Sony (SNE): A Plan To Cut But Not Build

Sony’s (SNE) plan to turn itself around is all about cutting costs and has nothing to do with building new products or restructuring the firm’s content operations.

Sony’s management laid out a program to cut its component suppliers by about half to 1,200. This action should save more than $5 billion in the current fiscal year.

According to Reuters, “Sony, which competes with Samsung Electronics in flat TVs and Canon Inc. in digital cameras, has been overhauling operations as it expects a second straight year of losses due to weak global demand for consumer electronics goods.”

Bringing down costs is hardly at the heart of the matter. As companies like Apple (AAPL) and even Palm (PALM) bring innovative products to market, Sony is stuck with offerings which are nearly commodities especially its TV screens, DVD players, and PCs. Because these products are not distinctive compared with competitive offerings, they are prone to price pressure and lower margins.

Sony’s relatively new PS3 game system, which was supposed to significantly boost the parent company’s sales, has lagged Microsoft’s (MSFT) Xbox 360 and the Nintendo Wii in units sold and there does not seem to be any prospect of that changing.

Sony owns one of the largest movie studios in the world and a huge library of films. The unit has little relationship to Sony’s other businesses and it is remarkable that the company has not announced plans to sell it to a large media conglomerate or spin it out to the firm’s shareholders.

If all Sony has to offer is cost cuts it is not likely to recover from it multi-year stupor at all.

Douglas A. McIntyre