Sony Reports Disappointing Earnings for Fiscal Year and Warns of Grim Outlook

Despite a strong showing by its movie unit and aggressive corporate restructuring, Sony Corp. on Thursday reported surprisingly weak earnings for its latest fiscal year and warned that the year just started could look even grimmer.

The Japanese consumer electronics and media giant posted profit of $963 million, or 99 cents a share, for the year ended March 31. It was a solid boost over the previous year’s earnings of $128 million, or 14 cents, thanks to higher-margin products and a push to cut inventory, executives said.

But it was a far cry from the $1.5-billion profit Sony was predicting as recently as January. And sales dipped to $62.3 billion from $63.2 billion last fiscal year.

The results sent Sony’s U.S.-traded shares plummeting 15%, or $4.08, to $27.25 in heavy trading Thursday on the New York Stock Exchange.

“Sony’s not in a satisfying business condition at all right now,” a somber Chief Executive Nobuyuki Idei told reporters in Tokyo. “We have to start a full-scale overhaul.”

For the fourth quarter ended March 31, the Tokyo company had a net loss of $926 million on sales of $14 billion.

Part of the problem, Sony executives said, is that consumer interest in the company’s historically strongest-selling products is beginning to wane. With the exception of its movie studio and semiconductor group, sales in each of Sony’s units dropped year to year.

The company is struggling to keep profit margins in its key electronics business in the mid-single digits as manufacturers in China, South Korea and Eastern Europe imitate its products and rush copycats to market.

Sales of Sony’s once-healthy Vaio personal computer line and of its Handycam camcorders are sagging under intense competition. Sony’s music business is grappling with sagging sales, rampant Internet piracy and a dearth of new pop stars.

And the popularity of its PlayStation 2 video game device, which has sold more than 50 million units since its release in 2000, is starting to fade. Company executives predict shipments of the console will fall 11% to 20 million units in the current fiscal year.

In general, Sony was hurt by the fact that major U.S. retailers, expecting weak consumer spending, kept less inventory on hand than usual this past holiday season.

One of the few bright points was Sony’s often-turbulent movie business. Thanks to the success of films such as “Spider-Man,” “XXX” and “Men in Black II,” the Culver City-based studio enjoyed its most financially successful year since being acquired by Sony in November 1989. Strong worldwide box office success and a solid line of DVD and VHS movies for the home allowed Sony Pictures Entertainment to report its highest-ever sales of $6.7 billion.

But overall, analysts were surprised by the company’s weak profit news, suggesting that even a brand name as strong as Sony’s isn’t enough to overcome a struggling world economy being dragged down by everything from the war in Iraq to the SARS outbreak in Asia.

“It’s evidence that even with cost cuts, it’s difficult for companies like Sony to catch up with deflationary pressure,” Kazuaki Otsuka of ING Mutual Funds Management Co. said.

For the fiscal year ending in March 2004, Sony said it expects its sales to slip 1% to $61.7 billion and its profit to slide 57% to $417 million.

Sony Chief Financial Officer Teruhisa Tokunaka told analysts that the company plans to offset the declines by investing $10.8 billion over the next three years in research and development, a new semiconductor plant and corporate restructuring costs.

“We are at a turning point,” Tokunaka said. Over the long term, “our profitability ratio will grow stronger.”

Bloomberg News was used in compiling this report.