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Cell Phones Hurt Sony Earnings

Posted by: Kenji Hall on July 29, 2008

Soaring energy costs and the economic slowdown are wreaking havoc on Sony’s earnings. The electronics and entertainment company announced on July 29 that first-quarter operating profits sank 39% to 73.4 billion yen ($682 million), blaming the poor results at mobile phone unit Sony Ericsson among other factors.

Sony raised its full-year operating profit forecast to 470 billion yen, from 450 billion yen. But lowered its full-year net profit prediction to 240 billion yen ($2.23 billion), down 17% from its previous forecast.

The results reflect a harsh reality for Japanese exporters like Sony. Tech giant Canon, for instance, reported a slide in profits last week, as well. For some it’s the strong yen is cutting into Japanese corporate profits earned overseas. But there’s also the rising cost of raw materials, operating plants, and shipping parts and products around the globe that they have to contend with.

So far, it’s debatable whether Sony’s investors, who pushed Sony’s shares down more than 3% today (vs. a 2% fall for the Tokyo bourse’s electrical machinery index), should be worried. Sony Ericsson was the real stinker, but there wasn’t an across-the-board drop in earnings. So while profits from digital cameras and video cameras and laptop PCs were down as well, flat-screen TV and video game consoles sold well.

Sony is hoping to restore the video game unit to profitability by the March 2009 end of this fiscal year, and a lot is riding on the rollout of video downloads and other online services to the PlayStation 3 gaming console. (Anyone care to speculate on why Sony wants full control over Sony-BMG Music Entertainment, its joint venture with Bertelsmann of Germany, as the Nikkei reported today? My guess is that the joint venture is proving unwieldy and Sony needs it to work closer in online services with Sony Computer Entertainment, the group that’s responsible for the PS3 and PlayStation Network.) In the April-June quarter, Sony sold 1.56 million PS3s and 3.72 million PlayStation Portable machines worldwide, up from 700,000 and 2.13 million, respectively, last year. So the company appears to be on track in meeting its target of selling 10 million PS3s and 15 million PSPs this fiscal year.

But here’s something that puts Sony’s troubles in perspective: Not all Japanese tech companies are feeling the pain. Matsushita Electric Industrial--soon to be renamed Panasonic--reported STRONGER first-quarter earnings. It said earlier today that quarterly operating profit shot up 48% to 109.57 billion yen ($1.02 billion). One big reason was that Matsushita no longer owns all of Victor Co. of Japan. So while Matsushita no longer includes JVC’s sales in the consolidated total (hence the 4% slide in sales), the subsidiary’s numbers won’t bog down operating earnings, either. Matsushita was also able to shave costs for materials and overhead as well, adding to its strong numbers. This fiscal year, it's expecting operating profits to rise 8% to 560 billion yen ($5.2 billion), on a 1% gain in sales to 9.2 trillion yen ($85.5 billion).

(In an earlier version of this blog, I incorrectly said that Sony had revised its full-year earnings forecast upward. Sony, in fact, lowered the forecast, largely due to lower-than-expected earnings at Sony Ericsson.)

Reader Comments

giorgio gaviraghi

July 31, 2008 6:49 AM

I can't understand why a company with the technology and knowhow as Sony keep missing the bus with its products.
The PS3, the reader , the cellphones, as an example , all represent part of an incomplete product ecosystem, such as ipod and itunes or amazon store and kindle.
The iphone is only the logical development of a needed product, tha's why is so successful.
In its history Sony had several breakthrough products, the portable transistor radios, the walkman, just to name a few.I believe that today Sony must act again with courage and innovative ideas to grab the next generation successful product such as the integrated media center in the living room or the portable one, associated with the cellphone.
Sony must take the lead again with innovative products or will become just another electronics consumer products company.

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