Strong yen forces Sony to cut costs

Sony said on Thursday that it hoped to mitigate the effect of a strong yen against the dollar and weak US demand by cutting costs and boosting exports to emerging markets.

“We will lower production costs and take more orders so that the impact will not be that serious,” Ryoji Chubachi, Sony’s president, said at a company event in Taipei.

The yen’s move beyond Y100 against the dollar last month has hit Japanese exporters such as carmakers as well as consumer electronics makers, including Sony, many of which derive more than half of their sales from overseas markets.

Mr Chubachi’s remarks highlight the additional pressures on the Japanese consumer electronics company, which has been struggling due to renewed losses in its flat-panel television business.

As one way of lowering costs, Sony intends to source more flat-panel TVs from Taiwanese manufacturers. Taiwan is the world’s largest LCD panel maker calculated by the collective output of its flat panel manufacturers.

The companies, such as AU Optronics and Chi Mei Optoelectronics, do not have brands of their own, but offer branded electronics companies such as Sony or Sharp the facility to outsource panel production to them.

Other means of cost-cutting would include relocating production.

In spite of the company’s recent troubles in that business, Mr Chubachi said he still sees LCD TVs as a key growth driver for Sony in 2008 and aims to take 15 to 20 per cent market share this year.

Tatsuya Mizuno, consumer electronics analyst at Fitch Ratings, said Sony could cut costs by outsourcing more manufacturing and reducing its spending on research and development.

But such a strategy, he said, would risk hurting Sony’s brand in the longer term.

“In the past, Sony created a ‘Sony premium’ by creating products that distinguished it from other manufacturers,” Mr Mizuno said. “Its real challenge is to regain its position as an innovator – cutting costs isn’t the basic issue.”

Sony, which earns more than three-quarters of its revenues from foreign markets, loses Y6bn ($58.5m) for every one yen rise against the US dollar, Mr Chubachi said.

Sony said at the time of its third-quarter earnings that it would miss its pledged 5 per cent operating margin target for the year primarily because the rapid appreciation of the yen.