Sony issues a $2.5 billion bond to finance CELL....

[Deadmeat]

http://home.businesswire.com/portal...d=news_view&newsId=20031201005310&newsLang=en

Use of Proceeds and Objective

-- The proceeds will be applied primarily to make capital investment for growth
in semiconductors and key devices, in order to accelerate convergence
strategies in Sony's Home Electronics (including Game) and Mobile
Electronics. Specifically, the proceeds will be allocated to finance
investments for the development and manufacturing of semiconductors such as
CELL, a highly-advanced processor that will be embedded in a broad range of
next-generation digital consumer electronics products, and key devices
including display devices.

-- Zero coupon financing allows to support forthcoming investments and
structural reform. At the same time, by targeting a conversion price with a
high premium, that exceeds market value (with a premium of more than 45
percent) and by further adding a contingent conversion feature (※), the
Bonds are structured to minimize potential dilution of earnings until the
TR60 has generated sufficient returns.

-- Improved profitability through the TR60 could lead to the conversion of the
Bonds, which will further strengthen our equity position and provide
increased opportunity for further investments for growth.

At the same time, Kutaragi is paid $38 million...

Sony Swaps Kutaragi’s Shares
> Date Added: 2003-11-28 15:48:08

Sony Computer Entertainment becomes a wholly owned subsidiary, as Sony Corp swap 1 million shares for Kutaragi’s stake in SCE…

Sony Corp today announced plans to buy Sony Computer Entertainment (SCE) head Ken Kutaragi’s stake in the games division, by offering him one million new shares valued at approximately 3.8 billion yen.

Sony Corp said that it had approached Kutaragi-san about the share-swap because of his growing role in the parent company. After Kutaragi’s 100 shares in SCE are swapped for one million shares in Sony Corp, the games division will become a wholly owned subsidiary. A Sony representative added that Kutaragi was not involved in negotiating the terms of the deal.

Kutaragi bought the shares in SCE for an undisclosed sum in 1996, marking the first time that any Sony official had purchased a stake in a company division that he or she headed.

Kutaragi has moved up the ranks in Sony Corp, recently being elected executive deputy president of the Japanese electronic giant, with many suggesting that his time at the top of Sony Corp will come soon.

The convergence between Sony Corp and SCE has been widely predicted in the past, and can be seen in the development of the PSX Home Entertainment Centre being released in Japan on December 13th. It should also mean that future formats under the Playstation brand will have more input from the electronic division.

The share swap will take place on April 1st 2004.

 

[cthellis42]

Indeed. Spending lots of money... CELL aimed at a broad range of devices... Isn't that what has always been said about it?

Oh, and not that it matters, but 250 billion yen is closer to $2.3 billion. Hardly a difference at that scale, tho. ^_^ (Also makes me wish they'd toss me a mil or so... I mean why not? They wouldn't even notice it! )

 

[Vince]

CELL aimed at a broad range of devices... Isn't that what has always been said about it?

Said by some, virulently disputed by others. You know how it goes.

 

[cthellis42]

Said by some, virulently disputed by others. You know how it goes.

NO I DON'T AND YOU CAN'T PROVE THAT I DO!

 

[zurich]

Why would Sony Corp buy out KK's stake in SCE?

 

[Panajev2001a]

Why would Sony Corp buy out KK's stake in SCE?

It would seem as a prize for the good work that he has done and he is doing for the future, this wuld be accompanying his promotions in the company.

 

[V3]

Why would Sony Corp buy out KK's stake in SCE?

Because they want to wholly owned SCE. This most likely because of the restructuring, and KK isn't there anymore.

 

[Panajev2001a]

Why would Sony Corp buy out KK's stake in SCE?

Because they want to wholly owned SCE. This most likely because of the restructuring, and KK isn't there anymore.

SCE will be purely a software company after Transformation 60 and the creation of SSNC which has already happened.

 

[Lazy8s]

Integrating all things PlayStation more closely into the Sony umrella ties their successes and failures to one another more, as well. Great for consolidation, but it makes the lagging of unrelated business units now more relevant to the wellbeing of the PlayStation business.

About Sony's spending, though, they're not in the same league as Microsoft (and Nintendo to some extent regarding cash reserves) financially. Though they can definitely come up with the funds they need, it takes them mortgaging their future a bit to do it. While I like to see a company give its all, Sony is pretty dependent upon maintaining most of their marketshare next generation (selling tens of millions of consoles as just a baseline) and gobbling up almost all of the business done in the transitional period between this gen and next (the "pay off" years, where hardware losses have stopped and companies see almost pure profit from software and royalties). These next few years will be a very risky time for Sony Corp.

 

[Panajev2001a]

These next few years will be a very risky time for Sony Corp.

That is why PlayStation 2 ( and PSTwo ) and PSP will be key to Sony in the next years: PlayStation 2 still has several big hitters in 2004 and 2005 and PSP is a console that is exciting third parties and the market.

Ken Kutaragi and his team know what they are doing.

I am glad Sony consolidated more of its operations, this way Sony CE and Sony Music can be kept under more control and be more efficient the way they soend their money.

 

[Brimstone]

SEOUL (Reuters) - Samsung Electronics Co Ltd, the world's biggest memory chip maker, is widening its lead over rivals by spending heavily on next generation technology that has dramatically improved profit margins.

Combined with higher-than-expected back-to-school PC demand, low inventory levels and an expected rise in shipments ahead of Christmas, the technology migration is likely to set the stage for a much stronger second half profit, analysts said.

"Samsung's core technology is at least one generation ahead of rivals like Hynix Semiconductor Inc and Micron Technology Inc," said J.J. Park, tech analyst at JP Morgan.

Samsung said on Monday it expected the profit margin for its memory chip business to "rise sharply" in the third and fourth quarters of this year. Analysts said it currently stands at about 30 percent, while Hynix and Micron have negative margins.

Despite a prolonged slump in chip prices, Samsung remains the only profitable major memory chip maker, while rivals such as Micron and Hynix have splashed red ink and put investment plans on hold.

A counter-cyclical investment strategy has proved effective for Samsung during past memory chip industry downturns, resulting in market share gains and increased profitability.

Samsung's transformation from a stodgy South Korean conglomerate selling inexpensive appliances into Asia's most-valuable technology company has come from huge investments in research and new plants for its chip operations -- while boosting output of products that use them, such as handsets and appliances.

The South Korean chip maker has a 10-20 percent price premium over rivals as it benefits from higher quality and long-term contract prices with a broad customer base.

Shares in Samsung, Asia's most valuable tech stock with a market value of $56 billion have risen 23 percent this year, outperforming the broader market's 11 percent gain.

But the stock trades at a forward price/earnings multiple of 12.6, far below Intel's 52.4 and Franco-Italian chip maker STMicroelectronics's 50.0, according to Reuters Research.

GENERATION AHEAD

Samsung, second only to Intel Corp in overall chip production with a 5.6 percent market share, has widened the gap with its competitors, with the recent migration to next generation chip technology that can substantially cut costs.

"We are ahead of our rivals by more than nine months in terms of technology," Hwang Chang Gyu, president of Samsung's memory division told a news conference to unveil a set of new chips. "We expect that to widen in coming years."

The company has said it would spend more than $5 billion in its semiconductor division this year, with more than half going to memory chips.

The plan has raised fears of oversupply, but analysts said the impact on the overall chip sector would be marginal as chip makers are spreading products to various types of memory chips, not just DRAM (dynamic random access memory), to include flash.

DRAM is the most common type of chip used in computers and electronics products, while flash memory is widely used in mobile handsets and digital cameras -- sales of which are booming.

The chip maker, which has over 30 percent of world DRAM market share followed by Micron's 23 percent, is an aggressive adopter of advanced technology that uses 300 mm (12-inch) silicon wafers, which yield more than twice as many chips per wafer than the standard 200 mm variety.

Samsung, the world's second biggest flash memory maker after Intel, has a 65 percent global market share in NAND flash and 20 percent in NOR. NAND and NOR are two types of flash memory chips based on different technology.

Samsung is also moving to chip circuitry widths of 100 nanometers, or billionths of a meter, whereas its rivals use design rules of 130 nanometers. The advanced design rule provides smaller-sized chips at lower unit costs.

Samsung announced on Monday the world's first 70 nanometer, four gigabit NAND flash memory chip, an 80 nanometer DRAM device and a chip memory system called 'fusion memory'. Most flash memory chips used in digital cameras are one gigabit or smaller.

Samsung said about 70 percent of Samsung's production will have migrated to the 100 nanometer design by the end of 2003.

About 10 percent of Samsung's memory chips produced are used in its own products, mainly PCs. But the mix is expected to change with a surge in demand for other products such as digital cameras, the force behind a recent surge in flash memory demand.

CHIP PRICE RECOVERY

On top of better margins, an expected recovery in chip prices is likely to boost Samsung's earnings in coming months.

"Low inventory levels reported in the PC supply chain and at DRAM producers should augment demand in the forthcoming holiday season," said Sun Chung, analyst at Nomura Securities.

The Christmas season is historically the best period for the tech sector, and analysts said this year would show solid improvement over last year's dismal performance with sharp inventory correction.

DRAM prices strengthened in the third quarter because of back-to-school demand, said JP Morgan's Park. "We expect even an better fourth quarter with prices staying strong, cost reduction benefits and rising shipments ahead of Christmas season."

The price of a 256 megabit DRAM, the industry standard, stands at a little below $5 in September, compared with $3.50 in the second quarter and $4.50 in the first quarter, according to data provided by memory chip broker DRAMexchange.com.

JP Morgan expects Samsung's semiconductor division, which includes its TFT-LCD flat screen operation, to post 842 billion won in operating profit in the third quarter and 1.19 trillion in the fourth, compared with about 570 billion profit in each of the first two quarters. Its semiconductor business accounted for a third of total sales and half of profit last year. ($1=1150.4 Won)

LINK


Compared to Samsung the 2.5 billion doesn't seem that extreme to me. The R&D for Samsung is more diverse, but Sony isn't risking its future by heavily investing in semiconductor fabrication for CELL. If large semiconductor investments work for Samsung, the same strategy should work out for Sony.

 

[Deadmeat]

...

Compared to Samsung the 2.5 billion doesn't seem that extreme to me.

What worries me is not that Sony is spending billions in CELL, but the fact that they have to take loans and isse debt to do so. This confirms that Sony is low on cash reserve and will be shaken badly when the next storm comes.

 

[archie4oz]

Why worry? This is SOP for Sony... Sony Pictures by itself is looking to invest in the ballpark of $5 billion USD into digital content distribution infrastructure (e.g. VOD)...

This doesn't really seem all that big of a deal...

 

[Brimstone]

Re: ...

Compared to Samsung the 2.5 billion doesn't seem that extreme to me.

What worries me is not that Sony is spending billions in CELL, but the fact that they have to take loans and isse debt to do so. This confirms that Sony is low on cash reserve and will be shaken badly when the next storm comes.

The situation reflects the unhealthy condition of the Japanese economy more than bad management from Sony. If another "storm" comes, the US will do whatever it takes to jumpstart the Japanese economy. The sooner Iraq becomes stable and starts pumping out oil, the quicker the Japanese economic engine will start hitting on all cylinders.

 

[cthellis42]

As I recall they had roughly $6 billion in cash reserves at the end of fiscal 2003, which was about the same as Nintendo, so I don't think it's a question of "have to" as deciding that deferring payments is better now than draining their reserves of a big hunk while doing all the restructuring they're in the middle of right now. Since everything ELSE is on a much larger scale than Nintendo--total assets, sales, expenses, debt and deferred expenses--those reserves don't have as much impact on the company as a whole, and the lower they are the less they can lean on them should unforseen expenses mount. Since CELL is key to saving a lot of cost for them in the future, pushing extra expenses into the future should be reasonable enough instead of draining cash reserves that they may need NOW a lot more, while they're in the middle of a major turning point for the whole company.

 

[archie4oz]

The situation reflects the unhealthy condition of the Japanese economy more than bad management from Sony.

Actually because of the economic status, interest rates on loans are so unbelievably low (and so easy to get) it makes more sense to take out loans than jeopardize any reserves you may have (and put a lot of unease on investors shoulders). If I were still living in Tokyo, I'd be so building a house right now...

the US will do whatever it takes to jumpstart the Japanese economy. The sooner Iraq becomes stable and starts pumping out oil, the quicker the Japanese economic engine will start hitting on all cylinders.

A brief OT segway: Iraq stabilizing will likely have little effect on the Japanese economy. OTOH the development of the Azagedan oil-fields in Iran (which Japan has been in bidding to develop) looks to offer more potential as a stable resource, not to mention one route to access the resources under the Caspian (although the US's lobbying in the IAEA has been causing headaches in that regard).

 

[jvd]

Deadmeat this isn't the area to talk about sonys money problems or lack there of. For everyone else please stop responding to deadmeats posts.

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