Sony Posts Record Earnings

Robust sales of DVDs for such box-office hits as “Spider-Man” and video games for Play Station 2 sent Sony Corp.’s third-quarter earnings to record levels, even as its core electronics business struggled with soft demand for computers and conventional television sets.

Beating analysts’ forecasts for the quarter that ended Dec. 31, Sony’s net income surged to a record $1.06 billion, or $1.13 a share, almost doubling net income of $533.5 million in the year-ago period. Sales rose a mere 1% to $19.2 billion, from just under $19 billion.

For the first nine months ended Dec. 31, Sony’s consolidated net income rose to $1.89 billion, up from $173 million in its first three quarters a year earlier. The burgeoning profit came despite the slow growth in sales, which increased only 2.2% to $48.5 billion from $47.4 billion in the year-ago period. Sony’s fiscal year ends March 31.

Sony Pictures Entertainment, the firm’s Culver City studio, posted its best quarter ever thanks to exploding DVD sales of “Spider-Man,” “Men in Black II,” “XXX,” and “Mr. Deeds.” Third-quarter operating income for the unit was $264 million, up from $2.4 million a year ago. Sales rose 62% to $2.13 billion.

John Calley, chairman of Sony Pictures, said the results reflected a strategy of assembling “franchise films that we can predictably count on.”

Not all of Sony’s movies worked last year, however. The company said the disappointing performance of “I Spy,” an expensive movie version of the popular ‘60s television series, partially offset its profit.

Sony’s music operation posted a 9.5% drop in operating profit for the quarter, to $174 million, while revenue fell 3.3% to about $1.7 billion, amid an industry-wide slump in album sales. This month, television executive Andrew Lack took charge of the massive division, after industry veteran Thomas Mottola abruptly resigned.

Analysts said the performance of Sony’s entertainment and games units has always fluctuated wildly, and the results from the third quarter won’t necessarily be repeated in 2003. Top Sony executives “knew there was going to be a good tailwind” from the summer movie blockbusters, “and they’re not taking for granted that they can always arrive at the gate early,” said analyst Richard Doherty of the Envisioneering Group, a technology research firm in Seaford, N.Y.

Sony’s third-quarter electronics sales dropped by 4.6%, or 6% when adjusted for currency fluctuations. But the electronics business still accounted for $11.2 billion in revenue, not counting sales to other Sony units, or 58% of the company’s total sales in the quarter. Its operating income was $685 million, or 40% of Sony’s total.

Profit in the segment jumped 14% in the quarter, helped by the yen’s lower value in Europe and reduced production costs of picture tubes and semiconductors. Although slumping sales of computers and picture-tube-based monitors and TV sets depressed revenue, Sony said sales increased in digital cameras, personal digital assistants, semiconductors for cameras and PDAs and big-screen TVs.

Similarly, sales were lower but profit higher in the games division, as consumers purchased fewer low-margin game consoles and more high-margin games. In particular, console sales dropped in Japan, where the PlayStation 2 has been on the market the longest, and lower prices caused console revenue to dip in the U.S. despite higher volume.

Excluding sales to other Sony units, game revenue was $3.1 billion, down 0.5% from the previous year. Although it accounted for only 16% of Sony’s sales, the game division generated operating income of $597 million, or 35% of Sony’s total.

Sony’s American depositary receipts fell 34 cents to $40.81 on the New York Stock Exchange after results were announced.