JIN-249 -- Sony Swirling as it nears 60

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Issue No. 249
Wednesday, October 29, 2003
TOKYO

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CONTENTS

>> Viewpoint: Sony Swirling as it nears 60

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>> Viewpoint: Sony Swirling as it nears 60

We attended Sony's strategy presentation yesterday for the inside dope
on the electronics giant's latest performance results and projections.
Ken Kutaragi -- the recently promoted executive behind Sony's wildly
successful PlayStation and PlayStation2 video games consoles -- pulled
up his first slide showing a dark pit swirling into oblivion. Being
ominously sucked straight into it were arrows representing major parts
of Sony's mighty business empire -- the games, the electronics and
entertainment divisions.

"It is as if we have a big black hole here," Kutaragi explained.

Sony's line of thinking only became clear on the following slide, which
showed the same black hole at the epicenter of a gigantic explosion, with
the same arrows blasted back out again: "And now the second stage --
a big bang," Kutaragi said to the silent crowd.

It didn't bode well.

Even before Kutaragi enlightened shareholders with his vision for
their company, Sony had a swelling number of critics complaining about
the paucity of specific details at the meetings. Unlike previous occasions,
where Kutaragi has diverted attention by pulling a white sheet off
Sony's latest gadget, his only offering this time was a slide showing
an artist's impression of a "future home." In the Sony dream house, older
members of the family are seen zapping various broadband devices with
remotes while a child plays with a robot dog.

The massive business reorganization was dubbed Transformation 60.
The reason for this title remaining obscure until the very end of the
meeting, when it was explained that by the time the restructuring is
finished in 2006, Sony will be celebrating its 60th anniversary. Also
unveiled at the meeting (sans white sheet) were Sony's plans to
shed 13 percent of its global workforce. The company admitted that
details of a 335 billion yen restructuring had not yet been finalized.

"Nothing has been decided outside of Japan," a Sony spokesman said.
"We don't know what we will be doing from one country to the next."

As part of its restructuring, Sony chairman Nobuyuki Idei outlined
plans to cut CRT production lines from 17 to five and to cease
manufacturing Trinitron CRT sets in Japan by the end of this year.
Analysts believe that it was the Trinitron color television, even more
than the Walkman, that made Sony the most profitable and most feared
electronics group in the world.

Sony said that Transformation 60 would also involve the creation of a
separate financial holding company to house the company's strongly
performing life insurance, insurance and banking operations under one
roof. Mr Idei added that the newly merged financial business, which would
gain from obvious synergies, might eventually be broken up via an initial
public offering.

The radical changes are designed to spare investors from any repeat of
the "Sony Shock" that struck the market when the company's reported dire
results in April. Last fiscal year, group operating profits slumped to a
miserable 185 billion yen, a far cry from the group's previous estimate
of a 280 billion yen profit.

Mr Idei also unveiled a $2 billion joint venture with Samsung, Sony's
South Korean rival, to mass produce next-generation liquid crystal screens.
However, analysts saw the move as yet more evidence that Sony is playing
catch-up in an effort to leap aboard the flat screen revolution. Other
analysts leaving Mr Idei's strategy meeting last night spoke to us of
only a "muted optimism" that the restructuring had come soon enough to
provide Sony with guaranteed recovery. Several of the details, including the
announcement of 20,000 job cuts across the group, were no surprise to
investors. But the company did break with expectations by indicating that
about 7,000 jobs would be lost in Japan over the next three years.

In the past, the group has generally resisted making cuts in its
domestic workforce. But as Sony nears 60, it is trying to take a
hard long look in the mirror.

-- The Editors

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Written and edited by Roland Kelts and
Leo Lewis (editors@japaninc.com)

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