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Sony Posts Losses, Outlines TV Realignment

Tokyo – Sony reported a net loss and lower
sales in its fiscal second quarter, projected a $1.2 billion loss for its
fiscal year, and provided details on the realignment of its TV operations.

The company
blamed its problems on three areas: foreign exchange rates for the yen; lower
LCD TV sales and profitability; and, for the entire fiscal year, the impact
that the floods in Thailand will have on its consumer and professional products
businesses, especially digital cameras.

Sales and
operating revenue for the quarter, ended Sept. 30, was 1,575 billion yen, or
$20.5 billion, down 9.1 percent year on year. The net loss was 27 billion yen, or
$350 billion, compared with net income of 31.1 billion yen year on year.

Sony said the
operating loss of 1.6 billion yen, or $21 million, compared with operating
profit of 68.7 billion yen last year was due to a decrease in gross profits due
to lower sales in LCD TVs.

In the consumer
products and devices segment, consisting of TVs, Vaio PCs, and PlayStation game
systems, sales were down 12.3 percent to 779.7 billion yen, or $10.1 billion,
year on year. The operating loss was 34.6 billion yen, or $449 million,
compared with the prior year’s 1 billion yen profit.

Excluding restructuring
charges, the operating loss for the segment, which included LCD TVs, reflected
a decline in unit selling prices that exceeded cost and expense reductions, the
game business, and PCs — reflecting lower sales as noted above. Operating loss
included additional LCD panel-related expenses resulting from low-capacity
utilization of S-LCD as well as the above-noted asset impairment of 8.6 billion
yen, or $112 million,  associated with
LCD television assets, Sony said.

Sony is now projecting a net loss of 90 billion yen for the
fiscal year ending March 31, 2012, as compared with a July forecast of a 60
billion profit and an actual loss of 259.6 billion yen in the prior fiscal

Sales and operating revenue is now forecast at 6,500 billion
yen, down from the July forecast of 7,200 billion yen and 9.5 percent down from
the prior fiscal year’s actual results.

Sony said it is
changing its TV operations from a target of 20 percent market share and 40
million unit sales by the fiscal year ending March 31, 2013, due to economic
conditions in the U.S. and Europe and a surplus of LCD screens.

As of yesterday,
Sony said in a statement it is separating its TV business organizational
structure from one business unit into three.

The first
unit is the “the legacy LCD TV business area” focused on enhancing products
through internal design and manufacturing.

The second
unit is the third-party original design and manufacturing (ODM) area that makes
products at a low cost through external design and manufacturing.

The third
unit is developing and designing the next-generation TV. Upstream processes are
also being strengthened by consolidating the marketing and product strategy

Sony will incur
additional charges of approximately 50 billion yen to return the TV business to
profitability by March 31, 2014, and transform its operations to “a 20 million
unit structure.”

This will
primarily be due to impairment charges relating to machinery and equipment, as
well as costs related to reducing the number of models. Following this
realignment in the TV product category, Sony expects to record sales of 875
billion yen and an operating loss of 175 billion yen in fiscal year 2011, once
the 50 billion yen charges have been recorded.

According to a Sony
statement, the TV restructuring includes the reduction of LCD panel costs (about
40 percent of total improvement), and enhancing product competitiveness and
reforming operations to improve marginal profit (approximately 30 percent of
total improvement).

In developed
countries, the restructuring will focus on improving model mix … resulting in
further profitability improvement.

In supply-chain
management, new systems are being introduced with the aim of reducing inventory
turnover by a further 10 days in fiscal year 2012. The restructuring will also
include deploying unique technology, such as super-resolution high image
quality engines and accelerate the development of a next-generation TV, Sony
said.  It will also increase the added
value of TV by providing consumers with an integrated user experience across
multiple devices and network services, reduce SG&A at sales companies, and
improve R&D and indirect costs (approximately 30 percent of total