Sony Corp. said Thursday it will halve the number of parts suppliers to slash costs under a turnaround plan that is testing the mettle of Chief Executive Howard Stringer.
The electronics and entertainment giant plans to cut purchasing costs by ¥500 billion, or 20 percent of the ¥2.5 trillion spent in the business year ended in March, company spokeswoman Mami Imada said.
Sony has been restructuring under Stringer, a Welsh-born American who in 2005 became the first foreigner to head Sony.
But analysts say his true test starts now — after he took on the additional role of president in February to speed up efforts to reshape Sony. At that time, he announced a new team of four Japanese executives under him, representing Sony’s various businesses.
Sony sank to its first annual net loss in 14 years in the 2008 business year, racking up ¥98.9 billion in red ink, battered by sliding global demand, a strong yen and declining gadget prices. It is expecting an even bigger loss this year.
Koya Tabata, an analyst with Credit Suisse in Tokyo, said Stringer has perhaps another year and a half to turn things around before his position becomes untenable.
Sony needs to pursue low-end, high-volume business and improve management of inventories to boost earnings from electronics as well as expand its distribution network to improve profit from games, Tabata said.
“However, the company has yet to present a clear strategy,” he said.
The streamlining of parts makers is the latest step in Stringer’s drive, according to Sony.
Sony will reduce the number of its parts makers from about 2,500 now to about 1,200 next year. That message was relayed to suppliers this week.
One of Stringer’s pet themes is stressing how the company’s divisions need to work together. He has said the units often don’t communicate well with each other, hinting that they even tended to be territorial.
In the past, Sony’s units have each worked out contracts with different suppliers.
Now, Sony will centralize that to negotiate cheaper prices by boosting the amount of business it does with each supplier, while reducing the number of suppliers, Imada said.
The drop in prices in electronics products has also hurt Sony.
“The prices of digital home appliances have been declining by 15 percent to 20 percent every year lately. Unless we cut costs, we cannot hope to survive the price competition,” Imada said.
Last week, Stringer brought on board George Bailey from IBM as senior vice president in a new position called “chief transformation officer,” to oversee Sony’s network products, content and services.
“We are fundamentally transforming Sony into a more innovative, integrated and agile global company,” Stringer said in a statement.
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