Things couldn’t have looked worse at Sony some months ago. But in a potent reminder of how radically the mood can shift in a relatively short space of time, Sony on Thursday became the latest Japanese electronics company to forecast a recovery, as it predicted it would break even at the operating level this year, before restructuring costs of Y110bn ($1.1bn).
The outlook came as Sony reported results for the year to March 2009 that were better than its last forecast in January, suggesting the company has reaped some benefits from recent yen weakness and from its aggressive restructuring programme.
As the FT noted earlier this week, it’s the trend du jour amid a recent flurry of bullish predictions from big Japanese electronics companies for sales growth from October.
But hang on, the economic figures out of Japan have remained resolutely terrible. And the latest issue on the economic horizon – fuelled by news on Tuesday of the first annual fall in consumer prices in 18 months in March – is the growing prospect that deflation will aggravate the country’s recession.
Companies – not least of them Sony itself – are still cutting vast numbers of jobs, reducing capacity at plants, slashing costs and eliminating part-time work. So why the new found confidence?
Sony said that its forecast was “based on the assumption that the deterioration in the business environment brought on by the slowing global economy will continue” but that, in its struggling television business, “we expect operating losses to contract significantly”.
Indeed, in its video game business, Sony forecast a 29 per cent increase in sales of the Playstation 3 console, from 10.06m last year to 13m this year. The FT adds that, given the fall in PS3 sales since Microsoft cut the price of its rival Xbox 360, the forecast will be seen as a “clear signal that Sony intends a price cut of its own later this year”.
That said, sales for the year to March 2009 were down by 13 per cent and Sony said it expects a further 6 per cent fall this year. Profits were hit especially hard because it makes a large part of its sales outside Japan, exposing it to weak US consumption and the strength of the yen.
Regardless of how realistic the optimistic predictions are for a sales recovery, for Sony’s larger-than-life chief executive Sir Howard Stringer, it’s a particularly sweet moment to be able to bring good news.
Having implemented a radical management shake-up in February and defeated naysayers within the company opposed to his reform plans, he is now in the perfect position to capitalise on any sales recovery – if there is one. In other words, Sir Howard means business.
Sony’s full-year operating loss was Y228bn, including a Y75.4bn restructuring charge, against its previous prediction of Y260bn. The net loss was Y99bn versus a January forecast of Y150bn, the group announced in a statement. Not nearly as bad as feared for a company that analysts were tsk-tsking over just months ago.
It is also testimony to Sir Howard’s ever-resilient chutzpah that the company could combine its bullish predictions on Thursday with the announcement of three more factory closures – and undoubtedly some associated job losses.
As part of a sweeping reorganisation of its domestic factories, Sony will close three of its Japanese electronics factories — making digital cameras, small LCD panels and mobile phones — with production moved to other sites.
As the FT noted:Sony became a symbol of the effects of the financial crisis on the electronics industry, and the structural problems that made the industry vulnerable to losses, when it announced a sudden profits warning soon after the bankruptcy of Lehman Brothers last year.
And now, Sir Howard is no doubt determined to make Sony a symbol of the rebound of the electronics industry.
Not such optimism at rival Sanyo Electric, which also reported results on Thursday, recording a net loss from continuing operations of Y122bn, after Y85bn of exceptional costs to restructure its loss-making semiconductor business.
The FT reports that Seiichiro Sano, Sanyo’s president, said he expects the operating environment to “continue to be severe,” although for the current year to March 2010, Sanyo has forecast a small operating profit of Y25bn, and breakeven at the net level.
Related links:
Sony statement – Sony
Japan electronics groups forecast growth - FT
Sir Howard gets his way at Sony - FT Alphaville