May 23 (Bloomberg) -- Kazuo Hirai is making the same promise that Sony Corp. couldn’t keep the past two years: the struggling TV unit will become profitable.
The chief executive officer said yesterday the measures he is implementing, including cutting almost $1 billion a year in costs, will help generate the first profit in television manufacturing in 11 years. He made the same vow last year, and the division lost 25.7 billion yen ($253 million).
Sony is targeting 400 billion yen in operating profit by the end of March 2016, spurred by the creation of a new TV business, according to a briefing in Tokyo yesterday. It also will seek to reduce costs at its pictures division by $300 million during the same period. The target was viewed with skepticism and shares fell.
“Sony won’t be able to meet its forecast of 400 billion yen in operating profit next fiscal year,” Makoto Kikuchi, Tokyo-based chief executive officer for Myojo Asset Management Co., said by phone. “Sony has repeated these bullish forecasts several times in the past.”
Japan’s No. 1 TV maker unexpectedly forecast a 50 billion-yen net loss this year as slumping demand for its sets and video cameras was compounded by the costs of restructuring and exiting the personal-computer business. That further set back Hirai’s plans to revive the Japanese icon by using PlayStation consoles and Xperia smartphones to lure consumers away from Apple Inc. and Samsung Electronics Co.
The savings will come from a 20 percent cut in total costs at the electronics sales units and a reduction in expenses for headquarters and support functions by the 2015 fiscal year, Sony said. The company expects to complete its withdrawal from the PC business and the other reforms this fiscal year.
“Once we can achieve that, we can create a new Sony that can impress our customers again,” Hirai said.
The shares fell 0.8 percent to close at 1,632 yen in Tokyo trading, widening the decline this year to 11 percent.
Sony revised earnings downward three times in the past year, casting further doubt on Hirai’s ability to execute a turnaround. Since 2009, the company has posted losses of more than 941 billion yen, according to data compiled by Bloomberg.
“Unless Sony can make a popular product like Apple’s iPhone, it needs to improve each division,” Kelvin Ho, a Hong Kong-based analyst at Fitch Ratings Co., said before the briefing.
The TV business has now lost more than 790 billion yen in the past 10 years, according to the company.
When Hirai took over as CEO in 2012, he said Sony’s revival would be driven by games, imaging products and mobile devices. He also said the TV business would make money in two years.
“The biggest issue Hirai should address is creativity,” Damian Thong, a Tokyo-based analyst at Macquarie Group Ltd., said before the plan was announced. “How to make attractive, differentiated products. You have to choose one or two areas to focus on.”
Sony forecast 135 billion yen of expenses this year related to restructuring and from exiting the PC business.
Sony expects to book an 80 billion-yen loss at the PC unit, which includes 36 billion yen in losses related to leaving the business, the company said May 14. Sony previously agreed to sell its PC division, which produces notebooks under the Vaio brand, to buyout firm Japan Industrial Partners Inc.
In November, Sony announced plans to cut $250 million in costs in entertainment over two years as part of Hirai’s plan to boost profit and keep full ownership of the movie, TV and music businesses. The company said yesterday it will target $300 million in annual savings by March 2016.
The additional $50 million will come mostly from changes in procurement, and other ways of doing business more efficiently, said a person with knowledge of the situation who asked not to be named because the details aren’t public.
The company has announced 706 job cuts in California this year, including 216 at Sony Pictures Entertainment that are scheduled to be completed by June, and 450 at Sony Electronics, according to the state Employment Development Department. Another 40 positions were lost in Santa Monica at Sony Computer Entertainment.
“There have been tremendous and painful cuts, and it’s not finished yet,” Richard Doherty, principal of consulting firm Envisioneering Group in Seaford, New York, said before the briefing. “They’ve got a lot of dead wood.”
Sony plans to split its TV manufacturing unit into a separate operating entity. The division is focused on so-called 4K ultra high definition sets and forecasts sales of 16 million liquid-crystal display TVs in the year ending March, compared with 13.5 million sets last year.
Global sales may get a boost in demand from the upcoming soccer World Cup in Brazil. By focusing on the high-end TV market and keeping volumes low, Sony limits potential manufacturing losses, said Amir Anvarzadeh, manager of Japanese equity sales in Singapore at BGC Partners Inc., before the announcement.
“Margins are higher, and it gives you a better brand image,” Anvarzadeh said.
Hirai has resisted suggestions by Third Point LLC investor Daniel Loeb to spin off a portion of its entertainment assets, arguing that content can help sell TVs and mobile devices.
Company executives will return their bonuses for the year ended March, Yo Kikuchi, a spokeswoman for Sony, said May 13.
There are some positives for Sony. The PS4 beat Microsoft Corp.’s Xbox One to first place in U.S. console sales in April, extending its lead for a fourth month, according to Port Washington, New York-based NPD Group Inc. Games like the PS4’s exclusive Killzone Shadow Fall are driving demand.
Sony’s “The Amazing Spider-Man 2,” released this month in the U.S., grossed $633 million at the global box office through May 20, according to Box Office Mojo, revenue that is split with theaters. The film, which cost about $200 million to make, according to Imdb.com, is likely to be profitable, according to Wade Holden, a research analyst with SNL Kagan.
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