Sony’s Net Income Falls 47% on Electronics, Movie Divisions

Despite strong video game sales, Sony Corp. on Thursday said flat electronics sales and disappointing box-office receipts contributed to a 47% drop in fiscal second-quarter profit as the company struggled to turn itself around.

The Tokyo-based electronics and entertainment giant posted net income of 28.5 billion yen, or $247 million, compared with 53.2 billion yen a year earlier.

Sales remained virtually unchanged at 1.7 trillion yen ($15 billion).

Sales at Sony’s electronics division were largely flat as consumers shied away from conventional televisions and stepped up their purchases of liquid crystal display flat-panel TVs and DVD Handycam video cameras.

Sony has faced stiff competition from Chinese and Taiwanese flat-panel TV manufacturers, further complicating efforts by Chief Executive Howard Stringer to turn around the company.

By one analyst’s estimate, pricing pressure for LCD TVs has resulted in an industrywide discount of 40%.

“People thought 24% was an impossible discount, but that’s gotten even more aggressive,” said Richard Doherty, an analyst with Envisioneering Group in New York. Sony “woke up to the massive discounting over the last year.”

Sales at Sony’s movie division fell 17% because of disappointing receipts for the movie “Stealth,” particularly when compared with a strong showing by “Spider-Man 2” during the same quarter a year earlier. The company also blamed losses from movie studio Metro-Goldwyn-Mayer Inc., music unit Sony BMG and a joint venture with Samsung Electronics Co. for further chipping away at profit during the quarter.

The game division provided a bright spot, posting a 79% jump in sales on strong demand for PlayStation Portable hand-held game players and software as well as PlayStation 2 units in Europe and the U.S. The company also increased its shipping forecast for PSP and PS2 to 14 million units apiece.

But Sony faces challenges to its game business on several fronts, including Apple Computer Inc.’s video iPod, which will compete against the PSP.

Microsoft Corp. is also scheduled to release its Xbox 360 gaming console Nov. 22, ahead of the holiday shopping season. By comparison, Sony is not expected to release its next-generation gaming console, PlayStation 3, until the spring.

Still, the strong games sales and rising demand for Sony’s LCD TVs and Handycam video cameras are encouraging signs, observed Bill Drewry, an analyst with Credit Suisse First Boston, as was the company’s operating profit, which came in better than he had anticipated.

“Some of the key businesses are moving in the right direction,” Drewry said.

“We’re still very convinced there’s a big turnaround to be had in the company and its stock price.”

With the holidays in mind, Doherty said Sony had also done a better job than its competitors at training salespeople to peddle its products.

“They probably know more about Sony than Samsung or Philips,” Doherty said. “They’re in their face more often so a salesperson has more of a chance to say look at this Sony product.”