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Sony warns of first operating loss in 14 years

Forecasts $2.9bn hole

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Sony has warned it will report its first operating loss in 14 years, as sliding demand for its products, plunging LCD television prices, and a stronger ¥ force the consumer giant to make drastic cost-cutting measures.

Thursday, the company announced a major reversal of fortune from an earlier forecast for its fiscal year, ending March 31, 2009.

Sony said it now expects an operating loss of ¥260bn ($2.92bn, £2.11bn) for the year, down from an October forecast of a ¥200bn ($2.24bn, £1.62bn) profit.

Net income is expected to be a loss of ¥150bn ($1.69bn, £1.22bn) for the year, down from its earlier projection of a ¥150bn profit.

Electronics: Electronics income is expected to be ¥340bn lower than the operating loss forecast in October. Sony blames ¥250bn's worth of trouble on the slowing global economy and greater price competition, ¥40bn on the appreciate of yen, ¥30bn on restructuring charges, and the remaining ¥20bn on loss of income of affiliated companies.

Games: In the gaming segment, income will be ¥30bn less than previously forecast. About ¥15bn is attributed to the stronger yen, and ¥15bn on lower-than-expected sales. Sony's Playstation 3 console currently trails behind both the Nintendo Wii and Microsoft's Xbox 360 in sales.

Pictures: Operating income for Sony Pictures is expected to be ¥13bn lower than previously forecast due to restructuring charges, the economic slowdown, and the appreciation of the yen.

Restructuring

Sony announced in December plans to shut down at least five production sites and lay of 8,000 workers to reduce costs by about 100bn yen by March 2010. Sony now intends not only to accelerate its plans, but more than double the cost-cutting target to 250bn yen by reducing costs in its game, music, and picture business.

Additional cost-cutting measures announced today include plans to close TV design and production at its plant in Ichinomiya, Japan and consolidate the operations at another factory, while reducing its TV design headcount by 30 per cent worldwide by 2010. The company also plans to outsource some of its TV software development to off-shore vendors such as India.

To help reduce the headcount, Sony plans to introduce an early retirement program for employees.

Executive bonuses for the fiscal year will be "substantially reduced." Sony's top executives including CEO Howard Stringer will forgo their entire bonus for the fiscal year.

Sony will announce its official tally of operating results on January 29, 2009. ®

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