Sony shares fall, restructuring plan seen lacking

Shares in Sony Corp fell over 3 per cent on Wednesday morning after its restructuring plans failed to woo investors who are skeptical on whether it can turn around its operations amid weak electronics sales. The electronics conglomerate said on Tuesday it will cut 16,000 jobs, curb investment and pull out of some businesses to save $1.1 billion a year as the financial crisis ravages demand for its electronics products.

But analysts voiced concerns that the steps are unlikely to be enough to streamline a sprawling empire, ranging from semiconductors to movies and insurance, that has fallen behind Apple Inc's iPod in portable music and is losing money on flat TVs.

"Our first impression was somewhat negative, as this is not a major restructuring which will fundamentally change the business model," Credit Suisse analyst Koya Tabata said.

The share fall on Thursday, despite gains in New York and Frankfurt and against a rise in the overall Tokyo market, also underlines fears for the firm's earnings in the face of a surging yen and slowing economies around the world that are hurting sales in the critical year-end shopping season.

The strong yen against the dollar and euro cuts into the value of its profits and makes its products less competitive in overseas markets. Sony's rivals such as Panasonic Corp are also suffering from the currency impact and weakening demand.

"There are many uncertainties for Sony's short-term earnings, and we could not picture Sony's earnings recovery from yesterday's announcement," said JPMorgan analyst Yoshiharu Izumi.

"Sony will have to address plans one more time that cover all of its operations, including the finance and game divisions."

He said investors were disappointed that Sony's plans did not specifically focus on its struggling TV operations.

Sony, the maker of Bravia flat TVs and PlayStation 3 videogame consoles, flagged the need for restructuring in October when it more than halved its annual profit forecast, blaming slowing demand for its Bravia liquid crystal display TVs and Cyber-shot digital cameras and a firmer yen.

It now sees an operating profit of 200 billion yen (Dh8 billion) in the year to March, but Reuters Estimates show that 14 analysts on average expect a 121 billion yen profit.

For the business year starting next April, 13 analysts see Sony's operating profit at 161 billion yen.

Sony said it aims to cut costs by 100 billion yen by the end of March 2010 by slashing 8,000 regular workers, or roughly 4 per cent of its work force of 185,800, and at least an equal number of temporary and contract staff.

It will delay boosting output for LCD TVs in Slovakia and outsource production of image sensor chips, as it aims to cut electronics investment by 30 per cent next business year compared with an earlier plan.

Sony will also cut its network of 57 manufacturing sites by five or six through outsourcing and by shifting and consolidating factories to low-cost areas.

Sony shares, which have fallen about 70 per cent this year, ended morning trade down 1.5 per cent at 1,868 yen, having slipped as low as 1,835 yen or 3.2 per cent in early trade. The benchmark Nikkei average rose 1.1 per cent by midday. 

 

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