PlayStation 2 Launch Holds Down Sony’s 2nd-Quarter Profit

Sony Corp., the world’s second-largest maker of consumer electronics, said fiscal second-quarter profit fell 57%, dragged down by costs to develop its PlayStation 2 video-game console.

Group net profit fell 57% to $182.7 million, or 20 cents per share, in the quarter ended Sept. 30, from $429 million, or $1.04, in the year-ago period. Analysts were expecting $245.4 million in profit.

The cost of developing the PlayStation 2, which went on sale in the U.S. this week, will lead to an operating loss in the games division in the year ending in March, Sony said. That’s overshadowing rising profit for other Sony products such as digital cameras and video recorders.

“The entertainment business was in bad shape,” said Masayoshi Morimoto, Sony’s corporate senior executive vice president. “We want [investors] to evaluate it over the long run, as the PlayStation 2 is one of the important gateways to our future.”

Sales rose 3.7% to $15.6 billion from $15.04 billion. The company left its group full-year earnings forecast unchanged at $92.2 million.

Sony’s American depositary receipts, each representing one share, fell $4.31 to $90.75. The company issued its earnings after stock markets closed in Japan.

The PlayStation 2 is the successor to Sony’s best-selling game system, which in 1999 contributed 40% of the company’s operating profit. The basic unit retails for $300.

The new console, which debuted in Japan seven months ago, plays DVDs and offers advanced graphics. It is key to Sony’s strategy to connect digital products to a larger network of programming, entertainment and financial services over the Internet.

The company last month cut its initial shipment forecast for the new console in the U.S. to 500,000 from 1 million because of a shortage of microchips used to make them.

The music division had an operating loss of $30.4 million in the quarter, a reversal from a $24-million operating profit in the year-ago period. Sales fell 18% to $1.2 billion. The decline reflects a lack of hit songs in offshore markets aside from the U.S., the company said.

Sony’s movie business had an operating loss of $66.5 million, compared with profit of $74.8 million in the same quarter a year ago. Without many blockbuster hits, sales fell 1% to $1.04 billion.

“We don’t know when music and movies will turn profitable, because you never know what will attract consumers,” said Motoharu Sone, an analyst at Tsubasa Research Institute Ltd.

The company is trying to develop a blueprint for charging to download games, music and movies on the Internet.

Sales of electronics, including the Vaio line of personal computers and disk drives for PCs, accounted for 80% of the quarter’s total. Operating profit in the electronics division more than doubled to $713 million from $308.3 million.

Digital information devices such as Vaio computers were the largest sales gainers in the division, with a 19% gain. That was followed by electronic devices including microchips, up 18.9%, and television sets, up 16.6%.

“Our electronics operations are in an upswing, buttressing our group-level earnings,” Morimoto said. “We will strengthen our electronics operations.”

Excluding currency exchanges, operating profit in Sony’s electronics operations rose $398.6 million, the company said.

In the quarter ended last month, the dollar averaged 107.64 yen, down from 113.23 yen in the same period a year earlier.