s recovery would only come if power were more tightly concentrated in the hands of its chief executive. Sir Howard hinted strongly that he agreed with that, declaring that in the new Sony “top-down leadership will be more important than consensus”.

The company has already announced plans to make around 16,000 job cuts, but Sir Howard acknowledged that there was much work still to be done and that more substantial plans would be announced in the spring. Sony’s main business has been hammered as part of Japan’s more general nosedive in exports, which tumbled 35 per cent in December compared with the same period in 2007.

Sony’s shares tumbled 2.56 per cent in the course of Thursday’s trading and remain below the critical Y2,000 per share level – a sure indication that the market remains unconvinced by the cost-cutting and business recovery efforts announced to date, said brokers at Mitsubishi Tokyo UFJ.

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