Sony cuts capital spending
By Alexandra Harney in Tokyo
Published: January 30 2001 21:53GMT | Last Updated: January 31 2001 11:38GMT
Sony may cut capital spending in its next fiscal year in view of the sharp decline in demand for personal computers and consumer electronics.
The Japanese electronics group's potential move bodes poorly for the health of the world's second-largest economy. Companies' capital spending, particularly on information technology, has been the primary driver of growth in the Japanese economy in the past two years.
Teruhisa Tokunaka, Sony chief financial officer, said that while the capital spending budget for the business year starting April was not yet decided, "in the present environment the basic trend would be towards a more cautious downward approach rather than an aggressive increase".
Mr Tokunaka added that Sony was working to lower inventories first, and then would reconsider capital expenditure plans. Spending for the current year would not be affected, he said.
In the year ending in March, Sony expects to have spent ¥500bn ($4.3bn), or 13 per cent more than the ¥436bn it spent in the year to March 2000. It will not disclose next year's figure until it announces full-year results, usually in late April.
Analysts said the group was almost certain to cut spending - but not only because of the downturn in PC and electronics demand.
Masahiro Ono, UBS Warburg analyst, said he expected a reduction would come because "Sony is focusing on increasing investment in semiconductors but not in consumer electronics, where they will be relying more heavily on outsourcing".
Mr Ono said Sony could cut capex by at least 10 per cent to ¥450bn, of which about ¥100bn would be earmarked for semiconductors.
Although most economists expect the rate of growth in capital expenditure - the amount companies invest in new facilities - to slow this year, so far there has been little evidence to support these forecasts.
Most Japanese companies are only now starting to compile their budgets for the year that begins in April.
Tokyo Electric Power, the leading utility, said this week it might cut capital expenditures next year.
With private consumption and public spending expected to be sluggish, Japanese government officials are counting on capital expenditure to lead an economic recovery.
James Malcolm, economist at JP Morgan, suggested this was unlikely. He expects the capital expenditure growth rate to slow from 8 per cent this year to 4 per cent next year.
Additional reporting by Nobuko Juji
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