Sony profit plunges 72 percent on strong yen

October 29, 2008 9:55:23 AM PDT
Sony Corp.'s quarterly profit plunged 72 percent as a surging yen wiped out perks from flat-panel TV and PlayStation 3 sales, as well as box office revenue from the movie "Hancock." Sony said Wednesday it posted a net profit of 20.8 billion yen ($214 million) for the July-September period compared with 73.7 billion yen a year earlier. Sales in the fiscal second quarter slipped 0.5 percent to 2.072 trillion yen ($21.4 billion).

Sony makes about 80 percent of its sales overseas and is vulnerable to fluctuations in exchange rates. A rising yen erodes the overseas profits when converted into the Japanese currency.

"We already expect a poor performance for the Christmas shopping season," Chief Financial Officer Nobuyuki Oneda told reporters. "On how things will fare after Christmas, I can only say we will continue to keep a careful look."

Sony loses 7.5 billion yen ($77 million) in profit for each 1 yen gain against the euro, and 4 billion yen ($40 million) for each 1 yen gain against the dollar, he said.

Just last week, Sony slashed its full-year earnings projection, citing weaker consumer demand and a stronger yen. For the fiscal year through March 2009, it is expecting a 150 billion yen ($1.5 billion) profit, down 59 percent from the previous year, on 9 trillion yen ($92.8 billion) sales, up 1 percent on year.

The yen's recent jump, so lethal for Japanese exporters like Sony, was set off by panicky international investors rushing to unwind yen "carry" trades, which had taken advantage of Japan's low interest rates to borrow yen to invest elsewhere. Reversing those trades means buying back the yen, lifting its value.

Bad times could continue for the maker of the Walkman portable as the yen last week soared to a 13-year high of about 91 yen to the dollar. In trading Wednesday, the dollar was at 97 yen.

In the July-September quarter, the dollar averaged about 107 yen, down from 117 yen the same quarter last year. That dragged down Sony's sales and operating revenue by some 122 billion yen ($1.3 billion), according to the company.

Sony said sales in its core electronics sector would have been higher had it not been for the higher yen. Particularly healthy was demand for flat-panel TVs, Vaio personal computers and single-lens reflex cameras, Sony said.

Sony also reduced quarterly losses in the gaming business with sales in the sector improving 10 percent. Sony sold 2.43 million PlayStation 3 consoles during the quarter, up 85 percent from the same period a year earlier.

Sony's gaming unit has been losing money for some years because of high research and startup costs for the PlayStation 3, a machine that has struggled against the popular Wii console produced by Japanese rival Nintendo Co.

Sony's gaming business can only hope for profitability if production costs drop alongside a rise in console and software sales and downloads.

In Sony Pictures Entertainment, the film division, the worldwide theatrical performance of "Hancock" boosted sales. Other movies that did well were "Step Brothers" and "Pineapple Express," and the home entertainment releases of "21" and "Vantage Point," Sony said.

The rising yen hit Sony just as the company gradually started to reap the rewards of its hard work in reshaping its businesses after taking a hammering from price competition.

Sony had in the past been criticized for losing its edge by moving too slowly in tailoring gadgets to consumer tastes as well as falling behind in digital music players and flat-panel TVs.

Under the leadership of Chief Executive Howard Stringer, a Welsh-born American and the first non-Japanese to head the Tokyo-based company, Sony climbed back to a record profit for the fiscal year ended March 31.

These days, Sony is again growing pessimistic, acknowledging it must make more adjustments if it hopes to live out the storm of the soaring yen.

Sony said it racked up an equity loss of 1.6 billion yen ($16.5 million) for the quarter ended Sept. 30, for its stake in Sony Ericsson, its mobile phone unit, because of a strong yen and a shift to cheaper handsets.

It also recorded an equity loss of 3.1 billion yen ($31.9 million) in Sony BMG because of a declining music market.

Best-sellers included Kings of Leon's "Only by the Night" and AC/DC's "No Bull."

The recent fall in the Japanese stock market hurt Sony's financial sector business. Sony owns a 60 percent stake in a life insurer.

Sony shares rose 2 percent to 2,035 yen ($21) in Tokyo. The results were announced after trading closed in Tokyo.


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