Sony Sees Profit As It Attempts Turnaround

Marking a possible turning point, Sony’s chief financial officer Nobuyuki Oneda announces that Sony would avoid its first annual loss in 11 years after sales of Bravia televisions and PlayStation Portable video-game consoles beat forecasts. Most analysts believed the results were just the beginning of Sir Howard’s Sony revival plan but cautioned that the electronic giant still had a long way to go – facing tough competitors at home and abroad. Is this revival sustainable? At least within Sony’s upper echelon, the restructuring plan is moving forth as planned – “The fact that sales have finally started to rise has encouraged everybody at Sony but to achieve a full turnaround, we cannot slow down structural reforms,” senior vice president Takao Yuhara said. Despite the signs of recovery and progress in its overhaul, Sony officials remained cautious about the near-term performance. “We are not in an overly festive mood,” Oneda said, noting that factors outside of Sony’s control such as foreign exchange rates and stock prices could pressure the company in the final quarter.

By YURI KAGEYAMA, AP Business Writer
Thu Jan 26, 7:26 AM ET

Marking a step toward a turnaround, Sony Corp (NYSE:SNE – news). reported a 17.5 percent rise in profit for the October-December quarter and said it would stay in the black for the full fiscal year, reversing an earlier projection for a loss.

The better-than-expected results are a start for troubled Sony’s revival led by Welsh-born Howard Stringer, the first foreigner to head the Japanese manufacturer. But analysts said Sony still had a long way to go.

“It’s still just the first step at this point,” said Koya Tabata, analyst at Credit Suisse First Boston in Tokyo, adding that Sony was on the right track in focusing on its TV business.

The new Bravia liquid-crystal display TVs, whose panels were produced with South Korean rival Samsung Electronics Co. in a joint venture, sold well during Christmas, grabbing No. 1 market share in the U.S., Sony said.

But Tabata and others say Sony needs to do more. The flat-panel business remains risky, they say, because product prices could plunge. Sony has stumbled in recent years because of dropping prices and competition from cheaper Asian rivals.

Group net profit at Tokyo-based Sony for the October-December quarter totaled 168.9 billion yen ($1.5 billion), up from 143.8 billion yen the same period a year earlier.

Sales for the quarter climbed 10 percent to 2.37 trillion yen ($20.6 billion) from 2.15 trillion yen.

Sony raised its forecast for the full fiscal year through March to a 70 billion yen ($608 million) profit on 7.4 trillion yen ($64.3 billion) sales.

It had earlier expected a loss of 10 billion yen ($86.9 million) on 7.25 trillion yen ($63 billion) sales for fiscal 2005.

Sony — known worldwide for its Walkman portable music players and PlayStation video-game machines — said its cost-cutting efforts were going smoothly, with 4,500 jobs, or 3 percent of its global work force, expected to be shed by the end of this fiscal year in March 2006.

The goal, announced by Stringer last September as part of his revival plan, was to trim 10,000 jobs, or nearly 7 percent of the global work force, by March 31, 2008.

Sony said Thursday that it will stop making plasma-display TVs, a competing technology to liquid-crystal displays.

Sony will also stop developing new Aibo entertainment robots, although after-sales support will continue. Also ending is the Qualia lineup of super-expensive audiovisual products that Stringer’s predecessor Nobuyuki Idei had once trumpeted as the key to a turnaround.

Still, uncertainties remain for Sony’s recovery such as the planned upgraded computer chip called “cell” and the PlayStation 3 game console set to go on sale this year. Sony has not yet announced a price for the game machine, which will be powered by the cell.

Analysts say Sony may have been hindered by its own past glory. It was overly confident about old-style cathord-ray-tube TVs and fell behind Samsung and Japanese rival Sharp Corp. in flat-panel TVs. It wanted to protect its proprietary portable music player formats and fell behind to Apple’s hit iPod.

Sales in Sony’s electronics division for the quarter rose nearly 5 percent as sales of hard-drive and flash-memory Walkman music players also fared well, sending profits in that section up 56 percent.

Cost-cutting efforts and the support from a weaker yen also helped earnings, the company said.

Sony’s video-game section also fared well in the October-December period, with sales soaring 48 percent and operating profit jumping 52 percent from the same period the previous year on solid demand for the PlayStation Portable handheld machines.

Sony shipped 6.22 million PSP machines for the quarter worldwide, with cumulative shipments now totaling 15 million, marking the fastest penetration of any PlayStation model ever, according to Sony.

Sales in Sony’s movie business stayed flat as “The Legend of Zorro” and “Zathura” proved box office disappointments.

The absence of home-entertainment revenue from “Spider-Man 2” also hurt Sony Pictures Entertainment, which marked an operating loss of 400 million yen ($3.5 million) for the quarter, down from an 18.6 billion yen profit the same period the previous year.

Sony no longer breaks out results in its music division after it set up a joint venture with Bertelsmann AG of Germany in 2004.

Sony shares, which had hovered at about 4,000 yen ($35) for a year, closed up 3 percent Thursday at 5,080 yen ($44).