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Sony to reduce parts in its equipment

/ Source: Financial Times

Sony is planning to reduce the number of parts it uses for consumer electronics products by nearly 90 percent in a move that could force widespread restructuring across the industry.

THE JAPANESE GIANT hopes to reduce the number of components used in its complex manufacturing processes from 840,000 to 100,000 by 2005.

Analysts believe a wave of product simplification could now reshape the electronics industry in much the same way as the automotive industry responded to growing cost pressures in the 1990s with common design platforms for cars.

Last month, rival Toshiba promised that more standardized components would reduce the number of parts used in its personal computers by 20 percent.

Sony is also broadening its voluntary redundancy program.

The initiatives, announced on Monday, highlight Sony’s determination to reduce costs and improve profitability after a period in which it has disappointed investors with its lackluster performance.

To reduce the number of parts Sony will designate 20,000 widely used parts as “Sony parts.” The remaining 80,000 will be dubbed “common parts.” The reduction is expected to affect Sony’s 4,700 parts suppliers, whose number Sony wants to reduce to 1,000.

About 95 percent of the value of Sony’s parts procurement is already concentrated in 1,000 suppliers.

Tim Dinwiddie, South China manager for Flextronics, one of the largest contract manufacturers of consumer electronics, said: “This is a very aggressive target but it is the sort of holy grail that many in the industry have been chasing.”

Sony this year unveiled a plan to spend 300 billion yen ($2.71 billion) over the next three years mainly to restructure its electronics business, where its problems have been concentrated. The plan called for the disposal of non-core assets and unprofitable product lines.

Sony on Monday said cutting the number of parts was mainly aimed at raising competitiveness.

“In order to differentiate our products and raise their competitiveness, it is becoming necessary to even differentiate the parts that go into those products,” a Sony representative said.

By reducing the number of parts it uses, Sony hopes to free product developers to concentrate more on product design. Sony’s engineers choose or even design the parts that go into their products themselves.

“Commoditization of products is very fast, so lowering costs while raising competitiveness is an important issue for Japanese electronics makers,” said Fusako Nagao, analyst at Standard & Poor’s in Tokyo.

Sony, which surprised investors when it announced lower-than-expected results in the year to March, and a 69 percent drop in first quarter pre-tax profits, has struggled to improve profitability. It has vowed to raise operating profit margins from 2.5 percent last year to 10 percent in three years.

Sony said it would broaden its voluntary redundancy program by lowering the minimum age of qualifying applicants from 35 last year to 30. Full-time employees with more than 10 years’ service will be eligible for up to six years’ pay in addition to the regular retirement benefits.

Since only about 10,000 out of 17,000 employees would be eligible and only about 100 are expected to take up the offer, the cost benefits would be minimal.

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