Sony Cuts Full-Year Profit Forecast in Half
Sony Corp. slashed its full-year profit forecast in half, citing widening losses at its PlayStation 2 game division because of production delays and the cost of making the advanced game box.
The company, which said it now expects $42.4 million in profit, is reeling from delays in producing the graphics chip for the PlayStation 2.
Sony acknowledged it will miss its target of shipping 10 million PlayStation 2 game consoles worldwide by the end of its fiscal year in March. Instead, the company now hopes to ship a total of 9 million consoles. Fewer shipments means fewer sales of software, which has wider profit margins.
Tokyo-based Sony, the world’s second-largest consumer electronics maker, said earnings in the fiscal third quarter fell to $618 million from $801.5 million in the year-earlier period. The drop during the period ended Dec. 31 was in line with the estimates of four analysts surveyed by Bloomberg News.
Revenue surged 10% to $17.9 billion, buoyed by stronger sales of digital camcorders, digital cameras, mobile phones and chips.
Sony’s American depositary receipts, each representing an ordinary share, closed at $74, up $1.13, on the New York Stock Exchange. Third-quarter earnings were released shortly before the close of trading on Japanese exchanges. The shares have fallen 51% since PlayStation 2 made its debut in Japan on March 4.
PlayStation 2 is central to Sony’s strategy to link digital appliances in a home network and the Internet. Even so, development costs and production glitches are mounting, eating into profit at the better-performing electronics division.
“The only way that Sony can turn around its game division is to produce more software for PlayStation 2,” said Kazuya Yamamoto, an analyst with Mizuho Securities Co.
In the third quarter, the game division had a loss of $119 million, compared with a profit of $492 million in the year-earlier period. Sales at the division, which in 1999 accounted for 40% of Sony’s earnings, fell to just 11% of total revenue.
Third-quarter worldwide shipments of PlayStation software, including titles sold under Sony licenses, totaled 54 million units, slipping 33% from the year-earlier period. PlayStation 2 software shipments totaled a less-than-expected 16.9 million units.
Sony said it now expects the game unit will have a larger-than-expected full-year operating loss, without providing details.
Sony also reported that it shipped 1.46 million PlayStation 2 consoles to North America by Dec. 31, exceeding its target of 1.3 million units. However, the company said difficulties in making the consoles’ complex chips will force it to trim worldwide console shipments by 1 million machines, or 10% of total sales, by the end of March. The entire cutback will occur in Japan, which will receive 3 million consoles instead of 4 million. As of Dec. 31, Sony had shipped 6.4 million of the advanced gaming machines.
Earnings got a lift from sales of digital cameras, mobile phones, computers and chips. Sony’s electronics division, which accounts for 75% of all sales, said revenue rose 21% to $13.6 billion in the quarter.
That pace of growth probably won’t continue, Sony said, citing a slowdown in consumer demand and price competition in the U.S. To cut costs, Sony will lay off 500 workers in San Diego as it stops making picture tubes for computer monitors in the U.S.
Sales at Sony’s music division fell 11.6% to $1.6 billion.
Music sales were hurt by slumping demand in some international markets, the delay of new releases and increased operating costs at digital media operations, Sony said.
Though movie division sales rose 8.4% to $1.2 billion, the unit had an operating loss of $19.7 million in the quarter. Sony blamed the loss partly on new accounting standards.
