Sony: Cost cuts are not a turnaround plan

Sony (SNE) CEO Sir Howard Stringer has begun to release the details of how he will get the big Japanese consumer electronics firm back on track.

The cornerstone of the program will be to reduce the number of parts suppliers that Sony has from 2,500 to 1,200. The firm says this will save $5.3 billion in purchasing costs in the current fiscal year. That number is already part of Sony's earnings forecast.

According to The Wall Street Journal, "Cutting fixed-costs and purchasing spending is what they have to do first because they estimate smaller revenue," said Koya Tabata, analyst at Credit Suisse. And that gets to the heart of the matter. A turnaround plan without programs for increasing revenue is no turnaround plan at all.

A look at Sony documents shows that the company has 1,006 consolidated subsidiaries worldwide. These are concentrated in the manufacturing and marketing of TV screens, cameras, DVD players, and gaming systems like the PS3. The company also owns one of the largest movie studios in the world.

The Sony "turnaround" plan makes no mention of product innovation or a strategic program for its film operation, which is not a core part of the company and therefore could be spun off or sold.

Stringer has given investors half -- the expense control half -- of what is required to show that Sony can recover, and that is not nearly enough.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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