Michael Bluth
10-23-2003, 07:04 PM
TOKYO (Reuters) - Sony Corp reported a 25 percent drop in quarterly profit on Thursday as sales of its PlayStation 2 game console slackened and its film division churned out a series of box office duds.
But the company's troubled electronics division -- the target of more than $1 billion in restructuring costs this year -- surprised investors with better-than-expected profits, thanks to booming demand for digital cameras and cost reductions.
Citing concerns about the recent strength of the yen, Sony cut its operating profit forecast by 23 percent to 100 billion yen ($918 million) for the year to March 31, while maintaining its net profit estimate of 50 billion yen.
Sales in the games division fell 37 percent and operating profits plunged 91 percent after Sony booked an additional research and development cost for next-generation microchips.
"Sony's results and revised full year forecast was no major surprise, but its electronics division did slightly better than expected while the game division was hit harder than we had anticipated," said Hiroshi Takada, senior analyst at J.P. Morgan.
The results were overshadowed by the impending announcement of a three-year, $2.5 billion overhaul of Sony's electronics division, which suffered a 6.5 percent sales drop last year.
The fall in profit and downbeat forecast contrast to results elsewhere in Asia's consumer electronics sector, including a better-than-expected 6.6 percent rise in third-quarter profit at South Korea's Samsung Electronics Co Ltd.
Japanese rivals Matsushita Electric Industrial -- maker of the Panasonic brand -- and Sharp Corp are expected to announce a rise in profit when they report next week, and South Korea's LG Electronics reported a 93 jump in quarterly profit earlier on Thursday.
Sony said group net profit totaled 32.93 billion yen ($302 million) for the three months to September 30, versus a net profit of 44.05 billion yen in the same period a year earlier. Revenues rose to 1.80 trillion yen from 1.79 trillion.
The company's profits were above an average estimate from five analysts of a net income of 12.68 billion yen.
BOX OFFICE BLUES
Shares in Sony have severely underperformed rivals since the start of the Japanese business year in April -- a fall of six percent versus a 32 percent gain in the Tokyo stock market's electric machinery sub-index.
Ahead of the profit announcement, Sony's stock closed down 5.04 percent at 3,960 yen, versus a 5.09 percent fall in the Nikkei 225 average. The shares fell to 3,850 yen in after hours trading on Instinet.
On an operating basis, quarterly profit fell 34 percent to 33.21 billion yen and pre-tax profit fell 10 percent to 44.06 billion yen.
The conglomerate's movie division dove into the red with an operating loss of 4.6 billion yen, reflecting in particular the poor performance of "Gigli," a summer release that starred Ben Affleck and Jennifer Lopez.
Sony said operating profits at its electronics division rose 36.2 percent to 35.8 billion yen, helped in part by strong demand for components used in camera-equipped mobile phones and a positive impact from a weak yen against the euro.
Chief Financial Officer Takao Yuhara said Sony expected annual sales of electronics to rise "five to six" percent after falling 5.6 percent in the six months to September 30.
"Based on the products we have coming out for the end of the year and if the environment doesn't change, we expect sales to rise," Yuhara said at a news conference.
Sony plans to introduce new LCD and plasma display television models in the all-important October-December quarter, which accounts for about a third of its annual revenues and a majority of its operating profit.
The music division returned to the black with a profit of 256 million yen after a loss of 5.6 billion yen a year ago.
Sony's financial services division was a bright spot. Operating profit nearly doubled to 11.3 billion yen from 5.7 billion a year earlier, helped by investment gains.
RESTRUCTURING AWAITED
Sony is scrambling to rebuild its reputation after last year's shock fourth-quarter loss, which prompted the company to unveil 300 billion yen in streamlining efforts over three years to revamp its electronics business and improve profitability.
"What we need is some clarity as to the direction of the business, and what the management commitments are in respect to company strategy and the financial performance attached to that," said Marc Desmidt, head of Japanese equities at Merrill Lynch Investment Managers. Sony's anticipated restructuring will include a cut of about 10 percent in its global work force of 161,000 and an end to domestic production of bulky cathode ray tube TVs as the company focuses on slimmer, flat-screen models, media reports have said.
Chief Executive Nobuyuki Idei plans to brief reporters on details of the plan on October 28.
Sony may also announce a joint venture with Samsung to procure a steady supply of liquid crystal display (LCD) panels, in a bid to close the gap on market leader Sharp, which holds more than half of the booming LCD television market.
In the latest quarter, Samsung's non-semiconductor businesses scored an operating profit margin of nearly 11 percent, compared to 3.1 percent for Sony's electronics division in the three months to September 30.
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3674188
But the company's troubled electronics division -- the target of more than $1 billion in restructuring costs this year -- surprised investors with better-than-expected profits, thanks to booming demand for digital cameras and cost reductions.
Citing concerns about the recent strength of the yen, Sony cut its operating profit forecast by 23 percent to 100 billion yen ($918 million) for the year to March 31, while maintaining its net profit estimate of 50 billion yen.
Sales in the games division fell 37 percent and operating profits plunged 91 percent after Sony booked an additional research and development cost for next-generation microchips.
"Sony's results and revised full year forecast was no major surprise, but its electronics division did slightly better than expected while the game division was hit harder than we had anticipated," said Hiroshi Takada, senior analyst at J.P. Morgan.
The results were overshadowed by the impending announcement of a three-year, $2.5 billion overhaul of Sony's electronics division, which suffered a 6.5 percent sales drop last year.
The fall in profit and downbeat forecast contrast to results elsewhere in Asia's consumer electronics sector, including a better-than-expected 6.6 percent rise in third-quarter profit at South Korea's Samsung Electronics Co Ltd.
Japanese rivals Matsushita Electric Industrial -- maker of the Panasonic brand -- and Sharp Corp are expected to announce a rise in profit when they report next week, and South Korea's LG Electronics reported a 93 jump in quarterly profit earlier on Thursday.
Sony said group net profit totaled 32.93 billion yen ($302 million) for the three months to September 30, versus a net profit of 44.05 billion yen in the same period a year earlier. Revenues rose to 1.80 trillion yen from 1.79 trillion.
The company's profits were above an average estimate from five analysts of a net income of 12.68 billion yen.
BOX OFFICE BLUES
Shares in Sony have severely underperformed rivals since the start of the Japanese business year in April -- a fall of six percent versus a 32 percent gain in the Tokyo stock market's electric machinery sub-index.
Ahead of the profit announcement, Sony's stock closed down 5.04 percent at 3,960 yen, versus a 5.09 percent fall in the Nikkei 225 average. The shares fell to 3,850 yen in after hours trading on Instinet.
On an operating basis, quarterly profit fell 34 percent to 33.21 billion yen and pre-tax profit fell 10 percent to 44.06 billion yen.
The conglomerate's movie division dove into the red with an operating loss of 4.6 billion yen, reflecting in particular the poor performance of "Gigli," a summer release that starred Ben Affleck and Jennifer Lopez.
Sony said operating profits at its electronics division rose 36.2 percent to 35.8 billion yen, helped in part by strong demand for components used in camera-equipped mobile phones and a positive impact from a weak yen against the euro.
Chief Financial Officer Takao Yuhara said Sony expected annual sales of electronics to rise "five to six" percent after falling 5.6 percent in the six months to September 30.
"Based on the products we have coming out for the end of the year and if the environment doesn't change, we expect sales to rise," Yuhara said at a news conference.
Sony plans to introduce new LCD and plasma display television models in the all-important October-December quarter, which accounts for about a third of its annual revenues and a majority of its operating profit.
The music division returned to the black with a profit of 256 million yen after a loss of 5.6 billion yen a year ago.
Sony's financial services division was a bright spot. Operating profit nearly doubled to 11.3 billion yen from 5.7 billion a year earlier, helped by investment gains.
RESTRUCTURING AWAITED
Sony is scrambling to rebuild its reputation after last year's shock fourth-quarter loss, which prompted the company to unveil 300 billion yen in streamlining efforts over three years to revamp its electronics business and improve profitability.
"What we need is some clarity as to the direction of the business, and what the management commitments are in respect to company strategy and the financial performance attached to that," said Marc Desmidt, head of Japanese equities at Merrill Lynch Investment Managers. Sony's anticipated restructuring will include a cut of about 10 percent in its global work force of 161,000 and an end to domestic production of bulky cathode ray tube TVs as the company focuses on slimmer, flat-screen models, media reports have said.
Chief Executive Nobuyuki Idei plans to brief reporters on details of the plan on October 28.
Sony may also announce a joint venture with Samsung to procure a steady supply of liquid crystal display (LCD) panels, in a bid to close the gap on market leader Sharp, which holds more than half of the booming LCD television market.
In the latest quarter, Samsung's non-semiconductor businesses scored an operating profit margin of nearly 11 percent, compared to 3.1 percent for Sony's electronics division in the three months to September 30.
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3674188