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Sony Sharpens Its Ax

December 9, 2008 | Author: Ibex Marketing

One of the assumptions about a slow-down in consumer electronics sales is that the prime brands will be okay, and it’s the smaller companies that get hammered. Well, as a measure of just how bad the situation is, Sony announced today that it intends to trim about $1.1 billion in annual costs. One way to get these savings is to cut about 8,000 jobs — about 5% of its workforce — as well as an unspecified number of seasonal and temporary workers. The company will also close about 10% of its 57 manufacturing sites, shifting production to locations with lower costs or relying on manufacturing partners.

It was just a few short years ago that Sony went through massive layoffs and cost-cutting programs. At the time, it was more a result of the company’s failure to maintain a competitive position in several markets that it used to dominate. This time, it doesn’t appear that Sony has done anything seriously wrong, as its products compete well in many areas. It’s just that with retailers postponing — or even cancelling — orders, cash flow is going to be a major problem all along the supply chain and not even the biggest of the big will be immune from its effects. It appears that Sony is addressing the issue early, and maybe the cuts will be enough to help it through the first half of the next year, which is traditionally a slow time for consumer electronic sales anyway.

The bottom line, however, is that if Sony is facing a cash crunch and closing production plants, the inventory pile-up must be significant across the whole industry. I continue to expect to see great bargains as everyone along the supply chain tries to find ways to squeeze cash out of the product that they have already created.