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Sony's US Gadget Demand Good Despite Rising Costs

Sony is seeing little or no sign of softer demand among U.S. consumers for its range of digital TVs, cameras and computer goods despite a weakening economy, a top regional executive said on Tuesday.

Sony Building
Shizuo Kambayashi
Sony Building

But Sony is having to manage pressures on margins that are coming both from spiraling costs for energy and raw materials used in high-tech gadgets and from pricing overseas product costs into weaker dollars, the U.S. official said.

"That's the problem," Stan Glasgow, president and chief of operating officer of Sony Electronics told a group of reporters in San Francisco, referring to profit margin pressures.

Glasgow said the U.S. business is doing everything it can to boost the mix of component procurement and operations it bills in dollar terms instead of other currencies.

These include efforts to wring out energy savings from tighter distribution lines and simpler packaging.

Everything, that is, short of increasing U.S. plant production at sites like its Pittsburgh TV plant, he said, as longer-term operational changes were not appropriate to salve a temporary exchange rate benefit.

Sony has developed its M-series line of electronics in Mexico using lower cost components than from Japan, he said, and are aimed at consumers who might not buy its high-end goods, providing a likely avenue for more cost savings.

Sony is enjoying a strong secular wave of growth in demand for digital TVs and related accessories, including Blu-ray high-definition video players, where it is the overwhelming U.S. market leader, and Glasgow sees no let-up.

"We are not seeing clear signs of softness," Glasgow said. "In the high end, it is hard to keep up with the full demand," he said of demand for its pricier flat-panel TV models.

The one category that has given Glasgow pause in recent months are digital camcorders, which he said are more sensitive to demand because they lack the must-have status that flat-panel TVs now have with many consumers.

"We saw some weakness in April, followed by a rebound in May and June," Glasgow said. "I don't know if it's a summer thing or not," he said of the apparent rebound in the past two months.

US Electronics 'Doing Well'

Sony does not break out forecasts for regional businesses for the upcoming year.

But for the fiscal year ending March 31, 2008, the electronics business reported a 2 percent decline in Japan, a 2 percent increase in the U.S. market and an 11 percent jump in European sales, all in yen currency terms, according to its annual report.

Heading into the company's current fiscal year that started in April, Glasgow said that he had taken into consideration the impact of spiraling oil prices and the housing credit crunch in forecasting Sony's U.S. growth for the coming year.

"I didn't see so much good in the economic forecasts," he said.

But despite these cautious calculations, underlying demand continues to power sales of products across major categories.

"I am saying we are doing well," he said in response to repeated questioning by reporters over the threat that a sinking U.S. economy may pose to demand for its products.

"Sony Electronics is growing at a substantial level in the U.S." relative to the fiscal year that ended in March of this year, he told Reuters, following comments to a group of reporters.

"We are exceeding the aggressive goals we set." The veteran retail executive returned to a frequent refrain, saying U.S. consumers appear to be staying home more, spending less on travel, but are showing no let-up in their appetite for new and larger TV screens.

As the world's biggest consumer electronics maker, Sony was once content to remain aloof from lower-priced markets, focusing instead on high-end demand for the latest gadgets but this has begun to change dramatically in the past two years.

"We are increasing our (product) mix overall," Glasgow said of how the company has moved to embrace the market for mid-priced products sold in mass market retailers such as Wal-mart. "(But) ... not giving up on the high-end."