Sony’s Loss Widens as Revenue Falls

Despite strong demand for its new PlayStation Portable, Sony Corp. on Wednesday posted a deeper quarterly loss on slack sales as the Japanese electronics and entertainment giant struggled to pull out of a long slump.

Dragging earnings down was the company’s core consumer electronics division, which accounted for 70% of the company’s revenue. Intense price competition for flat-panel televisions along with a decrease in sales of mobile phones, cathode ray tube TVs and portable music players eroded the unit’s sales and profit.

Sony’s fiscal fourth-quarter loss was 56.5 billion yen, or $528 million, compared with a loss of 38.2 billion yen in the same period last year. Revenue fell 4% to 1.7 trillion yen, or $15.9 billion.

Revitalizing the electronics division -- which introduced portable music to the masses with the Walkman -- will top the agenda for Howard Stringer, who takes over as the company’s first non-Japanese chief executive in June.

“Sony’s electronics division remains the key, and we still need to see how new management will turn around the business,” said Masanao Yoshitake, a fund manager at RCM Japan, which bought Sony shares after the Welsh-born Stringer’s elevation as CEO last month.

In the interim, Sony projected continued lean times. Citing a “severe operating environment,” the company forecast a 4% increase in sales for the current fiscal year to 7.45 trillion yen, and a 51% decrease in net income to 80 billion yen.

Sony’s U.S.-traded shares rose 35 cents to $36.84 on the New York Stock Exchange.

The company three years ago embarked on a restructuring of its electronics business by cutting staff, moving some of its manufacturing to lower-cost Chinese factories and reducing the number of parts used in its devices. Sony has reduced its workforce by more than 6% to 151,400.

But Sony needs to do more to keep up with Chinese, Taiwanese and Korean rivals, said Riddhi Patel, a TV analyst at iSuppli Corp.

“If you take 32-inch LCD televisions, for example, Sony sets can cost $1,000 to $1,500 more than value-priced sets,” Patel said. “What Sony has to do in 2005 to gain market share is lower their prices. They can maintain some differential because of their higher quality. A $500 [differential] is justifiable, but not $1,000.”

At the same time, Sony has watched its dominance in portable music erode with the success of Apple Computer Inc.’s iPod music player. This year, Sony responded by releasing redesigned digital music devices that play songs encoded in MP3, a popular format it had not supported before.

Still, sales in Sony’s audio business fell 19% in the quarter to 106.5 billion yen.

Total electronics sales rose 2% in the quarter to 1.17 trillion yen, but much of the increase came from sales of semiconductors and other electronic components to other Sony divisions, including the PlayStation unit. Sales to consumers fell 5.5% to 1.06 trillion yen.

The unit’s operating loss narrowed to 99.4 billion yen from 129.3 billion yen a year earlier, primarily because of a 44-billion-yen decline in restructuring charges in the quarter.

“With prices of electronics falling so fast, it is getting more and more difficult for Sony to make money,” said Kiyoshi Yamanaka, fund manager at T&D; Asset Management.

Sony’s PlayStation business, however, saw a big boost from higher game sales and a solid debut of its PlayStation Portable, or PSP, hand-held game device. Sales jumped 75% to 222 million yen, or $2 billion.

The division also turned a 6.9-billion-yen loss a year earlier to a gain of 1.5 billion yen.

Sales in Sony’s movie and television division, however, declined compared with the prior year, when it sold the rights to air old episodes of “Seinfeld” and new episodes of “Wheel of Fortune.” Revenue for the unit fell 19% to 190.6 billion yen, or $1.8 billion.

Sony’s music sales declined because of a reorganization of its business as a result of the establishment of Sony BMG, a joint venture with Bertelsmann, in August 2004. Music sales fell 63% to 39.2 billion yen.

For the fiscal year ended March 31, net income rose 85% to 163.8 billion yen, largely because of the success of Sony Pictures Entertainment’s “Spider-Man 2,” lower taxes, higher profit from its Sony Ericsson mobile phone joint venture and a one-time payment from a patent infringement lawsuit against Microsoft Corp. Sales fell 4.5% to 7.2 billion yen.

Bloomberg News and Reuters were used in compiling this report.