Sony MPK-THC O-ring Maintenance Manual page 83

Research and development costs for the
fiscal year ended March 31, 2004 increased
71.4 billion yen, or 16.1 percent, to 514.5 billion
yen, compared with the previous fiscal year.
The ratio of research and development costs to
sales (excluding the Financial Services segment)
increased from 6.4 percent to 7.5 percent. The
bulk of research and development costs were
incurred in the Electronics and Game segments;
expenses in the Electronics segment increased
49.1 billion yen, or 12.9 percent, to 429.4
billion yen, and expenses in the Game segment
increased 21.9 billion yen, or 35.7 percent, to
83.4 billion yen. In the Electronics segment,
approximately 62 percent of expenses were for
the development of new product prototypes
while the remaining approximately 38 percent
were for the development of mid- to long-
term new technologies in such areas as semi-
conductors, communications, displays and next
generation optical discs. Research and devel-
opment costs in the Game segment increased
primarily in the semiconductor and hardware
field, with network technology accounting for
part of the increase in the hardware area.
NUMBERS OF EMPLOYEES
Although employees were reduced through
restructuring activities, due to an increase at
manufacturing facilities in Asia, primarily in
China, the number of employees at the end of
March 2004 was approximately 162,000, an
increase of approximately 900 from the end of
March 2003. Approximately 3,600 employees
in Japan who left Sony on March 31, 2004,
through the early retirement program and
other means, are counted as a part of this total.
REWARDING SHAREHOLDERS
Sony believes that continuously increasing
corporate value and providing dividends are
essential to rewarding shareholders. It is Sony's
policy to utilize retained earnings, after ensur-
ing the perpetuation of stable dividends, to
carry out various investments that contribute
to an increase in corporate value such as those
that ensure future growth and strengthen
competitiveness.
A year-end cash dividend of 12.5 yen per
share of Sony Corporation Common Stock was
approved at the Board of Directors meeting
held on April 26, 2004 and was paid on June
1, 2004. Sony Corporation has already paid an
interim dividend for Common Stock of 12.5
yen per share to each shareholder; accordingly,
the total annual cash dividend per share of
Common Stock is 25.0 yen.
Regarding shares of subsidiary tracking
stock issued in Japan by Sony Corporation,
Sony Communication Network Corporation
("SCN") has been working to manage its
operations so as to expand cash flow, fully
solidify its financial base and increase its
retained earnings to aggressively expand its
business to strengthen its foundation and
respond to the quickly expanding Internet mar-
ket. For these reasons, SCN does not plan to
distribute earnings to SCN shareholders for the
time being. As such, Sony Corporation will
continue its policy of not paying dividends to
shareholders of the subsidiary tracking stock.
TREND INFORMATION
This section, including the Forecast of Consoli-
dated Results, contains forward-looking state-
ments about the possible future performance
of Sony and should be read in light of the
cautionary statement on that subject, which
appears on page 3 and which applies to this
entire document.
ISSUES FACING SONY AND
MANAGEMENT'S RESPONSE TO
THOSE ISSUES
Compared with the previous fiscal year, the
global business environment in which Sony
operates has improved, with macroeconomic
indicators showing signs of recovery and
personal consumption beginning to increase.
These improvements have done little to dissi-
pate the challenges facing Sony, however, as
competition in many of Sony's business seg-
ments continues to intensify and price erosion,
especially in the Electronics segment, remains
persistent. Competition has intensified due to
the penetration of broadband, which has led
to an augmentation of network infrastructure,
making it easier for companies in other sectors
to enter the markets in which Sony competes.
In response to these challenges, Sony has
begun to implement Transformation 60, a
series of fundamental reforms aimed at im-
proving operational profitability and competi-
tiveness in anticipation of future growth. Sony
plans to implement Transformation 60 over
the three fiscal years ending March 31, 2006.
Through greater focus of management re-
sources on strategic businesses, accelerated
reform of its manufacturing platform, head-
count reductions in administrative (including
corporate) and sales functions and reductions
in the cost of non-production materials, Sony
intends to reduce fixed costs. Restructuring
charges associated with these activities are ex-
pected to amount to approximately 335 billion
yen over the three fiscal years ending March
31, 2006. The details of the restructuring plans
for the fiscal years ending March 31, 2005 and
2006 have yet to be determined in full. Sony
also aims to lay the seeds for future growth
through strategic investments in research and
development and aggressive capital expendi-
tures in the area of semiconductors.
In the fiscal year ended March 31, 2004,
the first year of Transformation 60, Sony
recorded 168.1 billion yen in consolidated
restructuring charges, 514.5 billion yen in
consolidated research and development costs
and 175 billion yen in semiconductor capital
expenditures (total of Electronics and Game
segments). In addition to this cost-cutting and
investment for growth, each of Sony's business
segments grappled with issues specific to that
segment. Below is a description of the issues
management believes each segment continues
to face and an explanation as to how each
segment is approaching those issues.
ELECTRONICS
Although the Electronics segment continues to
hold a very strong position in the worldwide
consumer AV products market, that position
has become increasingly threatened as a result
of the entrance of new manufacturers and
distributors. These new entrants are able to
pose a threat to Sony due to the industry shift
from analog to digital technology. In the ana-
log era, complicated functionality of electron-
ics products was made possible through the
combination of several complex parts, and
Sony held a competitive advantage in the de-
sign and manufacture of those parts as a result
of its accumulated expertise. In the digital era,
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