Sony Cuts Profit Forecast by 62%
Sony Corp. slashed its fiscal-year earnings forecast by 62% on Thursday, blaming costs associated with the global recall of its notebook computer batteries and reduced expectations for its upcoming PlayStation 3 game console.
The Japanese consumer electronics giant has been beset by a series of recent setbacks, including this summer’s recall of an estimated 9.6 million Sony-made lithium ion laptop batteries from such computer makers as Dell Inc., Apple Computer Inc., Toshiba Corp. and Lenovo Inc.
Sony has set aside 51 billion yen ($431.6 million) to cover costs associated with replacing the batteries, which posed a fire hazard. Sony also expects losses for its game unit to deepen to 200 billion yen -- 60 billion yen more than forecast in April -- because of the 20% price cut it announced last month in Japan.
The price cut on the 20-gigabyte game system is expected to affect sales because initial shipments will be limited. Production problems already forced Sony to push back the launch to November in Japan and the United States and delay the console’s introduction in Europe until March. Morgan Stanley analyst Masahiro Ono estimates that this translates to a cut of about 30 billion yen.
Sony said slower sales of the PlayStation Portable game system would also affect the bottom line. It cut shipments of the hand-held game system by 25% to 9 million units.
Sony cut its operating profit forecast for the fiscal year through March 2007 to 50 billion yen from its July estimate of 130 billion yen. That compares with a consensus of 150 billion yen based on a poll of 22 analysts by Reuters Estimates.
Sony noted that charges associated with its restructuring effort were less than originally forecast and cited the strong sales of its LCD televisions and digital cameras. “While Sony’s commitment to pushing LCD TVs into the black in the second half and confirmation of health in digital camera earnings are positive, the risk of downside in the games business ... may have increased due to the PSP,” Ono wrote in a note issued Thursday.
The downbeat earnings projections came as Sony Computer Entertainment unveiled its lineup and launch plans for PlayStation 3.
Sony said it would have 20 games available in time for the Nov. 17 North American debut and announced online and network services for the new console. Players will be able to hold voice and video chat sessions as they play opponents online -- and Internet play is free. That undercuts the rival Xbox 360 game console from Microsoft Corp., which charges $50 a year for online play.
“We’re trying to make sure it’s really an open platform; to the extent that third parties would like to use our infrastructure, great,” said Kaz Hirai, president and chief executive of Sony Computer Entertainment America. “If they have their own, that’s fine. We will still allow a single sign-on, so it is integrated from the user’s standpoint.”
The 20-gigabyte PS3 will sell for $499 and the 60-gigabyte system will retail for $599.
Shares of Sony fell 59 cents to $39.68 on Thursday.
