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Sony’s Restructuring Plan Brings Praise, Skepticism

Times Staff Writers

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.”

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“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.

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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.

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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.

“Previous management understood what needed to be changed, but they were unable to make it happen,” said Mark Stahlman, an analyst with Caris & Co. “To actually make these changes is a massive challenge. It can’t be done quickly. There will be people who will resist. There’s no avoiding a good deal of internal conflict.”

Analysts applauded Stringer’s focus on the highly profitable PlayStation division. The company is planning to launch its next-generation PlayStation 3 console in the spring.

“Given the fact that PS3 means much more than just video gaming, it’s going to be important to all their media studios,” said P.J. McNealy, an analyst at American Technology Research. “This comes at a time when all internal content -- whether or not it’s music, movies or games -- will be important to the PS3. It’s the promise of the vertical, which Sony has had for many years but has never really delivered on.”

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Stringer also targeted the company’s television business, which saw sales drop 21% in the quarter ended June 30 as low-cost competitors grabbed market share in the fast-growing flat-panel business. The poor showing contributed to a $330-million loss in the company’s electronics unit that quarter.

Sony promised that its TV business would be profitable by March 2007 and to deliver a 4% overall profit margin in its electronics business by March 2008. But analysts said the targets might be unrealistic.

“The forecast seems optimistic because so many factors are out of Sony’s control,” Doherty, of Envisioneering, said.

“They can’t control retail prices, for example. Today, Sony’s TVs are one-third less than they were a year ago. And still, their products are 40% more expensive than the other brands. That’s a disaster. And there’s no indication that things will get better.”

Others were more willing to give Sony the benefit of the doubt.

“Basically, the direction they laid out is good,” said Mitsuhiro Osawa, an analyst with Mizuho Investors Securities in Tokyo. “This Christmas will be the first big test, with products like televisions and the new Walkman. We’ll see in January if they’ve cleared the first hurdle.”

Wallace reported from Tokyo, Pham and Tamaki from Los Angeles. Times staff writer Terril Yue Jones in San Francisco contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Downsizing plan

Sony’s restructuring plan aims to raise cash and to cut costs by $1.8 billion by March 2008. Here’s how it would do it.

* Downsize or eliminate 15 of the company’s 130 product categories

* Cut the number of product models by 20%

* Close 11 of Sony’s 65 factories

* Reduce the number of employees by 10,000, or 6.6% of the workforce

* Sell $1.1 billion of assets, including stock and real estate holdings

Source: Sony

Los Angeles Times


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