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Unedited press release follows:
TV Business Profitability Improvement Plan
Realignment from volume expansion to establishing a stable platform for revenue growth
Sony Corporation (“Sony” or the “Company”) has embarked on a series of Group-wide measures to enhance operational efficiencies and improve the profitability of its television (TV) business, with the aim of returning the business to profitability in the fiscal year ending March 31, 2014 (“FY13”).
In its mid-range plan announced in November 2009, Sony outlined plans to create a structure under which the Company could attain a market share of 20%, or 40 million unit sales in the fiscal year ending March 31, 2013 (“FY12”), based on the expectation that the LCD TV market would continue its high level of growth. However, since then, market conditions have changed drastically, with overall industry growth slowing, and developed countries experiencing negative growth, especially in the U.S. and Europe where economic conditions have deteriorated. Furthermore, while there was an LCD panel shortage at the time of the mid-range plan announcement, there is now a surplus of LCD panels in the market. In view of these changes, Sony is revising its forecasted global unit sales to 20 million in the fiscal year ending March 31, 2012 (“FY11”) and implementing a series of measures with the goal of establishing a stable business platform from which the Company aims to generate profit even with this reduced sales volume.
To begin to transform its TV operations to a 20 million unit structure, Sony expects to incur additional charges of approximately 50 billion yen. This will primarily be due to impairment charges relating to machinery and equipment, as well as costs related to reducing the number of models. Following this realignment in the TV product category, Sony expects to record sales of 875 billion yen and an operating loss of 175 billion yen in FY11, once the 50 billion yen charges have been recorded. Sony plans to engage in further fixed cost reductions as its TV operations transition from a 40 million to 20 million unit structure; however, due to the “asset-light” strategy already carried out across Sony’s manufacturing facilities, substantial reductions in fixed costs have already been achieved. Therefore, Sony considers reducing variable costs, of which LCD panels comprise the largest proportion, to be its priority going forward.
As a result of these measures, Sony intends to cut in half its operating losses from its TV operations in FY12, and aims to return the business to profitability in FY13.
Excluding the additional charges (approximately 50 billion yen) associated with the transition to a 20 million unit structure from the expected operating loss for FY11, the remaining amount (125 billion yen) is the loss that must be covered by improvements in order to return the business to profitability in FY13. Sony intends to achieve this improvement through the following measures:
• Reduction of LCD panel costs (approximately 40% of total improvement)
• Enhancing product competitiveness and reforming operations to improve marginal profit (approximately 30% of total improvement) by:
> In developed countries, focus on improving model mix. In developing countries, aim to expand Sony’s business at a rate faster than the market through enhancing models designed specifically for the needs of those regions, resulting in further profitability improvement.
> In the area of supply chain management, new systems are being introduced with the aim of reducing inventory turnover by a further 10 days in FY12.
> Regarding product differentiation, deploy unique technology such as super-resolution high image quality engines and accelerate the development of a next generation TV.
> Increasing added value of TV by providing consumers with an integrated user experience across multiple devices and network services.
> As of November 1, 2011, separating the TV business organizational structure from one business unit into three, each with a clear mission and responsibilities: the first business unit is the legacy LCD TV business area that is focused on enhancing products through internal design and manufacturing, the second unit is the third party original design and manufacturing (ODM) area that makes products at a low cost through external design and manufacturing and the third unit is developing and designing the next generation TV. Upstream processes are also being strengthened by consolidating the marketing and product strategy functions.
> Reduction of SG&A at sales companies, improvement in R&D and indirect costs (approximately 30% of total improvement)