Sony Corp Chief Executive Howard Stringer said the electronics maker needs to cut fixed costs to weather a downturn in demand and a surge in the yen that forced it to slash its profit forecasts last week. "We are selling a lot of television sets, more than ever, but we are not making money on them, and that's a by-product of a fixed-cost problem that we need to address," Stringer told a business seminar in Tokyo.
The maker of Bravia flat TVs and PlayStation 3 video game said when it cut its annual operating profit forecast by 57 percent on Thursday that it may have to shut some plants and cut jobs to bolster profitability.
Stringer said he would be spending this week working with his management team to come up with steps to respond to the earnings slump. He referred specifically to Japan as a region where fixed costs were an issue. Sony generates about 80 percent of its sales outside the Japanese market but still develops and makes a good chunk of its products in Japan, leaving it vulnerable to a higher yen and saddling it with relatively high labour costs.
Daiwa Institute of Research analyst Kazuharu Miura said Sony may need to shift development and production outside of Japan, especially with the yen near a 13-year peak against the dollar and a six-year high against the euro.
"When the dollar was 105 yen and the euro was 150 yen, for example, this system seems to have worked. But given the current exchange rates, it may make less and less economic sense to keep manufacturing its products in Japan," Miura said.
Shares of Sony closed Monday down 7.7 percent at a 16-year low of 1,821 yen, having lost about one-fifth of their value in two sessions since the revision on Thursday and roughly half their value since Stringer took the helm over three years ago.
Stringer said he would stick to the company's targets for the year to March 2011, which include hitting a return on equity of 10 percent and doubling revenues from Brazil, Russia, India and China to 2 trillion yen ($21.6 billion).
He also defended Sony's long-held strategy of using content such as movies and software to drive sales of devices, and said the company had a strong cash position and balance sheet that would allow it to take advantage of the market downturn. The Sony brand would also help, he said. "A successful brand in a crisis buys you time. But it doesn't guarantee survival."
Comments
Comments are closed.