As Sony Corp's new chief executive settles in with a mandate to shake up the struggling electronics company, analysts expect it to increase outsourcing, benefiting large, contract manufacturers. Sony already outsources production of some of its electronics gear, such as cell phones and its PS2 video game consoles - but the company is still largely vertically integrated, analysts said.
Analyst Flint Pulskamp of research firm IDC said Sony, which earlier this month promoted US operations chief Howard Stringer to the top corporate spot, is most likely to expand outsourcing to the large companies with which it already does business.
Fitting that bill, he said, are Singapore-based Flextronics International Ltd, the world's largest contract electronics manufacturer and the maker of Sony-Ericsson phones, and Taiwan's Hon Hai Precision Industry, which makes the PS2.
Sony, which invented the Walkman, has been outmanoeuvred in recent years in flat-panel TVs by rivals Sharp Corp and Matsushita Electric Industrial Co and lost its lead in the portable music industry to Apple Computer Inc and its market-leading iPod player.
Sony is more than halfway through a three-year restructuring plan in which it aims to cut fixed costs by $3.15 billion by streamlining operations and cutting jobs, but profit margins remain razor-thin.
Piper Jaffray analyst Jesse Pichel said Sony's cost of producing each gizmo - $14.5 billion in its latest quarter - represents the company's potential market for outsourcing.
Pichel said the Japanese have generally been reluctant to outsource because of the cultural norms there for lifetime employment.
But analysts said Stringer, a Welsh-born former television journalist, will find it easier to make big shake-ups at Sony than a native Japanese CEO would.
"Stringer doesn't have a lot of the baggage or the cultural inhibitions that a Nobuyuki Idei did," Pulskamp said, referring to Sony's former chief executive.
Economics may well force Sony to deepen its relationship with the likes of Flextronics, Hon Hai and Taiwan-based Asustek Computer, which makes the company's laptop PCs.
"At some point, the benefits of going to China, in particular, are going to weigh on these firms, and they're going to look to outsource a lot more of their production," Pichel said.
If and when Sony increases its outsourcing, it would make sense to do so with companies with operations in China, where the annual salary for an electronics factory worker is about $1,500, much lower than in Japan.
So while Flextronics, Asustek, Hon Hai are the most obvious beneficiaries of any increased outsourcing at Sony, according to analysts, those companies themselves had better watch their backs.
"We're watching the emergence of these large vertically integrated companies in China that make everything from plastic moldings to finished laptops," said Gartner analyst Martin Reynolds. "These large Chinese manufacturers are going to squeeze companies like Flextronics."
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