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10Apr12
Sony sees record $6.4 billion loss on tax hit
Sony Corp flagged a record $6.4 billion annual net loss, double its earlier forecast and a fourth straight year of red ink, inflated by writing off deferred tax credits mainly in the United States.
In a bid to ease investor concerns over its deteriorating bottom line, the Japanese consumer electronics giant said it would bounce back in the current year to end-March 2013 and make an operating profit of 180 billion yen ($2.2 billion).
Sony, which plans to axe 10,000 jobs - around 6 percent of its global workforce - according to media reports this week, has been hammered by weak demand for its televisions and been overtaken by more innovative gadget rivals such as Apple Inc and Samsung Electronics.
In a further sign of how Japan Inc is hurting, particularly the electronics industry, consumer electronics and LCD maker Sharp Corp on Tuesday increased its full-year net loss forecast to 380 billion yen ($4.67 billion) from 290 billion yen.
Kazuo Hirai, who took over as Sony's CEO this month, has said he is prepared to take "painful steps" to revive the company and would not hesitate to scale back or withdraw from businesses if they were not competitive.
The Sony veteran, known for reviving the PlayStation gaming operations through aggressive cost-cutting, has promised to get the struggling TV business - which has lost $10 billion alone in 10 years - back on its feet within two years.
"There have been several reasons for our poor results," Chief Financial Officer Masaru Kato said at a news briefing in Tokyo on Tuesday, noting a strong yen and poor demand. "We are aiming for a rebound and for this we have made management changes."
Sony securities traded in Germany dropped 7 percent.
In Tokyo, Sony shares closed down 3.5 percent ahead of the announcement, the biggest one-day drop in three weeks. The benchmark Nikkei average ended around 0.1 percent lower. Sony stock has almost halved since little more than a year ago, and has dropped 11 percent in the past 10 trading sessions.
In a fourth revision to its annual estimates, Sony forecast a 520 billion yen ($6.4 billion) net loss for the year to end-March 2012. In February it had forecast an annual net loss of 220 billion yen. The additional loss is from write-offs of tax credits primarily in the United States, which the company cannot use because of the losses it has racked up.
Analysts had forecast a full-year loss of 214 billion yen, according to Thomson Reuters I/B/E/S. The annual results are due on May 21.
"To bring Sony back, Hirai needs to develop personnel and platforms that create competitive and innovative products, but a lot of talent left under early retirement plans," said Tetsuru Ii, president of Commons Asset Management, who oversees about 2.7 billion yen worth of assets and does not hold a stake in Sony.
"The old Sony culture would only allow it to make things that were the best globally. Under that logic, does it make sense for Sony to continue its TV business, when it's not even the market leader in Japan?
"In terms of management philosophy, (Hirai) will have to choose and focus the company's business activities."
CFO Kato, who would not confirm the reports of job losses other than to note jobs would go from a chemical business and small LCD unit that are being hived off, said Sony had no current plans to raise money in the markets.
"We can improve shareholder equity in several ways, including bolstering cash flow or selling assets," he told reporters. "Equity finance is also an option, but at this moment we have no concrete plan to do so."
Rekindling the Flame?
Some analysts believe Hirai, a fluent English speaker, can rekindle the Sony flame, saying he has a good grasp of the business and is likely to know how to break down its silos and integrate its divisions.
"They could certainly become profitable through downsizing and shrinking some of their loss-making businesses this year, but we'll have to wait and see if they can continuously be profitable," said Yuuki Sakurai, head of fund manager Fukoku Capital, who oversees about 1.5 trillion yen worth of assets. Fukoku has a small holding in Sony, according to Reuters data.
"I think Sony is fighting with its old image. People think Sony can succeed (by doing what it did in the past), when there is a limit to what they can really do (in the current competitive landscape)."
"The issue is if (Sony) can adapt and grab the chance. If they stick to the old image, they may not be able to do so."
A key concept in Hirai's strategy hinges on merging Sony's robust roster of entertainment properties - including singers Kelly Clarkson and Michael Jackson, and the "Spider-Man" and "Men in Black" film franchises - with its Vaio, Bravia and other electronics brands, in an effort to boost sales.
He has said the TV business would be crucial to this "convergence" strategy, brushing aside suggestions it may need to pull out of the market.
Recently, Sony exited an LCD panel venture with Samsung, enabling it to obtain screens for its TVs more cheaply. It also agreed to buy out Ericsson's half of their smartphone venture for $1.5 billion to shore up its position in a market where Apple and Samsung have become leaders.
Hirai, who was promoted from head of Sony's consumer products and services businesses that produce the bulk of Sony's $85 billion in annual sales, has also singled out medical as a potential core business for the future.
[Source: By Tim Kelly, Reuters, Tokyo, 10Apr12]
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