Financial Picture Gloomy for CE Industry

A heavy second-quarter loss for Sony Corporation is only part of the gloomy financial picture for the consumer electronics industry. The numbers are down worldwide for manufacturers and retailers alike, and aren't expected to rebound until spring 2002 at the earliest.

On October 25, Sony reported a net loss of ¥13 billion ($107 million) for the quarter ended September 30, with electronics sales down 4.9% compared to the same period a year earlier ($1 equals ¥122.86). The company's games and movie divisions were profitable, but not sufficiently so to offset losses in the electronics arena. The loss included reorganization costs for Sony's Aiwa unit and inventory write-downs. Sony CFO Teruhisa Tokunaka said his company doesn't anticipate an upswing any time in the near future. "It's tough to see where the bottom is in the current environment," Tokunaka said at a press conference. "We have to be ready for this difficult situation to continue for some time."

Despite Tokunaka's realistic pronouncements, Sony is estimating a profitable year overall—thanks to its hot-selling PlayStation2—with hope of a 3% increase in sales by the time the company's fiscal year closes on March 31. "In the game business, we have seen almost no impact from the economic slowdown or the terrorism in the US," Tokunaka said. Sony will have shipped 20 million units of the PlayStation2 by the end of the 2001–2002 business year. The hope for overall profit is tempered by Sony's own estimate of a 10% decline in sales in the US and Europe between now and then. Sony does approximately one-third of its business in the US.

Tokunaka stated that Sony's cost-cutting efforts would produce savings of ¥75—¥100 billion ($610—$814 million) for the business year beginning next April. The company plans to cut 5000 jobs worldwide this year, a continuation of a three-year plan announced in 1999 to reduce its global workforce of 170,000 people by 10%. Many of the reductions will come from early retirements.

Sony's Aiwa Company, Ltd. reported far worse results than its parent company, with first half (April—September) revenue at ¥90.48 billion, 33% lower than the ¥134.95 billion of a year earlier. The severe decline was due to reduced demand for Aiwa's affordably priced audio/video products. "Conditions are very difficult," said Aiwa president Masayoshi Morimoto. "I have never found it more difficult to raise sales levels." Morimoto said Aiwa sales in North and South America were especially weak, with South American sales down about 10%. Like Sony, Aiwa is in the midst of an effort to reduce its global workforce. Aiwa hopes to reach a level of 5000 workers worldwide, while shutting down its Japanese manufacturing operations. Sony has pumped ¥7.5 billion into the company, increasing its ownership of Aiwa to 61% from a previous 50.5%.

Plasma screen and computer maker Fujitsu reported a 4% decline in sales and a group net loss of ¥174.7 billion ($1.44 billion) for the half-year ended September 30. The company also announced a stepped-up layoff program to counter losses, with 4500 more jobs to be cut in addition to the 16,400 being cut as part of a restructuring program announced in August. Fujitsu expects a loss of ¥310 billion ($2.6 billion) for the year; the red ink will include charges for reorganization, layoffs, and other operational write-offs.

The gloom extended to Sanyo Electric Company, Ltd., which reported a 68% slide in profits for the first half of its fiscal year. Sanyo's net profit was ¥6.3 billion ($51.27 million), far below the ¥8.5 billion the company had predicted at the beginning of the year. Sanyo enjoyed "robust" sales of cell phones and some types of video equipment, but demand for other products stalled, company officials stated. The company's semiconductor and parts divisions performed nicely, however, according to Sanyo spokesman Hiromoto Sekino. The toughest times are still ahead, he warned: "We expect the January–March quarter in the United States to remain difficult."

American companies are also feeling the effects of the global economic slowdown. On October 25, electronics giant Harman International Industries, Inc. reported that its fiscal first-quarter net income fell to $5 million, with sales of consumer audio products down about 6%. Net income for the same period a year ago was $7.2 million. These are net figures; sales for the quarter ended September 30 were $399 million, compared with $395 million a year ago. Harman executives say they expect reduced earnings in the second quarter on a year-to-year basis, but hope for a strong second half of the fiscal year.

A bright spot in retailing: On October 26, Lyndhurst, NJ–based retailer Harvey Electronics, Inc announced that for the 11 months ended September 29, 2001, net sales increased more than $2.3 million, or 7.3%, compared to the same period the previous year. The increase in business is attributable to new and renovated stores the company launched last year. Harvey's net sales totaled $34,188,000; comparable store sales for the 11-month period increased by approximately $311,000, or 1%, from the same period last year. September was a particularly bad month for Harvey's, whose stores are in the New York metropolitan area. Sales for that month were off by $667,000, a decrease of 21.9% from the same month last year. Comparable store sales for September declined $1,358,000, or 30.5%.

The September downturn was attributed primarily to the terrorist attacks of September 11. "Harvey, along with most New York businesses, has suffered from the tragic events of September 11. Our sales results for the third quarter and the fourth quarter to date have been impacted by the overall slowdown in retail sales experienced in our market, as well as across the country," said company president Franklin Karp. "On a more positive note, we have been very pleased and encouraged by the rebound in sales that we are experiencing in October. This trend, which we hope will continue, together with the completion of the renovation of our 45th Street flagship store, and the performance of our newest showroom in Eatontown, NJ, has raised our confidence level for the immediate future." Many electronics firms are hoping for resurgence in the market this spring.

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