Sony Heading Into Profit Territory
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Sony the world’s second- biggest consumer electronics maker, probably returned to profit in the fiscal first quarter, helped by factory closures, Bravia television sales, and a hit movie, “The Da Vinci Code.”

Net income reached $133 million in the quarter ended June 30, according to the median estimate of five analysts surveyed recently.  The Tokyo based company had a 7.3 billion yen loss a year earlier. Sales, of which 70 percent comes from electronics, probably rose 6.5 percent to 1.66 trillion yen.

The revival in earnings may bolster investor confidence in Chief Executive Officer Howard Stringer, who cut jobs and unprofitable divisions to focus on electronics such as Bravia liquid-crystal display TVs. His next challenge will be to ensure the PlayStation 3 game console, due for release in November, can beat Microsoft Corp.’s Xbox 360.

“The first quarter was probably a good one for the consumer electronics makers,” said Naoki Fujiwara, who oversees about $711 million in Japanese equities at Shinkin Asset Management Co. in Tokyo. Sony’s challenge is “to get the PS3 business on track, which will help Sony’s components and software business.”

Sharp, the world’s largest maker of LCD TVs, and Matsushita, the world’s biggest plasma TV manufacturer, are expected to report profit growth on TV and mobile phone handset sales.

Osaka-based Sharp releases earnings tomorrow, while Matsushita reports on July 26. Sony and Sanyo Electric. release results on July 27 and Pioneer Corp. on July 31.

“Sony, Matsushita and Sharp will probably remain the winners among Japanese flat-screen TV makers,” Fujiwara said.  Shares of Sony have gained 0.4 percent this year, compared with an 8 percent decline in the Nikkei 225 Stock Average. Sharp has declined 2 percent, while Matsushita has fallen 1.8 percent.

Weaker Yen

Sony may post an operating profit, or sales minus cost of goods sold and administrative expenses, of 6 billion yen compared with a 15 billion yen loss a year earlier, the survey showed.  A weaker yen in the period probably helped boost the value of Sony’s overseas sales when they were repatriated. The yen fell 3.4 percent against the dollar in the year ended June 30, making it the second-worst performing major Asian currency after the New Zealand dollar, according to Bloomberg data.

The TV division will probably report a narrower loss in the first quarter than the 39 billion yen loss a year earlier because of sales increases and cost savings from an LCD panel-making venture with Samsung Electronics Co., the analysts said.

Kazuharu Miura, an analyst at Daiwa Institute of Research Ltd., said Sony may even post a profit of around 5 billion yen. He rates the stock an “outperform.”

TV Prices

The average selling price for 40- and 42-inch LCD TV sets sold at major retailers in North America fell 6.9 percent to $2,710 from the previous quarter, according to Austin, Texas- based researcher DisplaySearch. The prices are down 38 percent from a year ago.

TV sales probably rose 56 percent to 237.7 billion yen in the quarter from a year earlier, said Hitoshi Kuriyama, an analyst at Merrill Lynch Japan Securities Co. in Tokyo.

The company plans to make money at its TV unit, which had five straight quarters of losses, by the fiscal second half.

Sony closed or merged nine factories in the second half of last fiscal year, eliminated 5,700 jobs and cut 3.8 billion yen in costs. The company may report lower restructuring charges for the period, after recording 1.6 billion yen a year earlier.

The company last month said it expects a 17 billion yen gain after completing the sale of its retail operations to reduce assets and focus on electronics.

In the movie business, Sony can probably count on earnings from “Da Vinci,” based on the bestselling book by Dan Brown, to lift profit. The film, which cost about $125 million to make, has reaped $736 million in sales worldwide in the two months since it opened, according to Box Office Mojo LLC.

Sony doesn’t provide details of its film marketing costs.

Titles to come include the November release of the James Bond film “Casino Royale,” and “Spider-Man 3” next year.

Sony Affiliates

Sony’s net income may also benefit from its affiliates including Sony BMG, the music venture with Germany’s Bertelsmann AG and S-LCD Corp., the LCD-panel venture with Suwon, South Korea-based Samsung.

Sony Ericsson Mobile Communications AB, the handset-making company with Sweden’s Ericsson AB, on July 13 said net income for the quarter almost doubled to 143 million euros ($181 million) on sales of phones with enhanced music player and camera functions using Sony’s Walkman and Cyber-shot brands. Sony is also the world’s second-biggest digital still camera maker.

The games business may report a wider loss, due to charges related to the PlayStation 3, analysts said. The world’s biggest game console maker provisioned more than 50 billion yen at the division during the three months to March 31. Analysts said the company may take similar charges in the quarter just ended.

PlayStation 3 Costs

The PlayStation 3 will include the Blu-ray high-definition DVD player and the Cell chip, a multi-core processor that can make the console about 35 times faster than the existing model.

“We need to keep in mind the possibility of the game business coming in much lower than expected, depending on their charges,” said Eiichi Katayama, an analyst at Nomura Securities Co. who has a “neutral” rating on Sony.

Sony’s financial unit, which includes life insurance and an online bank, probably lost about 20 billion yen from lower asset values as the benchmark Topix index fell 8.4 percent during the quarter, according to the analysts.

Earnings at Sony’s finance unit will depend on “whether or not they sold assets,” Katayama said.

The following table shows the median forecast for fiscal first-quarter earnings from five analysts as compiled by Bloomberg News. Figures are in billions of yen, and the percentage changes are from the same period a year earlier. Sanyo Electric’s forecast was provided by four analysts.

Sony          Sales       OP      Net—————————————Median       1,660.0      6.0    15.5Previous     1,559.4    -15.3    -7.3Y-O-Y        +6.5%        —    ——————————————Matsushita    Sales       OP      Net—————————————Median       2,100       75.0    41.9Previous     2,048       46.0    33.4Y-O-Y        +2.5%       +63%    +25%—————————————Sharp         Sales       OP      Net—————————————Median        670.0      39.0    21.9Previous      616.4      35.6    19.4Y-O-Y         +8.7%      +9.7%   +13%—————————————Sanyo         Sales       OP      Net—————————————Median        576.5       8.0    -1.0Previous      569.0      -9.4    -26Y-O-Y         +1.3%       —     ——————————————Pioneer       Sales       OP      Net—————————————Median        179.4      -1.0    -2.3Previous      159.2      -8.9    -5.3Y-O-Y          +13%       —     ——————————————