Sony Slimming Down

With sales slumping, Japanese company will cut 8,000 jobs in electronics division and slash investment.

Sony is preparing for a bleak future for its electronics business. The Japanese manufacturer said Tuesday that it will slash 8,000 jobs in its electronics division and cut capital investment by 30.0% in the next fiscal year.

Analysts expect the electronics and entertainment giant's earnings to collapse in 2009 on a surging yen, investment losses, a supply glut of liquid crystal displays and digital cameras, and a slowdown in consumer spending in the economically depressed West.

Sony (nyse: SNE - news - people ) said in a statement that it is aiming to reap cost savings of over 100 billion yen ($1.1 billion) a year by March 2010 through layoffs, scaling back investment plans, closing factories and outsourcing production. The company will shutter two overseas factories by the end of the current fiscal year in March, including a plant in Dax, France, that produces recording media. By the end of the following fiscal year in 2010, it indicated it aims to close another three or four plants. It will also cut its temporary work force.

With Americans and Europeans now more interested in saving like the Japanese than buying their gadgets, CLSA analyst Atul Goyal forecast last week that Sony's operating profit for fiscal 2009 will plunge from 90.0 billion yen ($972.3 million) to zero, and the company will net a loss of 50 billion yen ($540.2 million). The yen's surge this year has eroded Sony's overseas earnings, and the company has suffered steep portfolio losses due to the country's slumping stock market.

A price collapse in LCDs and digital cameras has similarly pummeled earnings at South Korean archrival Samsung Electronics (other-otc: SSNLF - news - people ) (See "No Christmas Presents For Samsung"). A Samsung executive told investors on Monday that it will reduce capital spending to a range of 7 trillion won ($4.84 billion) to 8 trillion won ($5.53 billion) next year, down from 10 trillion won ($6.9 billion).

However, cash-rich Samsung has fared better of late than heavily-indebted Sony, boosted by the won's slide, which has made South Korean exports cheaper.

Aside from the dismal economic environment, Goyal said Sony has made strategic blunders--it didn't discount enough to clear its inventories over the crucial U.S. Black Friday shopping weekend, whereas competitor Sharp (other-otc: SHCAY - news - people ) slashed prices more aggressively, he said. Sony also ceded TV sales to Samsung and digital camera sales to Canon (nyse: CAJ - news - people ) during the post-Thanksgiving shopping period. If the company decides to clear out its bloated inventories in the first half of 2009, then prices will further collapse, he added.