Expected Sony, Toshiba Losses Rock Japanese CE Market

Two giants of Japan’s consumer electronics industry are expected to announce annual losses for the first time in many years.

Sony, maker of the industry-changing Walkman music player and the PlayStation series of video game consoles, is expected to announce a US$1.1 billion loss for the 2009 fiscal year that ends March 31. If expectation becomes reality, it will be Sony’s first annual loss in 14 years.

Toshiba, maker of flat-screen televisions, laptops and digital video recorders, is expected to announce a $2.2 billion annual loss for the 2009 fiscal year that ends March 31. The annual loss would be Toshiba’s first in seven years.

Sony acknowledged that stories on its expectations were circulating in the press but otherwise offered no official comment.

The company’s stock was down 4.2 percent to $22.13 per share in late-day trading on Tuesday.

Both Sony and Toshiba will announce their third-quarter results on Jan. 29.

Japanese Economy in Recession

Sony and Toshiba have been dealt a double whammy — a strong yen and weak consumer demand in the U.S., Europe and Japan.

Because it makes exports more expensive, the strong yen is affecting the profitability of Japanese companies, said Ben Bajarin, director of the consumer technology practice at Creative Strategies.

“It greatly affects their bottom line,” he told the E-Commerce Times.

With Japan’s economy mired in a recession, the pressure is on its leaders to restore confidence among consumers. There is also pressure on the companies themselves to really deliver solutions people want, Bajarin said.

American Companies Could Benefit

The expected annual loss at Sony is just the latest bad news for the company.

In early December, Sony announced it would cut 8,000 of its 160,000 worldwide employees and reduce investment in the consumer electronics business by 30 percent.

American companies such as Microsoft, Apple, Motorola, HP and Dell could benefit from a reduction in research and development at Sony, Bajarin said.

“If they recognize, as they should, that this is a cycle — and the only way to get through it is to spend through it and innovate — then the competition among those names will remain strong,” he explained.

What American consumer electronics companies won’t be able to do is compete on price with competitors in markets such as China, said Bajarin.

“They will need to combat [low prices from Chinese manufacturers] with innovation and other differentiators like software and services,” he said.

Hope for Recovery

Although Sony and Toshiba suffer from a severe inventory glut, no one should expect prices for consumer electronics to drop any time soon, Bajarin said. “I’m not sure we will see significant price drops from the vendors, but we will have to see them adjust to demand by the retailers who will certainly buy less inventory.”

The inventory glut was caused by companies like Sony and Toshiba significantly increasing production in anticipation of greater consumer demand that vanished when the global economy went into a recession, Bajarin said.

However, there are signs of hope.

“The question is what kind of leader Barack Obama is and becomes,” Bajarin said. “If he can show the public that he is capable of taking America in the right direction, then that will help greatly [to] instill confidence back into the consuming public.”

Also, many companies held off on buying the Windows Vista operating system for their IT infrastructure when it first came out due to the problems it encountered early on. Now, there is pent-up demand for Microsoft’s next offering, Windows 7, he said.

“Hopefully, Windows 7 will deliver, and we will see CTOs start to pull the trigger and start spending for their corporations,” Bajarin said. “This would be a good sign for the overall economy, as well, that may also contribute to consumer confidence.”

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