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Tue, Sep 27, 2005 - Page 12 News List

Sony shares plummet on reform fears

TOO LITTLE, TOO LATE?Dealers responded coolly to a plan to overhaul the struggling electronics firm, citing the need for a more drastic restructuring plan


Sony shares tumbled yesterday as investors fretted that, with a big loss looming this year, a plan to overhaul the struggling Japanese electronics icon may not be radical enough.

Sony fell by as much as 4.8 percent in early trade as dealers gave a cool initial response to the restructuring plan, which was announced after the close of trade on Thursday ahead of a long holiday weekend.

Sony ended the day ?120 or 3.05 percent lower at 3,820 as gains by Japanese shares overall to new four-year highs helped staunch losses.

Despite Sony boss Howard Stringer's plan to cut 10,000 jobs, dispose of a swathe of assets, axe 11 of its 65 manufacturing plants and one-fifth of its product line, analysts expressed concern that he had not gone far enough.

"The company's restructuring plan cannot be called drastic," Merrill Lynch analyst Hitoshi Kuriyama wrote in a research report.

"We believe this structural reform is the minimum that is required for the bloated and slow-moving management at Sony," he said.

"It remains unclear, however, to what extent these reforms will directly result in improved product and marketing strength, and reduced costs."

Sony last week issued its second profit warning this year, forecasting a net loss of ?10 billion (US$90 million) for the year to March 2006, largely owing to one-off costs linked to the restructuring drive.

With the group's bottom line set to sink deep in the red, company watchers stressed the need for a growth revival as well as cost cuts.

"If I were to give a grade to Mr Stringer's recent plan it would be a C-plus," said John Yang, an analyst at the Tokyo office of Standard & Poor's.

"I don't see any difference from the plan that was proposed a few years ago by former [head] Nobuyuki Idei. It's not exciting at all," he told reporters.

In 2003 Idei announced 20,000 job cuts over three years as part of a "Transformation 60" plan to trim costs and to put its media, entertainment and electronics units on the same path ahead of Sony's 60th anniversary in 2006.

Adding to investor concern over Sony, risk evaluator Moody's Investors Service said it had placed on review for possible downgrade its "A1" ratings of Sony Corp and its supported subsidiaries.

An "A1" rating means the borrower has a strong capacity to repay its borrowings but is slightly more susceptible to changes in its circumstances and the economy than higher rated companies.

The review reflects concern over whether Sony will be able to regain its ability to generate the strong profits and cash flows it produced in the past.

Stringer, the first foreigner to take the helm at Sony in its six-decade history, said in a newspaper interview that he was unable to make any drastic turn at Tokyo-based Sony, in part due to resistance from Japanese stakeholders.

"There's a cultural divide," he told the Financial Times over the weekend. "The Japanese investors say don't touch headcount, the Western investors say I haven't done enough. I wanted to escape [Thursday's announcement] with as little damage as I could get away with because I knew I was trapped."

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