Sony now also taking further steps to address reform of the PC and TV businesses, while at the same time moving forward with further optimization and streamlining of its manufacturing, sales and headquarters/indirect functions, and concentrating resources in growth businesses.
Sony and Japan Industrial Partners Inc. (JIP) today concluded a memorandum of understanding confirming the parties' intent for Sony to sell to JIP Sony's PC business currently operated under the VAIO brand.
The company has determined that concentrating its mobile product lineup on smartphones and tablets and transferring its PC business to a new company established by JIP is the optimal solution. Financial terms of the sale weren't disclosed, but Sony will initially hold a 5 percent stake in the new company.
Sony and JIP will negotiate detailed terms and conditions of the business transfer, targeting the conclusion of a definitive agreement by the end of March 2014. Following reevaluation of the product lineup, the new company is expected initially to concentrate on sales of consumer and corporate PCs in the Japanese market and seek to optimize its sales channels and scale of operations, while evaluating possible further geographic expansion.
As a part of the business transfer to JIP, Sony will cease planning, design and development of PC products. Manufacturing and sales will also be discontinued after the Spring 2014 lineup to be launched globally. Sony says that even after it withdraws from the PC market, its customers will continue to receive customer services. Approximately 250 to 300 Sony and Sony EMCS employees involved in PC operations, including planning, design, development, manufacturing and sales, are expected to be hired by the new company established by JIP. Sony will also explore opportunities for other employees to be transferred to other businesses within the Sony Group. For employees of Sony and Sony EMCS that are not hired by the new company or transferred within the Sony Group, Sony plans to also offer an early retirement support program to assist their reemployment outside of the Sony Group.
Sony has been engaged in various cost reduction initiatives for the TV business including enhancing LCD panel-related cost efficiency and rationalizing R&D expenses, while also strengthening product competitiveness and operational efficiency in order to improve marginal profit ratio. Due to these measures, losses from the TV business, which amounted to 147.5 billion yen in the fiscal year ended March 31, 2012 (FY11), were reduced to 69.6 billion yen in FY12, and are now anticipated to be reduced further, to approximately 25 billion yen in FY13.
While Sony now anticipates that its target of returning the TV business to profitability will not be achieved within FY13 largely due to unexpected factors such as the slowdown in emerging markets and declining currency rates, the reforms executed within the TV business over the past two years are putting the business on a path to turnaround. In particular, Sony has enhanced product competitiveness and accelerated its shift to high-end models, especially in the area of 4K, where Sony has secured more than 75% market share in Japan (as of the end of December 2013, based on Sony research). Sony has also taken the number one market share in the US for 4K models (during calendar year 2013, based on revenue). Sony has decided to execute additional reform measures with the aim of establishing a structure capable of delivering stable profit beginning in the fiscal year ending March 31, 2015.
First, Sony will shift its product mix and focus on increasing the proportion of sales from high-end models in FY14. The company plans to reinforce its position in the 4K market by strengthening its product lineup while also bolstering its 2K models with wide color range and image-enhancing technologies. In emerging markets, Sony will aim to harness market expansion by developing and launching models tailored to specific local needs.
Second, Sony will accelerate its cost reduction and operational improvement measures, focusing attention across all functions relevant to the TV business, including manufacturing, sales, and headquarters/indirect functions. In addition, Sony has decided to split out the TV business and operate it as a wholly-owned subsidiary.
In terms of electronics sales companies, Sony plans to identify focused product categories for each specific country and region, rationalize support functions, and implement outsourcing and other efficiency measures with the objective of achieving total cost reductions of approximately 20% by the fiscal year ending March 31, 2016.
With respect to manufacturing sites, Sony will proceed with the further optimization of manufacturing and other operations.
Sony will also streamline Sony headquarters and support functions and expects to achieve cost reductions of approximately 30% by FY15 within these operations.
The targeted timeframe for this transition is July 2014. The company is aiming to further enhance its TV business' profit structure and return the business to profitability during FY14.
Due to the implementation of the above measures, Sony is anticipating headcount reduction of approximately 5,000 (1,500 in Japan, 3,500 overseas) by the end of FY14.