Sony 4th-quarter loss widens on Playstation 3 costs, but record

0 Comments | Deseret News (Salt Lake City), May 16, 2007 | by Yuri Kageyama Associated Press

TOKYO -- Japanese electronics and entertainment company Sony said Wednesday that earnings would more than double to a record this year, even as startup costs for the PlayStation 3 game machine and a massive battery recall widened its loss in the fourth quarter.

Company executives and analysts said the upbeat forecast signals a recovery in Sony Corp.'s key electronics sector, underpinned by bursting demand for liquid crystal display TVs, personal computers, camcorders and digital cameras.

For the current year through March 2008, Sony expects a record profit of 320 billion yen ($2.7 billion), up from 126.3 billion yen ($1.1 billion) last fiscal year.

Launch costs for the PlayStation 3 were a key factor behind Sony's 67.6 billion yen ($563 million) loss for the January-March quarter, worse than the 66.5 billion yen loss the Japanese electronics and entertainment company reported the same period a year earlier.

But analysts said the robust profit forecast shows that drastic revival efforts by Welsh-born American Howard Stringer, Sony's first foreign CEO, may finally be starting to pay off.

"The results came about because of wise steering on the part of management," said Mitsuhiro Osawa, electronics analyst at Mizuho Investors Securities Co. in Tokyo.

After taking helm in 2005, Stringer got Sony to drop unprofitable businesses, sell off assets, reduce jobs and shutter plants.

Sales for the fourth quarter rose nearly 13 percent to 2.01 trillion yen ($16.8 billion) from the previous year, and Sony predicts that sales for the fiscal year will climb 10 percent to a record 8.3 trillion yen ($69 billion).

"Our results demonstrate a healthy recovery," said Corporate Executive Officer Nobuyuki Oneda, adding that Sony's Bravia liquid crystal display TV controls top world market share in the sector measured in sales.

Last year, Sony announced a massive global recall of about 10 million lithium-ion batteries used in not only its own laptops but also those from Apple Inc., Dell Inc., Lenovo Group Ltd. and others, which were suspected of being faulty and bursting into flames in some cases. The massive recall of battery packs for laptops cost about 51 billion yen ($425 million).

The big remaining problem in Sony's sprawling entertainment empire is the PlayStation 3, which is so packed with sophisticated technology it has been a money-loser since its launch in November. The machine was also burdened with earlier hefty development costs.

Sony officials have acknowledged setting the PS3 prices at below production costs also eroded profit, and they have repeatedly warned that the gaming division would be in the red. They said the PS3 business would likely lose money this fiscal year.

Also, intense competition from Nintendo's hit Wii, with its unique wand controller, appears to be hurting the Playstation 3.

Sony shipped 5.5 million PS3 machines in fiscal year just ended, fewer than the 6 million the company had targeted. Nintendo shipped 5.84 million Wii machines worldwide during the same period.

But Sony is promising a recovery in the gaming unit when the lineup of PS3 game software strengthens over the summer, helping make the machine more popular. Sony is expecting to ship 11 million PS3 consoles for the fiscal year through next March.

Sony's biggest improvement came in its electronics sector, where sales jumped in all major regions, gaining 7 percent on year in Japan, 8 percent in the U.S. and a hefty 24 percent in Europe in the fiscal year through March 31.

Sony's pictures division also did well in fiscal 2006, seeing sales increase 30 percent and operating profit surge 56 percent, thanks to better theater and home revenue from "The Da Vinci Code" and "Casino Royale."

Sony's joint ventures produced mixed results.

Sony Ericsson, the joint venture in cell phones with LM Ericsson, saw profit and sales rise as it shipped 51 percent more cell phones from the previous year at 83 million handsets.

Sony BMG suffered a drop in sales and profit, largely because of an overall decline in the music market. Best-sellers included Justin Timberlake's "Future Sex/Love Sounds" and Beyonce's "B'Day."

For the year through March 2008, Sony projects sales will grow 6 percent to 8.78 trillion yen ($73.2 billion). The sale of its former headquarters in Tokyo will add 59 billion yen ($492 million) for the year, Sony said.

The latest results show the key strides Sony has made in playing catchup after falling behind rivals such as Sharp Corp. and Samsung Electronics in flat panel TVs and Apple in digital music players.

"Those bullish forecasts seem to reflect Sony's gaining confidence in itself," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Sony shares rose 1.3 percent to 6,460 yen ($53.80). The results were announced after the market closed.