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Aiwa To Become Sony Subsidiary

2/28/2002 10:55:00 AM Eastern

Tokyo - Sony announced today that its long-time affiliate Aiwa will become a wholly-owned subsidiary of the company, after reducing consolidated fixed costs to one-third of its present level and a stock exchange between the two companies, by Oct. 1.

Aiwa, which has reported losses for the last three years, reported a 27.3 percent sales decline during its fiscal third quarter, hitting $505.8 million, down from the $695.7 million in the third quarter. The net loss for the quarter was $28.8 million, compared with $49.7 million during the same quarter in the previous year. Aiwa has previously announced that the company's projected loss for the fiscal year, ending March 31, will exceed initial projections due to stagnant sales and added expenses.

In a prepared statement Sony said the decision was made as part of a 'structural reform of its entire electronics business' and will now 'position Aiwa as a wholly-owned subsidiary within the [Electronics] Group.' Sony has more than a 60 percent stake in Aiwa. The statement added that Aiwa becoming a subsidiary 'will generate significant operational benefits' and the 'synergy' of using the Sony and Aiwa brands 'will result in overall corporate value for the Group as a whole.'

The statement also alluded to 'the emergence of China as a powerful manufacturing force,' which is another factor in Sony's decision. And another key reason for the move is that Aiwa 'also lacks the strength in the digital technology and network technology, which will be the drivers of future growth.'

Prior to the October 1 start date Aiwa will reduced its annual consolidated fixed costs to one-third of its current level, which is presently about 50 billion yen. Its employee count will be reduced to two-thirds of its present level and Aiwa 'will become the development and design center for new Aiwa business for the Sony group.' Production and sales operations will be integrated into Sony's engineering operations.

Jim Palumbo, a long-time Sony Electronics executive who joined Aiwa America as president and CEO last November, said that his company's new product and merchandising plans that were outlined at CES (TWICE, Jan. 21, 2002, p. 4) will not change. 'Our plans are set and many of our retailers have told us that we are 'on the move.' '

He added that many of the retailers he talked to about the acquisition by Sony was 'not a surprise. You have a former Sony exec as president here and more former Sony executives involved with Aiwa both here and overseas, so they expected it. It is a natural progression.' He added that Aiwa's new products and plans have been well received by retailers and stressed that during the transition both Aiwa and Sony will 'fulfill our obligations to our retailers.'

Palumbo sees the marketing of Sony and Aiwa brands in those categories that they compete in as complementary. 'In those categories that we both compete Sony has a 30 percent share across the board and we have a 10 percent share.' He likens the marketing of both brands to many of the same retail customers as the marketing of Lexus and Toyota cars. 'Lexus is a high-end, high-quality brand. Toyota is a high-quality brand. Sony is Lexus and Aiwa is Toyota. That's complementary.'

He noted that much of the cost-cutting that is mentioned in the news from Japan will probably only effect manufacturing, parts procurement and other operations that Aiwa America, which is a sales and marketing operation, is not involved with.

Palumbo added that it is too soon to tell whether Aiwa will eventually move its headquarters from Mahwah, N.J. to Sony's Park Ridge, N.J. headquarters, along with other possible efficiencies. 'It is really too early yet to say what we will be doing in those areas.'

Independent of the Sony acquisition, Aiwa has become more efficient, finding tenants to take space at its warehousing facilities in California, Pennsylvania and New Jersey.