Sony has been aggressively implementing a reform strategy across its electronics business, as originally announced in April 2012. In the imaging, game and mobile businesses that Sony identified as the three core businesses that would drive the growth of its electronics business, Sony has made significant progress in executing this strategy. Sony has launched high value-added products that bring together the best of Sony's technological strengths and introduced new market-leading platforms and business models. At the same time, Sony identified PCs and TVs as businesses for which profitability improvement would be a key priority and implemented various reform measures. The reforms executed within the TV business have significantly enhanced its operational structure and product competitiveness. However, Sony now anticipates its target of returning the TV and PC businesses to profitability will not be achieved within the fiscal year ending March 31, 2014 ("FY13").
As a result of the circumstances described above, Sony is now also taking further significant steps to address reform of the PC and TV businesses, while at the same time moving forward with further optimization and streamlining of its manufacturing, sales and headquarters/indirect functions, and concentrating resources in growth businesses.
Following a comprehensive analysis of factors, including the drastic changes in the global PC industry, Sony's overall business portfolio and strategy, the need for continued support of Sony's valued VAIO customers, and future employment opportunities for personnel involved in the VAIO business, the Company has determined that concentrating its mobile product lineup on smartphones and tablets and transferring its PC business to a new company established by JIP is the optimal solution. Sony and JIP will now proceed with due diligence and negotiate detailed terms and conditions of the business transfer, targeting the conclusion of a definitive agreement by the end of March 2014. Following reevaluation of the product lineup, the new company is expected initially to concentrate on sales of consumer and corporate PCs in the Japanese market and seek to optimize its sales channels and scale of operations, while evaluating possible further geographic expansion.
As a part of the business transfer to JIP, Sony will cease planning, design and development of PC products. Manufacturing and sales will also be discontinued after the Spring 2014 lineup to be launched globally. Even after Sony withdraws from the PC market, Sony customers will continue to receive aftercare customer services. Approximately 250 to 300 Sony Corporation and Sony EMCS Corporation employees involved in PC operations, including planning, design, development, manufacturing and sales, are expected to be hired by the new company established by JIP. Sony will also explore opportunities for other employees to be transferred to other businesses within the Sony Group. For employees of Sony Corporation and Sony EMCS Corporation that are not hired by the new company or transferred within the Sony Group, Sony plans to also offer an early retirement support program to assist their reemployment outside of the Sony Group.
*Not including 64.1 billion yen equity in net losses of affiliates from the S-LCD joint venture.
While Sony now anticipates that its target of returning the TV business to profitability will not be achieved within FY13 largely due to unexpected factors such as the slowdown in emerging markets and declining currency rates, the reforms executed within the TV business over the past two years are putting the business on a path to turnaround. In particular, Sony has significantly enhanced product competitiveness and accelerated its shift to high-end models, especially in the area of 4K, where Sony has secured more than 75% market share in Japan (as of the end of December 2013, based on Sony research). Sony has also taken the number one market share in the US for 4K models (during calendar year 2013, based on revenue). TVs continue to play a vital role as the centerpiece of the home viewing experience. Sony aims to leverage the wealth of technological expertise and assets accumulated within this business as key differentiation technologies across its entire product lineup. In light of the TV business' continued importance within Sony's overall strategy, the Company has decided to execute the additional reform measures detailed below, with the aim of establishing a structure capable of delivering stable profit beginning in the fiscal year ending March 31, 2015 ("FY14").
First, Sony will shift its product mix and focus on increasing the proportion of sales from high-end models in FY14. Sony plans to reinforce the company's leading position in the 4K market by strengthening its product lineup while also bolstering its 2K models with wide color range and image-enhancing technologies. In emerging markets, Sony will aim to harness market expansion by developing and launching models tailored to specific local needs. Second, Sony will accelerate and broaden its on-going cost reduction and operational improvement measures, focusing attention across all functions relevant to the TV business, including manufacturing, sales, and headquarters/indirect functions (as outlined below). In addition, to help transform this business into a more efficient and dynamic organization, optimized in size and structure for the current competitive business environment and fully accountable for its operations, Sony has decided to split out the TV business and operate it as a wholly-owned subsidiary. The targeted timeframe for this transition is July 2014. By implementing these measures, Sony is aiming to further enhance its TV business' profit structure and return the business to profitability during FY14.
In terms of electronics sales companies, Sony plans to identify focused product categories for each specific country and region, rationalize support functions, and proactively implement outsourcing and other efficiency measures with the objective of achieving total cost reductions of approximately 20%** by the fiscal year ending March 31, 2016 ("FY15").
With respect to manufacturing sites, Sony will proceed with the further optimization of manufacturing and other operations.
Sony will also streamline Sony Corporation headquarters and support functions and expects to achieve cost reductions of approximately 30%** by FY15 within these operations.
**Compared to FY13.
In order to execute these measures, Sony is allocating an additional 20 billion yen (approximate)*** in restructuring expenses in FY13 and a further 70 billion yen (approximate) in restructuring expenses in FY14. Sony expects these measures to result in annual fixed cost reductions of more than 100 billion yen (approximate) starting in FY15.
***Total restructuring expenses in FY13 are expected to be 70 billion yen (approximate) including 50 billion yen (approximate) originally allocated.
In addition to all of the above measures, Sony will also be accelerating its process of business portfolio realignment, and refining its R&D project selection process across its electronics businesses.