Facing Falling Demand, Sony Lops Off 16,000 Jobs

By Mike Caggeso
Associate Editor
Money Morning

Surrounded by global recession, Tokyo-based Sony Corp. (ADR: SNE) said it plans to eliminate 16,000 jobs, the biggest of several moves intended to cut more than $1.1 billion (100 billion yen) from its annual expenses by March 31, 2010.

Its cost-cutting operation only applies to its electronics division, and further plans include curbing investments by 30% and ceasing production at two overseas manufacturing sites. 

The job cuts are nearly split down the middle between full-time and part-time/seasonal employees, Bloomberg reported. And the job cuts don't include the number of employees reassigned to another position.

The 8,000 full-time jobs amount to about 5% of Sony's workforce, the company said in a statement.

The job cuts are the largest single slash by a Japanese company since the credit crunch began wringing capital from companies around the world.

Sony, the world's second-largest consumer electronics maker, said it plans to outline the impact of these cutbacks its third quarter report in January.

"The reason for this move is the deterioration of the economy, which was much larger than we expected," Senior Vice President Naofumi Hara told Bloomberg.

But that's not exactly the whole story.

Sony faces multiple major competitors for each of its strongest electronics products - Game consoles, MP3 players, portable devices, DVD players, high-definition televisions, big screen, computers, and cameras & camcorders.

Most notably, Sony's most recent and popular game console Playstation 3 is the only thing that can be considered a dud in the white-hot (and highly investable) video game industry.

Instead, the Nintendo's Wii game console is celebrating its second-consecutive holiday season as the hot item. In fact, demand for it never cooled throughout the year.

As of June 2008, Nintendo Wii sales have doubled that of Sony's flagship console - selling 29.6 million units worldwide compared with 14.4 million PS3 units sold.

Peer Review

The global financial rout has severely blunted retail electronics sales, despite wide acceptance that this is a promising growth industry.

The fact is that domestic and corporate budgets have been slashed, and the extra coin that'd normally buy new high-tech gadgets is instead being used for more basic needs.

That's why Sony rivals Panasonic Corp. (PC) and Sanyo Electric Co., Ltd. (OTC:SANYY) are hashing out a buyout plan that - if approved by shareholders and regulators - would cement Panasonic's status as a global electronics leader.

Sanyo's wide range of products could buoy the company, but only if it had the size and capital to keep its businesses running.

Panasonic - on the other hand - desperately needs to expand its product line and is sitting on a $10 billion cash reserve. 

Goldman Sachs Group (GS) is a major Sanyo shareholder and has rejected Panasonic's first two bids so far, the second an $8.6 billion offer, The Financial Times reported.

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