Sony Profits Crash 46%
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Sony has reported a massive drop in net profits. Analysts claim that the Company that is currently shedding 10,000 jobs need to show significant improvments before confidence in the Company returns.

Sony the world’s second- biggest consumer electronics maker, said second-quarter profit fell 46 percent on a slump in television prices and costs to develop the PlayStation 3 video game console.

Net income was A$329 million in the three months ended Sept. 30, compared with $624 million a year earlier, the company said today in a statement to the Tokyo Stock Exchange. Five analysts surveyed by Bloomberg had expected a median net income of under A$300 million.

The earnings decline highlights a loss of competitiveness and a lack of hit products for Sony, the maker of the Walkman music player, which has been losing market share to companies including Samsung Electronics Co. and Apple Computer Inc. Chief Executive Howard Stringer last month outlined a three-year plan that includes 10,000 job cuts and increased spending on its chips and screen businesses to revive earnings.

“They will have to show significant improvements in profitability or a great success in a specific product to get back the market’s confidence,” said Carlos Dimas, an analyst at CLSA Asia Pacific Securities in Tokyo. “They keep saying they want to use content to drive sales of electronics, but hoping that would happen is not a substitute for a business model.”

In the second quarter to September, net profit dropped 46.5 pct to 28.5 bln yen, pressured by 32.3 bln yen in restructuring expenses to write down the impaired value of its cathode-ray tube (CRT) plants.

Under the plant closure program, Sony will shut down some of its CRT television assembly factories by March 2008 in order to shift its focus to the flat-screen TV business.

Operating profit in the second quarter surged 51.9 pct to 65.9 bln yen, aided by a gain of 73.5 bln yen after it returned to the government pension assets it had managed on behalf of the government.

As a latecomer to flat-panel TVs, Sony struggled because of stiff competition from cost-efficient rivals such as Sharp Corp and Matsushita Electric Industrial Co Ltd.

Until recently, Sony had to procure key components from external suppliers, making it harder for it to quickly cut its prices to keep in step with the falling price tags of its competitors.

Sony started selling liquid crystal display (LCD) TVs using LCD panels manufactured at its joint venture with Samsung Electronics only in mid-September. Despite the latest figures, Sony chief operating officer Nobuyuki Oneda said he is beginning to see some signs of a turnaround in the crucial electronics sector. ‘Since the launch of our Bravia LCD TV models,’ he said, ‘we have already captured some 30 pct market share in the US in the first week of October.’

‘We could not deliver value-added flat TVs previously because we had to procure flat panels from outside companies,’ Oneda said. ‘But because we can now use our own LCD panels, we can limit the price fall of LCD TVs to around 15 pct in the year to March.’ In the first half, Sony saw a decline of nearly 30 pct in the average retail prices of its flat TVs from a year earlier.

Sony said it managed to get some 40 pct of the domestic camcorder market in the third week of October, owing to the successful launch of its new high-definition camcorders. ‘Thus, our electronics division is enjoying a faster-than-expected improvement right now,’ Oneda said.

‘Because we are heading into the year-end sales season, we have to be conservative about the prospects, but we believe that the solid sales of our flat TVs and camorders will be sustained going forward,’ he said. In the first half, Sony incurred an operating loss of 19 bln yen in its mainstay electronics division, reversing a 15.3 bln yen operating profit a year earlier.

‘Although our TV business is now recovering at a faster-than-expected pace, we need to wait until the latter half of the year to March before we start making any profit in this business,’ Oneda said. Sony posted an operating profit of 2.3 bln yen in its game division, reversing a 2.9 bln yen operating loss a year earlier.

‘Both the PlayStation Portable console game machine and PlayStation 2 are now doing very well,’ Sony corporate executive Takao Yuhara told a press conference. Sony has raised its full-year PlayStation Portable sales forecast to 14 mln units from 13 mln, while boosting its forecast of sales for PlayStation 2 consoles to 14 mln from 13 mln.

In a bid to revive its game division, Sony plans to release its next-generation stand-alone PlayStation 3 game console in the spring.

To speed up development of PlayStation 3, Sony plans to devote 410 bln yen to capital investment in the year to March, up from 356.8 bln yen a year earlier. Shares of Sony have dropped 5.8 percent this year, compared with a 17 percent gain in the Nikkei 225 Stock Average in the same period. Bigger rival Matsushita Electric Industrial Co., the world’s biggest plasma display TV maker, has added 17 percent.