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Sony Net Profit Up but Sales Hit in Tough Market
Jan 27, 2005
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Sony Corp. said its operating profit fell 13 percent in the December quarter, hit by lower digital product prices and weak sales of its PlayStation 2 game consoles.

Group operating profit, the main concern for investors, fell to 138.2 billion yen (approx. U.S. $1.3 billion) in its third quarter to December, with pretax profit sliding 5.4 percent from a year earlier to 149.2 billion yen (approx. $1.4 billion).

Revenue fell 7.5 percent to 2.15 trillion yen (approx. $20.8 billion), while net profit rose 55.3 percent 143.8 billion yen (approx. $1.4 billion) on lower tax expenses in the U.S.

The announcement followed a profit warning by Sony when it downgraded sales, pretax, and operating profit estimates for the year to March, blaming stiff price competition in its core consumer electronics market.

"Looking forward, we anticipate that the intense environment in the electronics industry is likely to continue," said Nobuyuki Idei, Sony chairman and group CEO.

Sony CFO Katsumi Ihara added, "The drop in operating profit stemmed from declines in the electronics and game segments."

Sales in Sony's core electronics business fell only 0.9 percent to 1.51 trillion yen (approx. $14.6 billion), but operating profit was down 23.3 percent to 49.4 billion yen (approx. $478.4 million).

Despite a decrease in restructuring charges and higher sales of flat panels and televisions, operating profit was hit by a decline in unit prices.

"The decrease in sales of CRT televisions and portable audio (devices), as well as the decline in unit selling prices, primarily of video cameras, contributed to the decrease in operating income," it said.

Price competition has hit Sony particularly hard since it is still struggling for market share and since electronics products account for some 70 percent of its sales, analysts said.

Mr. Ihara said Sony would enhance its own production of key parts for digital products while promoting DVD equipment to replace tape-based products.

"Sony also faces slack sales and problems in profit in the portable audio business ... but we are striving to develop new models and software," Mr. Ihara said.

He noted Sony had launched an in-house group integrating development of its on-line music shops for downloading software and buying hardware, challenging Apple's dominant iPod portable music player.

The games and music divisions also suffered lower sales.

Although Mr. Idei called the launch of Sony's hand-held video games system, the PlayStation Portable (PSP), "a great success," an increase in software sales was more than offset by a plunge in hardware.

Sony shipped 1.3 million PSPs in the past quarter, far below the 2.8 million units sold by its rival portable game console, Nintendo DS.

By contrast, the pictures segment showed growth on home entertainment sales from the blockbuster "Spider-Man 2" movies, while financial services gained from insurance premiums.

Sony cut its year to March forecast for pretax profit by 17.6 percent to 140 billion yen (approx. $1.4 billion) from the initially projected 170 billion yen (approx. $1.7 billion).

Its operating profit forecast was cut 31.3 percent to 110 billion yen (approx. $1.07 billion) with sales estimated at 7.15 trillion yen (approx. $69.3 billion), down from 7.35 trillion yen (approx. $71.2 billion).

However, Sony forecast a net profit of 150 billion yen (approx. $1.5 billion), up 36.4 percent from the earlier projected 110 billion yen (approx. $1.07 billion) due to lower expected U.S. tax charges. (AFP)

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