Tech Firms Hit Hard Amid Plummeting Consumer Demand
Technology giants such as Microsoft, Sony and Nokia have been hit hard with plunging consumer demand for their products, with each company warning on Thursday of further pain as consumers tighten spending amid the global recession.
Indeed, demand for electronic devices has slowed significantly amid worsening economies in the U.S., much of Europe and in once-resilient emerging markets.
"The consumer electronics sector is following the housing market and car industry into negative territory," Strategy Analytics’ Neil Mawston told Reuters.
"Consumers initially cut back on big purchases such as cars, and now they are starting to hold off on smaller purchases like cell phones."
Leading mobile phone maker Nokia reported a worse-than-expected decrease in its fourth-quarter profits. The company said it had entered its worst year ever, and now expects its sales volumes to shrink 10 percent from 2008.
Japanese electronics maker Sony, maker of PlayStation game consoles, Bravia flat TVs and Cyber-shot digital cameras, said it would post a larger-than-expected $2.9 billion operating loss this business year amid plummeting demand, a stronger yen and restructuring at its struggling electronics operations.
And software giant Microsoft Corp. shocked Wall Street today with its disappointing results. The company reported its plans to cut up to 5,000 jobs and cease offering profit forecasts for the remainder of its fiscal year. It blamed weakness in the PC market, along with the growing popularity of low-cost netbook computers, for its woes. Shares of Microsoft fell 8.6 percent in early Trading on Thursday.
"Clearly business conditions are worse than people were expecting," Cross Research analyst Richard Williams told Reuters.
"This is a substantial amount of jobs cuts. Microsoft has never had a layoff like this in my knowledge and it’s sending a signal that the times are definitely changing."
Meanwhile, Nokia said its underlying, year-over-year fourth-quarter earnings per share dropped 46 percent to $0.34, missing the average forecast of $0.39 in a Reuters poll. Shares of the company’s stock fell to 4 1/2-year lows on the news.
Nokia’s key handset unit saw its profits roughly halved to the lowest level since 2000. The company said it seeks to reduce annual costs at the critical handset unit by roughly $900 million.
No. 3 handset maker LG Electronics, a Nokia competitor, had earlier posted a record quarterly net loss, due to weakness in its flat-screen affiliate and mobile phones.
Apple Inc. remained a rare bright spot amid poor financial reports from tech firms, rising rose more than 6 percent on Thursday after its quarterly profit exceeded expectations due to solid demand for the company’s iPods and Mac computers. The company’s outlook also made investors happy.
Sony, which generates two-thirds of its revenue outside Japan, said it now expected an operating loss of $2.9 billion for its year ending in March. It had previously forecasted a $2.26 billion profit.
While the downward revision was expected, the scale far exceeded local media consensus. Shares of Sony’s stock were down sharply on the news.
As inventories swell amid tumbling prices, the company is under pressure throughout all its operations, from movies to semiconductors and insurance. And analysts say Sony must now take more drastic measures. Its competitors include Samsung Electronics in TVs, Microsoft and Nintendo in video games and Canon Inc. in cameras.
"Sony has to consider ways to lower fixed costs not only for its TV business but for the whole company," Nomura Securities senior analyst Eiichi Katayama told Reuters.
"It will have to start cutting development costs in addition to production costs."
Last month, Sony announced it would slash 16,000 jobs, reduce investment and abandon some businesses to cut $1.1 billion in annual costs.
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