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Transformation 60 Corporate Strategy Meeting

A transformation plan to create new value and growth as a leading consumer brand. To confirm and strengthen this position Sony embarked on "Transformation 60", a series of fundamental reforms to the Sony Group. <br><br>https://www.sony.net/SonyInfo/News/Press_Archive/200310/03-047E/

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Transformation 60 Corporate Strategy Meeting

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  1. Nobuyuki Idei Nobuyuki Idei Chairman and Group CEO Chairman and Group CEO

  2. A transformation plan to create new value and growth as a leading consumer brand

  3. Transformation 60 Transformation 60 Transformation 60 1 Structural Reform for Higher Profitability Reduce Fixed Costs 2 Enhance Value of Core Businesses Implement “Convergence Strategies” To Realize Consolidated Operating Profit Margin of at least 10% by FY 2006* * Excluding financial services

  4. Sales, Profitability and Headcount Trend （FY87 – FY02) Sales, Profitability and Headcount Trend Sales, Profitability and Headcount Trend （FY87 – FY02) 189,700 161,100 Structural Reform Phase 1 Headcount (Sales bln-yen) 8,000 71,000 (Profit bln-yen) 1,500 Sales and Profit 7,000 1,200 6,000 Sales 5,000 Op. Profit 900 Net Profit 4,000 600 3,000 2,000 300 1,000 0 0 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02

  5. Transformation 60 Transformation 60 Transformation 60 1. Structural Reform for Higher Profitability (FY 03～ ～FY 06) Reduction of Fixed Costs on a Consolidated Basis 330 billion yen Approximately 4% Improvement in Consolidated Operating Profit Margin

  6. Transformation of Electronics Business Profit Structure Transformation of Electronics Business Profit Structure Transformation of Electronics Business Profit Structure Growth Scenario Flat sales scenario 4,940.5 (bln Yen) Sales 4,940.5 2% 10% Operating Profit (excl. restructuring) Variable cost -2 pt -300 bln (-6pt) Fixed cost FY06+ FY06 FY02

  7. Sony’s Core Businesses Sony’s Core Businesses

  8. Current Market Landscape Current Market Landscape

  9. Current Market Size Current Market Size

  10. “Convergence Strategies” in Electronics “Convergence Strategies” in Electronics 1 Focus and Concentration of Engineering and Other Resources on Home Electronics and Mobile Electronics 2 Convergence of Sony Electronics’ and Sony Computer Entertainment’s Technologies 3 Convergence of Sony’s Mobile AV Technology with Telecommunication Technology 4 Consolidation of Semiconductor Businesses 5 Key Device Strategy Including Display Devices

  11. Mobile Electronics Home Electronics

  12. “Convergence Strategies” in Electronics “Convergence Strategies” in Electronics 1 Focus and Concentration of Engineering and Other Resources on Home Electronics and Mobile Electronics 2 Convergence of Sony Electronics’ and Sony Computer Entertainment’s Technologies 3 Convergence of Sony’s Mobile AV Technology with Telecommunication Technology 4 Consolidation of Semiconductor Businesses 5 Key Device Strategy Including Display Devices

  13. “Convergence Strategies” in Entertainment “Convergence Strategies” in Entertainment

  14. “Convergence Strategies” in Financial Services “Convergence Strategies” in Financial Services ? Establish Financial Holding Company: Sony Life Insurance, Sony Assurance and Sony Bank (planned for 2004)* *subject to approval of the relevant financial authorities ? IPO planned for April 2006 To Procure Funds for Growth and Realize the Value of the Business

  15. Transformation 60 Transformation 60 1 Structural Reform for Higher Profitability Reduce Fixed Costs 2 Enhance Value of Core Businesses Implement “Convergence Strategies” “Beyond FY2006” Creation of New Business Domain

  16. Kunitake Kunitake Ando President and President and Group COO Ando Group COO

  17. Structural Reform: Phase 2 (FY03-05) Structural Reform: Phase 2 (FY03 Structural Reform: Phase 2 (FY03- -05) 05) Transform to a highly efficient operation with high value-added Reduce fixed costs drastically (Improve breakeven point) Improve variable costs (Expand value-added) Reform structure for high profitability

  18. Structural Reform: Phase 2 (FY03-05) Structural Reform: Phase 2 (FY03 Structural Reform: Phase 2 (FY03- -05) 05) Restructuring costs and fixed cost reduction targets Restructuring costs and fixed cost reduction targets Restructuring costs and fixed cost reduction targets （bln Yen） Electronics Electronics Electronics Other Other Other Group Total Group Total Group Total May Corp. Strategy Meeting Restructuring costs (FY03 - FY05) 280 20 300 Fixed cost reduction (FY06 vs FY02) 170 ⇒ Group & Elec: 3 pt increase in Operating Profits Transformation60 Plan Restructuring costs (FY03 - FY05) Fixed cost reduction (FY06 vs FY02) 300 35 335 300 4 pt increase in Operating Profits 6 pt increase in Operating Profits 30 330 ⇒ Group: ⇒ Elec: Note: FY02 denotes Fiscal Year ending 3-31-03, FY06 ending 3-31-07, etc.

  19. Structural Reform: Phase 2 (FY03-05) Structural Reform: Phase 2 (FY03 Structural Reform: Phase 2 (FY03- -05) Transform to a highly efficient operation with high value-added with high value with high value- -added 05) Transform to a highly efficient operation Transform to a highly efficient operation added 1. Focus resources on strategic businesses 2. Global EMCS: accelerate total realignment of EMCS functions 3. Streamline sales, marketing and support operations 4. Reduce costs of non-production procurement 5. Improve product cost competitiveness and quality: design process, quality and production material procurement

  20. 1. Focus resources on strategic businesses 1. Focus resources on strategic businesses 1. Focus resources on strategic businesses ? Focus resources on strategic growth categories to expand business and increase value-added Maturing Categories Strategic Categories Home Flat TV (LCD & PDP) SXRD Rear Projector PSX・DVDRec Home Server IT&Mobile VAIO・Clie DSC・Camcorder Network Audio Cellular Phone Device Key Device, etc. CRT TV CRT Rear Projector VHS DVD Player Set Top Box Home Audio Analog Personal Audio

  21. 1. Focus resources on strategic businesses 1. Focus resources on strategic businesses 1. Focus resources on strategic businesses ? Focus resources on strategic growth categories to expand business and increase value-added ? For maturing categories, enhance EMCS engineering function and increase outsourcing to enhance efficiency ? Increase Sony’s own value-added to improve profitability FY06 Electronics business sales breakdown FY02 Strategic categories <50% 70%+ Shift Maturing categories

  22. 2. Global EMCS: accelerate total realignment of functions 2. Global EMCS: accelerate total realignment of functions 2. Global EMCS: accelerate total realignment of functions Knowledge-intensive approach to product creation Knowledge-intensive approach to product creation ? Realign global engineering, manufacturing, logistics and service ? Japan: position as leading-edge engineering center by strengthening engineering & shifting to key device/semiconductors ? N. America, Europe: establish Customer Front Center by integrating logistics, supply chain management and service functions ? China: position as cost effective manufacturing center capable of meeting needs of growth markets ? SE Asia: CFC and complementary manufacturing base to China M E CFC CFC CFC CFC M’ CFC E: CFC: Customer Front Center M: Manufacturing Engineering Strengthen ties within E. Asia

  23. 2. Global EMCS: accelerate total realignment of functions 2. Global EMCS: accelerate total realignment of functions 2. Global EMCS: accelerate total realignment of functions ? Enhance efficiency through worldwide realignment and consolidation ? Number of manufacturing, logistics and service facilities: approx. 200⇒30% reduction （by end FY05） ? Space at manufacturing, logistics and service centers： approx. 366 mil sqft⇒30% reduction （by end FY05） ? Management of CRT production lines ? Consolidation of worldwide CRT production lines: 17 lines （FY02）⇒5 lines （by end FY06） ? Close CRT production lines in Japan within FY03 Worldwide facilities Facilities Area (mil Sqft) approx. 366 CRT Production Lines 17 approx. 200 • Consolidation • Outsourcing • Licensing -30% -30% Outside Japan 14 5 Japan 3 3/03 3/06 3/03 3/06 FY02 FY06

  24. 3. Streamline sales, marketing & support operations 3. Streamline sales, marketing & support operations 3. Streamline sales, marketing & support operations ? Establish common platform for support functions across companies and locations ? Enhance effectiveness and Group collaboration through integration of business locations ? US: integrate consumer marketing and support functions of Sony Electronics <West Coast in FY04> ? Europe: integrate selected marketing functions of Sony Europe <UK in FY04> ? Increase productivity of sales, marketing and support functions through business process reengineering and use of IT

  25. 3. Streamline sales, marketing & support operations 3. Streamline sales, marketing & support operations 3. Streamline sales, marketing & support operations Group headcount Group headcount Group headcount -20,000 (-13%) 175,000 Breakdown 150,000 Support function reductions: ca. 11,000 -20,000 125,000 100,000 Reductions in Japanese operations: ca. 7,000 -20,000 75,000 50,000 3/97 3/99 3/01 3/03 3/06

  26. 4. Reduce costs of non-production procurement 4. Reduce costs of non 4. Reduce costs of non- -production procurement production procurement ? Strengthen cross-company control of non-production procurement ? Concentrate procurement responsibilities on world-wide basis Areas for reduction Software purchasing costs Facility maintenance & energy costs Communication costs (Network costs) Consulting costs (incl. IT) Examples: Design-related outsourcing costs Personnel outsourcing costs General purchase & leasing costs Fixed cost reduction for non-production items -12% (FY06 vs FY02)

  27. 5. Improve product cost competitiveness and quality 5. Improve product cost competitiveness and quality 5. Improve product cost competitiveness and quality ? Enhance quality and efficiency of design process to accelerate time-to-market ? Reform customer service and product quality ? Transform group-wide production material procurement ? Parts standardization: 840k ⇒ 100k parts by end FY05 ? Supplier concentration: 4,700 ⇒ 1,000 vendors by end FY05 Material cost reduction: -15% p.a. Variable cost ratio improvement: -2pt (FY06 vs FY02)

  28. Structural Reform Initiatives: Entertainment Structural Reform Initiatives: Entertainment Structural Reform Initiatives: Entertainment Continued vertical and horizontal structural reform Continued vertical and horizontal structural reform Continued vertical and horizontal structural reform Reforms in Music business Reforms in Pictures business ? Distribution & manufacturing ? Marketing cost reduction ? Back office functions ? Production cost reduction ? US label operations ? Minimum margin requirement ? Regional Offices ? Cost overrun sharing Fixed cost reduction: Headcount reduction: -27 bln Yen (FY06 vs FY02) -1,700 (3/31/06 vs 3/31/03)

  29. Structural Reform: Phase 2 Structural Reform: Phase 2 Structural Reform: Phase 2 Breakdown of Financial Impact on Sony Group Breakdown of Financial Impact on Sony Group Breakdown of Financial Impact on Sony Group （bln Yen） Fixed Costs Fixed Costs Fixed Costs -330 Sony Group (excl. Financial Services) 2,000 Electronics -300 1,000 0 96 97 98 99 00 01 02 FY06 Non-prod. proc. & others others others -- Non Non- -prod. prod. proc. & proc. & Headcount Headcount Asset Asset Headcount related related related Asset disposal disposal disposal Total Total Total Restructuring costs (FY03 - FY05) 255 80 335 Fixed cost reduction (FY06 vs FY02) 166 34 130 330

  30. Transformation of Electronics Business Profit Structure Transformation of Electronics Business Profit Structure Transformation of Electronics Business Profit Structure Growth Scenario Flat sales scenario 4,940 (bln Yen) Sales 4,940 2% 10% Operating Profit (excl. restructuring) Variable cost -2 pt -300 bln (-6pt) Fixed cost FY06+ FY06 FY02

  31. Transformation 60 Transformation 60 Transformation 60 Transformation to high profitability structure Sony Group financial impact Sony Group financial impact Transformation to high profitability structure Operating profit (FY02, excluding restructuring) 4% Fixed cost reduction (FY06 vs FY02) 4% Variable cost & growth contribution (FY06 vs FY02) 2%+ Operating profit target (FY06) 10%+

  32. Ken Ken Kutaragi Kutaragi Executive Deputy President and COO in charge of Home, Executive Deputy President and COO in charge of Home, Broadband and Semiconductor Solutions Network Companies, Broadband and Semiconductor Solutions Network Companies, and Game Business Group and Game Business Group

  33. Power of Technology Power of Technology

  34. Digital CE is the new driving force for Digital CE is the new driving force for next generation technologies next generation technologies Digital Flat TV Digital Still Camera Home Server Mobile Phone

  35. Home today PC TV Game Video

  36. Home tomorrow IP Camera Projection TV Remote Commander Flat TV Digital Sound Home Server AI

  37. Home tomorrow Optical / Wireless Broadband network

  38. PSX

  39. PSX new generation GUI

  40. PSX digital CE platform

  41. Mobile CE Mobile Phone Network Music Digital Still Camera Emergency Navi Navi. . Felica ETC ETC PSP

  42. PSP concept model

  43. Semiconductor is the “heart” Computer Entertainment System Mobile pone Home server Digital flat TV Semiconductor PDA Digital still camera Digital camcorder

  44. “CELL” Computing Server room Cabinet AI AI Super Super computer computer Rack Blade Graphics Graphics WS WS Authoring Authoring tool tool Multi CELL Home Home server server CELL CELL

  45. Entertainment is the “key” application

  46. New Digital Content

  47. Howard Stringer Howard Stringer Vice Chairman and COO in charge of Entertainment Vice Chairman and COO in charge of Entertainment Business Group, Sony Corporation Business Group, Sony Corporation Chairman and CEO, Sony Corporation of America Chairman and CEO, Sony Corporation of America Robert Wiesenthal Robert Wiesenthal Executive Vice President and CFO, Executive Vice President and CFO, Sony Corporation of America Sony Corporation of America

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