Sony plans 20,000 job cuts in reorganization

The move affects about 13% of its worldwide workforce

Sony Corp. plans to cut 20,000 jobs, about 13% of its worldwide workforce, and push for greater convergence between its electronics, games and entertainment content over the next three years as part of a reorganization detailed by the company today.

The central goal of the plan is to increase the company's profit margin to at least 10% in its 2006 fiscal year, which runs from April 2006 to March 2007, Chairman and Group CEO Nobuyuki Idei said at a Tokyo news conference. Sony's profit margin is now about 4%.

The layoffs will be carried out over a three-year period; the company's workforce stood at 154,500 at the end of March.

Approximately 7,000 of the jobs being cut will be in Japan. In addition, the company plans to reduce by about 30% the number of facilities it runs, such as factories, warehouses, distribution centers and service centers, said Kunitake Ando, president and group chief operating officer. Sony currently has about 200 such facilities.

During the conference, Sony also announced that it had named Ken Kutaragi, president and CEO of Sony Computer Entertainment Inc. and the man behind the PlayStation game consoles, to head a new internal division that will plow research and development money into developing semiconductors for electronics products.

A budget of $9.2 billion is being put aside to cover investment in the semiconductor sector over the next three years, Sony said.

Some of that money will be spent on continuing research into the Cell microprocessor, which Sony is developing with IBM and Toshiba Corp. Tailored for multimedia technologies, the chip is expected to form one piece of Sony's convergence strategy and will be used in a range of the company's products.

Kutaragi's division will also work on research in key technologies, such as LCD and image sensors for digital cameras. The goal is to increase the number of semiconductors and related devices produced within the Sony group rather than outsourcing the work to other companies.

Toward that goal, Sony said it will create a joint venture with South Korea's Samsung Electronics Co. to construct an advanced LCD factory. Sony said it sees demand for LCD panels rising as flat-panel televisions become more popular, and the deal with Samsung is intended to secure a steady supply of panels.

The number of parts bought from outside companies is also targeted for reduction. At present there are about 840,000 different parts used in all of the various products produced by Sony. The company wants to cut that number to 100,000. About 20,000 of this reduced amount will be designated as preferred parts for use throughout the company, Sony said.

The renewed push to drive convergence between Sony's entertainment division -- such as its music, movie and television arms -- will include making music available over Sony's digital consumer products.

An effort will also be made to create content for Blu-ray Disc, a high-definition optical disc format supported by Sony, as well as Universal Media Disc, which is a new optical disc format being developed for use in the company's planned PSP portable entertainment device.

Sony estimated that the restructuring plan will cost the company $3.1 billion over the period of the plan, of which $2.7 billion will be spent in its core electronics sector. Savings from the cuts are expected to be $1.84 billion in fiscal 2006.

Copyright © 2003 IDG Communications, Inc.

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