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Sony forecasts first annual net loss in 14 years

Sony projected it would report its first annual net loss in 14 years, and Chief Executive Howard Stringer vowed to turn around the company with pay cuts, job reductions and trendier gadgets.
Image: Sony CEO Howard Stringer
Sony CEO Howard Stringer announces company losses at a press conference in Tokyo on Thursday. Kimimasa Mayama / EPA
/ Source: The Associated Press

Sony projected it would report its first annual net loss in 14 years Thursday, and Chief Executive Howard Stringer vowed to turn around the company with pay cuts, job reductions and trendier gadgets.

"The massive economic upheaval being experienced across the globe is sparing no one in the consumer electronics world," Stringer said at a hastily called news conference at Sony's Tokyo headquarters after it announced the earnings revision.

Battered by slumping sales and a strong yen, the Japanese electronics and entertainment company expects to sink into a 150 billion yen ($1.7 billion) net loss for the fiscal year through March, a reversal from 369.4 billion yen profit the previous year.

Cutting 8,000 jobs
To cope with the slowdown, Sony Corp. said last month it would cut 8,000 of its 185,000 jobs around the world and shutter five or six plants — about 10 percent of its 57 factories. It would also trim 8,000 temporary workers who aren't included in the global work force tally.

But Stringer said those steps were not enough. Now Sony plans to cut another 1,000 temporary workers in Japan and close one of two domestic TV plants.

Sony will also offer early retirement packages to its regular, full-time workers in an effort to cut 30 percent of its personnel costs by March 2010. It did not elaborate or give a specific head count.

Stringer also said he and two other top executives, including President Ryoji Chubachi, will give up their entire bonus. Other executives and managers will see lower pay.

Stringer said Sony needed to be more aggressive in cutting costs by avoiding redundancies, streamline the supplier chain and anticipate the trends in Internet-linking gadgets like the interactive TV set.

"There is still a lot of the old Sony, and not enough of the new Sony," he said, acknowledging that Sony faces intense competition from growing rivals like Samsung Electronics, Apple Inc. and Microsoft Corp.

Stringer said he was aware of the relatively protective lifetime employment regulations in Japan for full-time workers, adding that the company would "tread very, very carefully." Major Japanese companies have relied on a temporary work force to adjust to production swings.

Lowered sales forecasts
Sony, which makes the Walkman player and PlayStation 3 game machine, also lowered its sales forecast. It predicts fiscal year sales to decline 13 percent to 7.7 trillion yen. In October, it had expected 9 trillion yen in sales.

The efforts announced Thursday are expected to save Sony 250 billion yen for the fiscal year ending March 31, 2010, but the restructuring measures will cost 170 billion yen, according to Sony.

Other measures include outsourcing software development in India, and signing deals for making cheaper products in emerging markets, it said.

Like other Japanese exporters, Sony is taking a beating from the global slump that crimped consumer spending during the critical year-end shopping season. The yen's appreciation and a plunge in gadget prices have also taken a toll.

Sony is particularly vulnerable to the strong yen since about 80 percent of its sales come from overseas. The dollar has dropped to below 90 yen recently from as high as 117 yen last year, eroding with it Sony's foreign income.

The last — and only — time Sony reported a loss, for the fiscal year ending March 1995, the red ink came from one-time losses in its movie division, marred by box office flops and lax cost controls.

Japan Inc. hammered
Some of Japan Inc.'s biggest names are getting hammered by the global slowdown. Toyota Motor Corp., which last year dethroned General Motors Corp. as the world's largest automaker, is forecasting its first operating loss in 70 years — although it says it will eke out a small net profit.

Trouble has been brewing at Sony for some time. In October, it lowered its forecast to a $1.7 billion profit, but it said conditions had worsened since then.

Sony said the slowing global economy and price declines were wiping out 250 billion yen in operating profit, while the yen's appreciation took out another 40 billion yen. Restructuring charges cost 30 billion yen. Declining equity value of its affiliates was an extra 20 billion yen loss, it said.

Profitability had worsened at its video game and movies units, as well as with its financial businesses in Japan, including an insurer and Internet bank, it said.

"We must move ahead with reforms, but my mission is to also nurture innovation," Chubachi said. "We will become a strong Sony."

The company's stock fell 51 yen, or 2.6 percent, to 1,938 yen. The earnings revision was announced after the market closed.