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Sony Cuts Profit Forecast on Slowing Demand, Stronger Yen

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Sony Corp, reeling from four consecutive annual losses, cut its full-year profit forecast as Japan’s biggest exporter of consumer electronics suffers from slowing demand while the yen’s gain erodes overseas earnings.

Net income will probably be JPY20 billion (US$255 million) in the year ending March 31, the Tokyo-based company said in a statement today, lowering its May projection of JPY30 billion. The new forecast compares with the JPY10.8 billion average of 16 analyst estimates compiled by Bloomberg.

Sony shares are near their lowest levels in more than three decades after Japan’s currency gained, the global economy slowed and consumers flocked to Apple Inc and Samsung Electronics Co products. Kazuo Hirai, 51, who became chief executive officer in April, is restructuring Sony’s unprofitable TV business, eliminating 10,000 jobs and pledging to revive the company by focusing on game players, digital imaging and mobile devices.

“Investors are waiting to see signs that show Sony’s losses from making TVs and mobile phones will shrink,” Yasuo Nakane, a Tokyo-based analyst at Deutsche Bank AG, said before the announcement. “A recovery in the TV operation may be unlikely this fiscal year, as Sony reduced the number of models. Sony could tap growing demand for smartphones if there is an interesting new model to be introduced.”

Sony today also reported a first-quarter net loss of JPY24.6 billion, compared with analysts’ estimate for a loss of JPY1.23 billion.

The Japanese electronics maker cut annual TV sales target to 15.5 million units from 17.5 million units; camera sales target to 18 million from 21 million; and personal computer sales to 9.2 million units from 10 million units. The smartphone sales target was raised to 34 million units from 33.3 million earlier.

Sony shares rose 2.4 per cent to JPY964 in Tokyo trading today, before the earnings announcement. Worth over US$120 billion in 2000, the maker of Walkman music players is now valued at US$12.3 billion, compared with US$564 billion for Cupertino, California-based Apple. Sony’s shares have slumped 30 per cent this year, compared with a 50 per cent jump in shares of Apple, the maker of iPhones, iPods and iPads.

The Tokyo-based company’s run of four straight full-year losses, the worst since Sony was listed in 1958, and a stronger yen pushed the shares down to JPY863 last month, the lowest level since April 1980.

Sony, the world’s third-largest TV maker, will cut 10,000 jobs, or about 6 per cent of its workforce; slash costs; reduce the number of TV models; and consider an alliance on batteries for electric cars, Hirai said in April. Its main TV operation is projected to be unprofitable this year after losing about JPY700 billion during the past eight years amid falling prices and competition from Samsung and LG Electronics Inc.

“We cannot avoid facing painful decisions, but if we are scared of pains we cannot change Sony,” Hirai said in April. “My biggest responsibility is to revive the electronics business and shift it into a path for growth.”

In 2005, Hirai’s predecessor, Howard Stringer, said the company would eliminate 10,000 jobs and shut 11 factories after predicting its first annual loss in more than a decade. After the 2008 financial crisis, Sony cut 19,500 jobs in the year to September 2009.

Sony agreed in June with the Development Bank of Japan to sell its chemical product unit for about JPY58 billion later this year. The company also exited from a liquid-crystal-display venture with Sharp Corp by selling its 7 per cent stake in the unit for JPY10 billion after the Osaka-based company turned to Foxconn Technology Group for a capital tie-up.

The maker of PlayStation game consoles also took steps to offer more online services. Sony agreed in July to acquire US gaming platform company Gaikai Inc for about US$380 million as it prepares to expand its cloud-based entertainment business. The company introduced its Music Unlimited streaming service last month in Japan, the world’s second-biggest music market.

Sony is spending JPY80 billion to boost its production capacity of image sensors by 33 per cent by 2013, the company said in June. It also agreed with Panasonic Corp to jointly develop TV sets that use organic light-emitting diode panels, or OLED screens.

Last month, Samsung, the world’s biggest maker of TVs, mobile phones and computer-memory chips, reported a record profit of KRW5.19 trillion (US$4.6 billion) in the three months ended in June, helped by surging sales of Galaxy smartphones.

Earlier this week, Panasonic reported a net income of JPY12.81 billion for the period, its first profit in six quarters, citing cost cuts as a main reason for the recovery. The maker of Viera TVs and Lumix cameras is also trying to turn around its unprofitable TV business after closing plants and eliminating 36,000 jobs amid falling prices and a surging yen.

Global LCD TV shipments will probably gain 5 per cent to 216 million units in 2012, DisplaySearch said July 10, lowering its previous projection of 220 million. Demand is slowing due to economic uncertainty and less price erosion than last year, the research company said.

To revive Sony, Hirai is also boosting production capacity for its new complementary metal-oxide semiconductors, or CMOS sensors, that are smaller, capture better images and consume less power than older models in cameras and phones.

The restructuring of Sony comes as the yen surged the most against the euro of all major currencies in the second quarter amid the European debt crisis. That erodes profit at Japanese exporters including Sony, which gets about 70 per cent of its sales abroad.

Sony loses about JPY6 billion of annual operating profit and JPY10 billion yen of sales for every JPY1 decline in the value of the euro, according to Mami Imada, a Sony spokeswoman.
(Source: Bloomberg)

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