Sony plans 20,000 job cuts in re-organization

Sony Corp. plans to cut 20,000 jobs, about 13 per cent 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 re-organization detailed by the company Tuesday.

The central goal of the plan is to increase the company’s profit margin to at least 10 per cent in fiscal year 2006, the period from April 2006 to March 2007, Chairman and Group Chief Executive Officer Nobuyuki Idei said at a Tokyo news conference. Sony’s profit margin is currently around four per cent.

The layoffs will be carried out over a three-year period and correspond to about 13 percent of the company’s workforce, which stood at 154,500 at the end of March this year.

Approximately 7,000 of the jobs to be lost will be in Japan. In addition, the company plans to reduce by around 30 percent the number of facilities, such as factories, warehouses, distribution centres and service centres, it runs from the current total of around 200, said Kunitake Ando, president and group chief operating officer, at the same news conference.

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

A budget of one trillion yen (US$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 Corp. 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 liquid crystal displays (LCD) and image sensors for digital cameras, with a goal of increasing the number of semiconductors and related devices produced within the Sony group as opposed to outsourced from other companies.

Towards that goal, Sony said Tuesday it will create a joint venture with South Korea’s Samsung Electronics Co. Ltd. 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 around 840,000 different parts used in all of the various products produced by Sony and the company wants to cut this to 100,000 parts. Around 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 (UMD), which is a new optical disc format being developed for use in the company’s planned PSP portable entertainment device.

Sony estimates the restructuring plan will cost the company 335 billion yen (US$3.1 billion) over the period of the plan, of which 300 billion yen will be spent in its core electronics sector. Savings from the cuts are expected to be 200 billion yen in fiscal year 2006.