Sony’s Slump : The Giant Japanese Consumer Products Firm Projects a $160-Million Operating Loss for 1991

Sony Corp., Japan’s consumer electronics star and one of Hollywood’s most powerful companies, is in a slump.

The firm--plagued by a strong yen, stiff competition, an absence of major new consumer products and a weak world economy--said Wednesday that it would record a $160-million operating loss for the year ending March 31, its first loss in five years.

“Japanese companies are not invincible,” said Haruyuki Machida, a senior general manager at Sony. “Things (in Japan) have gotten much worse since January.”

The good news is that the motion picture business that Sony acquired by buying Columbia Pictures Entertainment in 1989 is picking up strength.

As a result of several hits--including “Hook”--Sony’s movie business racked up $900 million in sales in October, November and December, a 65.4% increase over the previous year. For the full nine-month period ending Dec. 31, sales were up a more modest but still impressive 17.4%, helping to shore up the company’s overall sales.

A one-time gain of $492 million from the sale of stock in Sony Music Entertainment, a subsidiary created from the operations of the former CBS Records, will help Sony show an actual increase in net profits of 5% this year, despite the decline in earnings from operations.

“When times were good we bought these software companies,” said Sumio Sano, senior general manager of corporate affairs at Sony. “Now we are seeing the results.”

Still, low earnings, the weak Tokyo stock market and Sony’s $13 billion in debt--much of it from the Columbia acquisition--will continue to make it tough for Sony to finance new investments, analysts said.

At Sony--long regarded as a model for Japan’s march to dominance in consumer electronics--nostalgia for those good old days is almost unavoidable.

In the five years ended last March 31, Sony’s sales climbed 250% while profits shot up 270%, driven by buoyant consumer markets and a string of successful product introductions, such as camcorders.

Although Sony’s sales continued to grow through 1991, the gains came increasingly through aggressive pricing and at the expense of profits, analysts said. Overall, the consumer electronics market has been stagnant for more than a year.

“Things are flat or negative in every area,” said Boris Petersik, analyst with the Tokyo office of Barclay’s de Zoete Wedd, a securities firm. “For real growth, you need hit products, but there aren’t going to be any of those for a couple of years.”

Sony and other consumer electronics makers are exploring the possibility of developing a new generation of products that incorporate such computer technologies as voice recognition. For instance, John Scully, Apple Computer’s chief executive officer, has said Apple is discussing ways to work with Japanese companies--including Sony--to build the easy-to-use products needed to inject new life into the consumer electronics business.

“The industry is in desperate need of new products,” Scully said.

Meanwhile, huge investments by Japanese companies in such once-promising frontier-technology products as digital audio tape recorders and high definition television are years away from reaching volume sales. Even products Sony introduced recently, such as digital cassette recorders, have an uncertain future and will take at least two years before generating significant revenue, analysts said.

Industry executives have faith that their engineers will hit on something everybody will want to buy--eventually.

“At each stage something happens to spur growth,” said Sakuma Shoji, executive vice president at Matsushita Electric Industrial Co., the Sony rival whose brand names include Panasonic.

The last time it was big-screen televisions driving television sales. The next boom, Shoji predicted, will be in small portable television sets with liquid crystal displays for use in such places as automobiles.

Until the next big product comes along, the Japanese makers are seeking quick ways to cut costs and boost profits. Most consumer electronics companies are either cutting back new investment or keeping investment at last year’s level.

“They way overspent on (new factories) and research and development,” said Masatomu Azuma, an analyst at Yamaichi Research Institute.

The companies also hope to slash costs by reducing the number of product models they manufacture.

Matsushita, which is expected to see about a 25% drop in earnings in the year ending March 31, plans to reduce the number of television models it manufactures to 60 from the level now of about 100. The company also wants to extend the life cycle of its products to one year from the current six months and to raise its prices on new products.

Sony’s chairman, Akio Morita, has said in widely quoted articles and speeches that Japanese companies should price their products higher.

The aims: Getting a better return on their investment and paying out more money to workers and shareholders.

Sony executives, however, say the new, higher price tags will be seen on newly developed products, not on existing ones.