Sony 2003 Annual Report Download - page 89

Consolidated Financial Information 2003
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In the year ended March 31, 2003, a decision was made to reduce production capacity of CRT computer display
manufacturing facilities in Japan and Southeast Asia, in response to market contraction resulting from the demand
shift from CRT computer displays to flat panel displays such as LCDs. Although the worldwide market for CRT
computer displays in the year ended March 31, 2002 was approximately 96.0 million units, in the year ended March
31, 2003 it had fallen to approximately 81.0 million units. In order to restore the profitability of the CRT computer
display business, which, due to the decrease in demand, had been suffering from low utilization ratios at
manufacturing facilities, higher ratios of fixed costs to sales and lower operating income margins, Sony decided to
close under-utilized manufacturing facilities. The resulting charges totaled 6.9 billion yen, of which 1.3 billion yen was
recorded in cost of sales, and 5.6 billion yen was recorded in selling, general and administrative expenses.
The restructuring program implemented in the previous fiscal year was accelerated at Aiwa Co., Ltd. and its
subsidiaries (“Aiwa”) in response to a continued decline in operating performance, caused by further declines in the
worldwide market for audio products, which form the majority of Aiwa’s sales. After further reductions in personnel
and reductions in the number of unprofitable product lines which resulted in the closure of all of Aiwa’s manufacturing
facilities, Aiwa’s operations were integrated with those of Sony. (Aiwa was made a wholly-owned subsidiary of Sony
Corporation in October 2002, and merged into Sony Corporation on December 1, 2002.) Charges resulting from the
restructuring of Aiwa totaled 23.0 billion yen, of which 13.8 billion yen was recorded in cost of sales, and 9.2 billion
yen was recorded in selling, general and administrative expenses.
In the fourth quarter of the year ended March 31, 2003, Sony decided to close a semiconductor plant in the U.S.
that produced semiconductor wafers for both internal use and the original equipment manufacturer (OEM) market.
This closure was both a response to a significant decline in the business conditions of the semiconductor industry in
the U.S., and the result of a shift in Sony’s semiconductor strategy. Sony’s semiconductor manufacturing for internal
use is moving toward an emphasis on high-end, network-centric devices and components because Sony is focusing
its efforts on broadband and network-related businesses in response to rapid increases in broadband Internet access.
The restructuring activity is expected to be completed in the year ending March 31, 2004, and the total estimated cost
of this restructuring is 8.1 billion yen, of which 5.9 billion yen was incurred through March 31, 2003. These charges
were all recorded in cost of sales.
In addition to these restructuring activities, Sony has continued to reduce headcount through the implementation
of several early retirement programs in Japan to further reduce costs in the Electronics segment. The resulting
charges totaled 10.9 billion yen, compared to 12.3 billion yen in the previous fiscal year. These charges were
recorded in selling, general and administrative expenses.
The above restructuring initiatives are expected to decrease costs in the Electronics segment by approximately
50.0 billion yen in the fiscal year ending March 31, 2004.
Music
In response to the continued contraction of the worldwide music market due to slow worldwide economic growth,
the saturation of the CD market, the effects of piracy and other illegal duplication, parallel imports, pricing pressures
and the diversification of customer preferences brought on by increased competition from other entertainment