Sony's announcement of a sweeping restructuring got a warm reaction from investors Tuesday. But there were questions about whether the optimism could be sustained.
The company behind the Walkman and the PlayStation game player said it will cut 17,000 jobs globally by the end of March 2003 and slim its sprawling global network of 70 manufacturing companies to 55.
The moves are aimed at promoting a new generation of digital products to take advantage of the burgeoning network-centric era. Markets reacted favorably, pushing the company's stock up 9 percent.
But some analysts said it was unclear how the reforms will affect Sony's profitability and noticeably change its revenue structure, now that they're too heavily reliant on the cutting-edge PlayStation game console.
"The reform itself is a step in a right direction," said Masahiro Mitsui, portfolio manager at Prudential Investment Advisory Company. "But it didn't contain much of a surprise, nor did it give a clear picture of how Sony will make profits after revenues from the next PlayStation have peaked."
Satoru Kanoko, a manager at Prudential Life Insurance, said: "In terms of share value, the announcement is neutral."
The drastic group-wide reorganization features restructuring of the troubled electronics hardware business and conversion of three listed subsidiaries into wholly owned units.
Sony posted record earnings in the 1997-98 business year, powered by domestic sales of its digital audiovisual products and a string of hits from its US movie unit. But it's now bracing the first quarterly operating loss since 1994, hit by the high yen, economic woes in emerging markets, and raging price wars.
In the restructuring, the company's huge electronics business, with annual sales amounting to 4.7 trillion yen (US$38.8 billion), will be reorganized into four business groups. Each will engage in research and development and production of household network products such as TVs and set-top boxes used at home, mobile communication products including PCs and cellular phones, computer entertainment including PlayStation games, and other devices.
"This restructuring ushers in the second stage of Sony's growth by pushing network-related business," co-chief executive officer Nobuyuki Idei told a news conference. "But the biggest priority of all reforms is boosting Sony's shareholder value."
The company said the cuts would affect operations in Asia, Europe, the United States, and Japan.
Analysts said the reforms will boost investment efficiency at Sony, which has started selling new gizmos for the digital age -- digital cameras, PCs, and printers -- that can be linked with each other through the "Memory Stick," an ultra-compact memory device about the size of a thumb.
"Sony was quick in its decision to cut costs. Its strategy for networking era is clear," said Masashi Kubota, an analyst at ING Barings. "In general, this is a good news, but not enough to change the rating to 'strong buy', as the short-term impact on Sony's profitability is unclear."
Reuters contributed to this report.
