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Sony's Woes: Japan's Iconic Brands

Strained

Howard Stringer, Sony chairman and CEO, at a press conference in Tokyo

DAI KUROKAWA / EPA

By COCO MASTERS / TOKYOMonday, Feb. 02, 2009

When Sony ends production at its Ichinomiya plant sometime during the next
five months, the company will be closing the book on a symbol of its golden age.
For 40 years, the assembly lines at Ichinomiya, located southwest of Tokyo,
have churned out products like Trinitron TVs that have helped make the Sony
brand synonymous with quality and innovation in the minds of consumers
worldwide. (See pictures of the history of Japan's interaction with theworld .)

But Sony, inventor of the portable music player and now known for digital cameras, LCD TVs and the PlayStation game machine, has stumbled in recent years. With

demand for electronics collapsing as the world sinks

into recession, the company finds itself increasingly

adrift from its glory days, notwithstanding the
Ichinomiya closure. Last week, Sony reported that it fell
into the red in its latest quarter and repeated its forecast
for an operating loss of $2.9 billion in the year ending
March 31, its first such loss in 14 years.

Sony isn't the only iconic Japanese brand that is taking a
beating. Beset by a domestic economy in recession, a
yen that is gaining strength, and evaporating sales,
manufacturers that have long been considered best-in-

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class by consumers are reeling. Toyota, the world's No. 1

carmaker by sales and profitability, recently announced

that it expects to post its first operating loss in seven

decades for the fiscal year ending March 31.

Indeed, quarterly results emanating from Japan Inc. last
week sounded like a dirge: Honda lowered its profit
forecast for the fourth time this year; Panasonic, the
world's largest maker of consumer electronics, is slated
to post a loss of at least $1 billion in its current fiscal
year, its largest ever; and Toshiba, one of the world's
largest producers of memory chips, and computer

maker NEC Electronics also forecast big losses.

Throughout Japan, managers are slashing production and restructuring to try
to weather the economic downturn, which economists say could continue for
the next two or three years. "Demand has been falling off a cliff since the
collapse of Lehman Brothers," says Hiroshi Shiraishi, an economist at BNP
Paribas in Tokyo. Shiraishi says exports declined a "massive" 15% in real terms
last quarter.

Meanwhile, the government on Friday reported that industrial production
plunged 9.6% in November, the largest month-to-month drop since Tokyo
began measuring such data in 1953. "The problem is very serious," said
Economy Minister Kaoru Yosano during a news conference. "It's impossible
now to predict when the economy will hit the bottom."

Plunging industrial output is reflected by the radical steps manufacturers are
taking to try to adapt to the sharp slowdown. NEC Electronics said last week
that it would eliminate 20,000 jobs at home and abroad, and cut costs by $890
million overall in the coming 24 months. Sony will close up to six factories and
cut 16,000 jobs from its electronics divisions, to address what JPMorgan
Securities analyst Yoshiharu Izumi called the company's "emergency situation."
Panasonic, which recently bought a majority stake in Sanyo, is closing three
plants.

But greater reductions may be needed as the global economic slump deepens.
Toyota's plight illustrates the challenges faced by Japan Inc. The company
recently achieved its long-standing goal of surpassing GM as the world's top
automaker — only to run head-on into a recession far more severe than anyone
anticipated. With its global sales down 4% last year, Toyota has already
announced a management shakeup as well as plans to temporarily close
factories for an additional 11 days over the next two months. The goal is to slash
output to less than half the number of vehicles Toyota was producing at this
time last year.

Analysts say Toyota may need to reduce output even more as sales in the U.S.
market, where the company generates half its earnings, continue to plummet. In
the last three months of 2008, the U.S. economy shrank at its fastest rate in 26
years; consumer spending fell 3.5% after dropping 3.8% in the third quarter.

About 40% of the cars Toyota sells in the U.S. are made in Japanese factories,
and "due to significant yen appreciation, those exports are not profitable
anymore," says Tatsuya Mizuno, an analyst at FitchRatings. It will take Toyota
time to adjust its fixed costs, since it has spent the past several years investing
aggressively to increase production capacity by about 500,000 vehicles per year

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in the U.S. "It's increasingly clear that the driving force [behind Toyota's recent
growth] was really excess consumption in the U.S.," says Izumi of JPMorgan
Securities, "and that's now unwinding."

Looking at Japan Inc. as a whole, BNP Paribas' Shiraishi expects production
levels to hit bottom in the second quarter of this year, and says some recovery
might be seen in the second half of this year. Shiraishi adds that manufacturers
could start growing again around 2012, when a wave of Japan's baby boomers
will reach age 65 and begin to spend their nest eggs. "They've been saving a lot
to prepare for their retirement," says Shiraishi. "That could be a stabilizing
factor for Japan." One catch, he says: they probably won't buy more cars and
TVs.

See pictures of autoworkers.

See pictures of Tokyo's dream machines.

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Why Japan Has

Slipped Into Recession

Why Detroit’s Woes

Are Bad For Toyota

Japan Offers a Lifeline