Sony sees 5-fold jump in profit, below consensus

Sony sees 5-fold jump in profit, below consensus
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First Published: Thu, May 13 2010. 03 53 PM IST
Updated: Thu, May 13 2010. 03 53 PM IST
Tokyo: Sony Corp’s conservative profit estimate suggests the road to recovery for the Japanese electronics maker is still bumpy as it braces for unfavourable currency rates and tough competition.
Sony has shed jobs, shut factories and cut procurement costs to better compete with global rivals such as Samsung Electronics Co in TVs and Apple Inc in portable music, and is hoping to reap the fruit of its restructuring.
The world’s No.2 LCD TV maker behind Samsung has vowed to turn its television and game operations profitable this year by slashing production costs and boosting unit sales, and helped by the launch of 3D TVs and 3D-ready games in June.
“Sony’s profit forecasts are a good indication of its drive towards a growth path after a series of restructuring moves,” said Ryosuke Katsura, an analyst at Mizuho Securities.
“But there is a risk the company will face a build-up of inventories as competition heats up towards the year-end and if the economy slows down later this year.”
The maker of Cyber-shot digital cameras and Vaio personal computers said it had factored in a negative hit from foreign exchange rates as well as weaker earnings at its finance division, which operates an insurer and an online bank.
“If the Greek crisis spreads and the European economy stalls, that would have a big impact,” Sony chief financial officer Nobuyuki Oneda told a news conference.
Greece’s sovereign debt crisis has plagued Europe and shaken global market confidence. Europe accounted for 22.8% of Sony’s revenues in the year ended 31 March.
Sony expects operating profit of ¥160 billion ($1.7 billion) in the year to March 2011, up from a ¥31.8 billion profit last year, but short of the ¥209 billion consensus in a poll of 21 analysts by Thomson Reuters.
Capitalising on growing consumer interest in 3D images could be one of the last major challenges tackled by Howard Stringer, the 68-year old CEO and former journalist who has failed to restore the company to a high level of profitability despite a series of large restructurings since taking the helm in 2005.
The arrival of 3D television is expected to play to Sony’s strengths given its wide business portfolio that combines both electronics and entertainment, including movie studios, theatre-use projectors and professional-grade video cameras.
But Sony’s recent track record of taking advantage of such business opportunities is not good. The creator of the Walkman was outmaneuvered by Apple in portable music and Nintendo, which scored a hit with its easy-to-use Wii console, in video games.
“We will continue to cut costs by restructuring and we’ll improve our finances so that we can keep producing profits,” Oneda said.
“We will also aggressively pursue new businesses to create a new source of profits, including the 3-D business that offers a big business chance from contents to displays, and in network services and new mobile devices.”
Sony as a threat
Sony forecast annual revenue to rise 5.4% to ¥7.6 trillion. It projected LCD TV sales to jump 60% to 25 million units, and unit growth of 15% for PlayStation 3 video game consoles and nearly 10% for digital cameras.
For the three months ended 31 March, Sony posted an operating loss of ¥56 billion, against a loss of ¥294.3 billion . The quarterly result was in line with Sony’s revision to its past year earnings forecasts earlier this week.
The company could get some help from the recently stronger won, a disadvantage for South Korean exporters LG Electronics and Samsung.
“Sony is really pushing hard to boost TV sales, and with the Korean won getting stronger against the yen it’s going to be a real threat to Korean makers like Samsung and LG this year,” said Baek Jong-Suk, an analyst at Hyundai Securities in Seoul.
“Sony’s big push towards 3D TV will also get an additional boost from its gamings and entertainment businesses and could help it wage a successful fight against Korean rivals and win back some of the lost market share.”
Sony’s Oneda said the company was not overly concerned about Apple’s successful launch of the iPad computer tablet, seen as a threat to the growth of Sony’s electronic book reader.
“We realise Apple’s iPad is selling very well, but we believe there are still customers who want to buy e-readers like ours which are light, easy to read and comparatively cheap,” he said.
Sony shares closed up 4.1% at ¥3,165 ahead of the announcement, outperforming a 2.4% rise in the Tokyo stock market’s electrical machinery index.
Sony’s stock has gained 18.5% in the year to date, double the gain in the subindex.
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First Published: Thu, May 13 2010. 03 53 PM IST