Sony Stuns The Market Big Profit Jump
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Sony has reported a surprise 47 percent jump in quarterly profit way up on what was expected.

They were helped by a weaker yen, strong sales of a portable game console and a bullish performance by its financial division prompting it to raise its full-year outlook to an operating profit from a loss.

Helping Sony was windfall gains at its life insurance unit due to Japan’s rallying stock market and robust demand for the PlayStation Portable (PSP). That offset a slump in its movie division, which has had trouble scoring hits. Sony’s core electronics unit posted a higher profit in the quarter, helped by a softer yen and cost-cutting efforts which made up for sliding demand for traditional cathode-ray tube TVs and tumbling prices of image sensor chips.

The company also booked strong sales of liquid crystal display (LCD) televisions, notebook personal computers and high-definition video cameras, capitalising on a bumper year-end shopping season in the United States. “This is an extremely positive result, easily outstripping expectations,” said Mizuho Securities analyst Koichi Hariya.

“I’m really surprised by the electronics division, even if the yen and a strong holiday shopping season were working in its favor. Price competition was fierce and I had my doubts about whether an improvement in profitability was possible.” Sony, Japan’s second-largest consumer electronics maker after Matsushita Electric Industrial Co. Ltd, said its group operating profit came to 202.8 billion yen $1.75 billion in the third quarter ended in December, against a profit of 138.2 billion yen a year earlier.

Sales surged 10.2 percent to 2.37 trillion yen. The profit result handily beat the market consensus for a profit of 92.5 billion yen, according to a poll of seven analysts by Reuters Estimates.

For the full year to March, Sony revised its forecast to an operating profit of 100 billion yen from a loss of 20 billion yen. The market consensus was for a profit of 26 billion yen. Sony’s surprisingly robust quarterly performance will put it in the same camp as Matsushita and Sharp Corp. (6753.T: Quote, Profile, Research), which are also expected to post higher profits when they report next week, mainly due to fast-growing sales of flat TVs.

The Nihon Keizai Shimbun reported earlier on Thursday that Sony and South Korea’s Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) were set to start discussions about jointly building another LCD plant for about 300 billion yen to meet demand for LCD TVs. Sony, widely expected to build new capacity to secure a steady supply of LCD panels to match aggressive investments by Sharp and Matsushita, declined to comment on the report. Sony and Samsung began making LCDs together in a joint venture last year.

The upward revision to Sony’s full-year forecast reflects a 17 percent rally in Japan’s stock market in the third quarter as Sony has large stock holdings. UBS estimates that a 10 percent rise in the TOPIX index boosts operating profit in Sony’s life insurance unit by 10 billion yen. Sony said the yen’s recent fall against the dollar was another major factor behind the revision, as were brisk sales of its new line-up of Bravia brand LCD TVs, which has pushed its market share significantly higher in the United States and Japan.

But Sony Chief Financial Officer Nobuyuki Oneda cautioned about getting too optimistic. He said he was worried about price declines in LCD TVs and a seasonal drop-off in demand in the fourth quarter.

“The third quarter was solid, but we are not counting on such favorable conditions to continue into the fourth,” Oneda told a news conference. “We want to keep a careful eye on conditions in the global market.”

Shares in Sony rose 29 percent in October to December, outperforming Tokyo’s electrical machinery indexwhich gained about 18 percent. Before the announcement, the stock ended up 2.6 percent at 5,080 yen.

A$1.00 =Y86.55 as at 26th January 2006