Sony shares fall after mid-term plan disappoints

Sony shares fell sharply after its long-awaited restructuring plan, which included massive job cuts and plants closures, disappointed analysts.

The group’s American depository receipts dropped 5.6 per cent, its biggest decline for two years, to $33.95 in overnight US trading. Stock markets are closed in Tokyo on Friday, a public holiday.

Under the mid-term restructuring plan announced Thursday by chief executive Sir Howard Stringer, Sony is to cut staff numbers by 10,000, or 7 per cent, reduce costs by Y200bn ($1.8bn) and close 11 plants as it aims to restore profitability and ensure a leading place in the digital electronics market.

The group also abandoned its July profit forecast and said it would face an operating loss this year - its first for a decade. It will make a full-year operating loss of Y20bn, instead of a Y30bn profit, and a net loss of Y10bn on sales of Y7,250bn because of additional restructuring charges at its electronics unit.

The restructuring has been seen as critical to reversing Sony's fortunes in its core electronics business. There had been widespread expectation that Sir Howard - the first non-Japanese to head the group - would be able to implement the kind of bold measures previous Sony management had ducked.

Sir Howard underlined Sony's determination to regain the initiative in the cut-throat electronics industry, saying: “We need to focus selectively and aggressively on being the number one consumer electronics and entertainment company on the planet.

“We must be like the Russians defending Moscow against Napoleon, ready to scorch the earth to stay ahead of the invaders. We must be Sony United and fight like the Sony warriors we are.”

However, Sir Howard's first big initiative as chief executive lacked any concrete plans to withdraw from non-core businesses and was criticised by investors for failing to present a convincing scenario for growth.

Investors had been looking for disposals of unprofitable units, such as cathode ray tube TVs, as a necessary step to focus Sony's resources on growth. “It was disappointing,” said Hiroshi Takada at JPMorgan in Tokyo. “They did not provide any answers.”

Mr Takada said management had failed to explain how Sony would achieve long-term growth and what significance there was in keeping both the hardware and software operations.

Although Sony committed itself to attaining profitability by 2007 and a 5 per cent operating profit margin by March 2008, this had also failed to convince, Mr Takada said.

Sir Howard emphasised the need for streamlining the organisation and said measures were being taken to create a simplified and more efficient structure.

As well as job cuts, the plan calls for reducing the number of product models by a fifth and generating Y120bn from the disposal of real estate and non-strategic assets. Sony said it had identified 15 unprofitable product categories for streamlining, but failed to say which and how.