MassiveAttack
Banned
Sony's Results Still May Falter,
Despite New Managers' Efforts
By PHRED DVORAK
Staff Reporter of THE WALL STREET JOURNAL
July 7, 2005
TOKYO -- Now that Sony Corp. has a new management team, investors are eagerly waiting to see what it will do.
Yet many stock analysts warn that Japan's most famous electronics company is in for a rough few years -- no matter what steps the new executives take.
Sony shareholders last month approved the appointments of Chief Executive Howard Stringer and President Ryoji Chubachi, ushering in the first foreign-led management team in Sony's history. The changes in the executive suite followed the sudden announcement in March that Sony's previous top managers would step down, amid a continuing slide in electronics earnings.
Sony's share price, which had shot up as high as 4,400 yen ($39.39) after the management overhaul was announced, is now trading at about the same 3,900-yen level as it was in early February, before the management upheaval. Yesterday, Sony's shares rose 1.8%, or 70 yen, to 3,880 yen in Tokyo.
Attention now turns to the end of September, when Messrs. Stringer and Chubachi have said they will announce their strategy for turning around Sony's struggling electronics business and rejuvenating its famous brand.
Many investors are hoping for big changes, including possible cuts to personnel and product lines, as well as clearer explanations of where profits will come from and how fast they will rise. Sony's new executives have said they would try to meet those expectations.
"I have to be tough," Mr. Stringer told shareholders in June. "I really do need your support and understanding."
Yet in a sobering reminder of just how big a challenge Sony's new executive team faces, many analysts are already forecasting years of sluggish earnings and a stagnant share price -- even before the turnaround plan is announced.
That is because Sony is in a squeeze as far as its gadgets go. Profits are tumbling or evaporating on previous money makers such as digital cameras and televisions as rivals pump out similar goods on the cheap. Prices are falling so steeply that analysts say cost cutting alone can't get Sony's profits back.
But the new and potentially hot technologies Sony is readying -- a super-fast chip dubbed Cell and a next-generation DVD system called Blu-ray -- are still many months away from being on retailers' shelves. Both are scheduled to roll out in volume next year, and many analysts say they are likely to cost Sony more money before they start earning any back.
Sony will then have to gin up even more new technologies, products or business models if it is really going to boost profit -- a process that is likely to be lengthy, risky and costly -- even as the company goes through further restructuring.
"There's no quick fix," says Yuji Fujimori, an electronics analyst at Goldman Sachs in Tokyo who predicts that Sony's shares will remain unattractive to investors until at least March 2007.
One drag on Sony's earnings for the next year or two will be its PlayStation 3 videogame console, scheduled for release next spring. The game machine will have both Sony's Cell chip and a Blu-ray drive, making it key in the company's lineup.
Yet analysts say fierce competition with Microsoft's new Xbox 360 game console, expected out this year, means Sony will have to keep PlayStation 3 prices relatively low, and it will take longer for the business to become profitable. Merrill Lynch recently cut its earnings forecast for Sony in the year to March 2007, on the expectation that the electronics and videogames divisions will experience about 178 billion yen in losses as they put Cell and other expensive components into the PlayStation 3 and sell it below cost.
What is more, analysts say Sony could have trouble earning much money on the Cell chip at all unless it is put into devices besides game machines -- something Sony has said it would do, but would take yet more time and entail additional initial investment.
Another drag on Sony's earnings is likely to be continued reorganization and cost-cutting in electronics, where analysts say it still has much more to do. Morgan Stanley estimates that in restructuring its business, Sony is about two years behind its biggest Japanese competitor, Matsushita Electric Industrial Co., and would do well to lift its operating-profit margin -- a key indicator of business profitability -- to about 3% by the year ending March 31, 2007, from 1.6% in the most recent fiscal year.
Says Morgan Stanley analyst Masahiro Ono: "Unless Sony is extremely good at restructuring and refocusing electronics, it just won't recover."
Despite New Managers' Efforts
By PHRED DVORAK
Staff Reporter of THE WALL STREET JOURNAL
July 7, 2005
TOKYO -- Now that Sony Corp. has a new management team, investors are eagerly waiting to see what it will do.
Yet many stock analysts warn that Japan's most famous electronics company is in for a rough few years -- no matter what steps the new executives take.
Sony shareholders last month approved the appointments of Chief Executive Howard Stringer and President Ryoji Chubachi, ushering in the first foreign-led management team in Sony's history. The changes in the executive suite followed the sudden announcement in March that Sony's previous top managers would step down, amid a continuing slide in electronics earnings.
Sony's share price, which had shot up as high as 4,400 yen ($39.39) after the management overhaul was announced, is now trading at about the same 3,900-yen level as it was in early February, before the management upheaval. Yesterday, Sony's shares rose 1.8%, or 70 yen, to 3,880 yen in Tokyo.
Attention now turns to the end of September, when Messrs. Stringer and Chubachi have said they will announce their strategy for turning around Sony's struggling electronics business and rejuvenating its famous brand.
Many investors are hoping for big changes, including possible cuts to personnel and product lines, as well as clearer explanations of where profits will come from and how fast they will rise. Sony's new executives have said they would try to meet those expectations.
"I have to be tough," Mr. Stringer told shareholders in June. "I really do need your support and understanding."
Yet in a sobering reminder of just how big a challenge Sony's new executive team faces, many analysts are already forecasting years of sluggish earnings and a stagnant share price -- even before the turnaround plan is announced.
That is because Sony is in a squeeze as far as its gadgets go. Profits are tumbling or evaporating on previous money makers such as digital cameras and televisions as rivals pump out similar goods on the cheap. Prices are falling so steeply that analysts say cost cutting alone can't get Sony's profits back.
But the new and potentially hot technologies Sony is readying -- a super-fast chip dubbed Cell and a next-generation DVD system called Blu-ray -- are still many months away from being on retailers' shelves. Both are scheduled to roll out in volume next year, and many analysts say they are likely to cost Sony more money before they start earning any back.
Sony will then have to gin up even more new technologies, products or business models if it is really going to boost profit -- a process that is likely to be lengthy, risky and costly -- even as the company goes through further restructuring.
"There's no quick fix," says Yuji Fujimori, an electronics analyst at Goldman Sachs in Tokyo who predicts that Sony's shares will remain unattractive to investors until at least March 2007.
One drag on Sony's earnings for the next year or two will be its PlayStation 3 videogame console, scheduled for release next spring. The game machine will have both Sony's Cell chip and a Blu-ray drive, making it key in the company's lineup.
Yet analysts say fierce competition with Microsoft's new Xbox 360 game console, expected out this year, means Sony will have to keep PlayStation 3 prices relatively low, and it will take longer for the business to become profitable. Merrill Lynch recently cut its earnings forecast for Sony in the year to March 2007, on the expectation that the electronics and videogames divisions will experience about 178 billion yen in losses as they put Cell and other expensive components into the PlayStation 3 and sell it below cost.
What is more, analysts say Sony could have trouble earning much money on the Cell chip at all unless it is put into devices besides game machines -- something Sony has said it would do, but would take yet more time and entail additional initial investment.
Another drag on Sony's earnings is likely to be continued reorganization and cost-cutting in electronics, where analysts say it still has much more to do. Morgan Stanley estimates that in restructuring its business, Sony is about two years behind its biggest Japanese competitor, Matsushita Electric Industrial Co., and would do well to lift its operating-profit margin -- a key indicator of business profitability -- to about 3% by the year ending March 31, 2007, from 1.6% in the most recent fiscal year.
Says Morgan Stanley analyst Masahiro Ono: "Unless Sony is extremely good at restructuring and refocusing electronics, it just won't recover."
