Sony's Layoff Bounce

Sony is planning on cutting 8,000 jobs to reduce expenses by $1.1 billion as the company struggles to stay profitable. They will also delay spending on manufacturing and streamline their supply chain. Technology companies in Asia are worried that others may have to take similar steps as the worldwide slowdown has reduced demand for high-definition television sets, computers, and other small electronic devices.

Stock Movement

The stock of Sony (SNE) has recently begun to move higher and is higher on the day 2% with the announced costs reductions. The holiday season has traditionally been a period of profit for the company and could surprise investors if store sales are stronger than expected. But longer term the company needs to deal with reduced margins, falling demand, and improving its return on investment which fell to 8.6% last quarter.

Other Companies in the Chain

Japan, Taiwan, and South Korea are seeing similar issues in other areas of the supply chain for electronics. Memory chip makers have taken steps to reduce costs including laying off temporary workers. Full time workers are less likely to be let go or they are let go quietly as social traditions frown on large terminations.

The Trade

The chart for Sony Corp stock has made a nice bottom formation which could inspire additional buying interest. In addition to the cost reductions action taken; the holiday season is a catalyst for a rally, the stock should move higher in the near term. But the fundamentals still look weak with revenue and earnings not rising at this time.