Pricing Pinch Contributes to Red Ink at Sony
Despite strong sales in its PlayStation game business, Sony Corp. on Thursday posted its second straight quarterly loss and declining sales, as the electronics and entertainment giant suffered steep price declines in its television business.
Citing aggressive competition from low-cost Chinese and Taiwanese flat-panel TV manufacturers, Sony said it lost 7.3 billion yen, or $66 million, in its second quarter ended June 30. That contrasts with a 23.3-billion-yen profit a year earlier. Sales fell 3.3% to 1.56 trillion yen, or $14.2 billion.
The electronics division, which accounted for 72% of Sony’s revenue, lost 36.3 billion yen ($330 million); it had earned 8.3 billion yen a year earlier. Sales fell 1.4% to 1.1 trillion yen ($10.1 billion).
Chief Financial Officer Nobuyuki Oneda, in a conference call with analysts, said prices for liquid crystal display TVs were expected to fall 50% this year in Europe, 30% in Japan and 20% in the U.S. Analysts said the price drops had been as much as 10% a month in the last two quarters.
“Sony is facing a situation in which an LCD display they put on a ship is worth 5% to 10% less by the time that ship arrives at its destination,” said Richard Doherty, an analyst with Envisioneering Group in New York. “That’s good for the consumer, but it’s very challenging for companies like Sony.”
Howard Stringer, who took over in June as chief executive of Tokyo-based Sony, has indicated that reviving the company’s electronics business is his top priority. Stringer last month said the company would release a plan in late September to restructure the company.
Although Sony executives have not provided details of the plan, they increased their projected restructuring costs from their April estimate by more than 20%.
Higher restructuring charges, along with continued erosion in its TV business, prompted Sony to slash its fiscal year profit projection 88% to 10 billion yen, or $93 million. It also lowered its sales forecast 3% to 7.25 trillion yen. Oneda, however, warned that the new turnaround plan could call for even higher restructuring charges, which could push Sony into its first operating loss in a decade.
Other divisions at Sony fared better in the second quarter. Sony’s movie business reported a 2.6% decrease in sales, a result of lower box-office revenue, but a 3.5% rise in profit generated by the DVD releases of “Hitch” and “Are We There Yet?”
Sales at the PlayStation unit grew 64%, fueled by higher sales of PlayStation 2 and PlayStation Portable hand-held consoles. But higher research-and-development spending for the upcoming PlayStation 3 console pushed operating losses up, more than doubling to 5.9 billion yen from a 2.9-billion-yen loss a year earlier.
Meanwhile, Sony’s Japanese rival in the video game market, Nintendo Co., on Thursday posted lower sales and profit in its second quarter.
Revenue fell 14% to 70.7 billion yen, or $640 million, from a year earlier as demand slackened for its GameCube console.
Net income dropped 38% to 14.1 billion yen, or $128 million, as sales shifted toward the Kyoto company’s less profitable Dual Screen hand-held console.
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Bloomberg News was used in compiling this report.
