Bloomberg News

Sony Misses Estimates as Hirai Drives Samsung Challenge (1)

May 09, 2013

Sony Forecasts Smaller-Than-Estimated Gain in Annual Net Income

A visitor walks past Sony Corp. Bravia televisions displayed at the company's showroom in Tokyo. The company is focusing on high-end products such as ultra-high definition Bravia sets, which offer resolution four times sharper than conventional models, to help revive the TV unit. Photographer: Kiyoshi Ota/Bloomberg

Sony Corp. (6758) forecast annual profit that missed analysts’ estimates as Chief Executive Officer Kazuo Hirai rolls out new Xperia smartphones and Bravia televisions to recapture market share lost to Samsung Electronics Co.

Net income may rise 16 percent to 50 billion yen ($507 million) in the year started April 1, the Tokyo-based company said in a statement. That compares with the 66.4 billion-yen average of 18 analyst estimates compiled by Bloomberg.

Hirai used job cuts, asset sales, a weaker yen and blockbuster movies to return the company to profit after four years of losses as the electronics business struggles to keep consumers from migrating to Samsung products. The South Korean company’s smartphones outsold Sony’s 7-to-1 last year, and its flat-panel TVs generated more than triple Sony’s revenue.

“Sony is being bullish,” said Takashi Oba, a senior strategist at Okasan Securities Co. “It’s up to whether it can reduce the losses in its electronics business and produce hit products.”

Sony posted a profit in the year ended March after it generated about $2 billion in one-time gains selling stock holdings and properties including its New York headquarters, a chemicals unit and shares in health-care data provider M3 Inc. (2413) Sony’s movie studio also topped the U.S. box-office last year with hits including “Skyfall” and “The Amazing Spider-Man.”

Operating Profit

Sony fell 1.4 percent to close at 1,744 yen in Tokyo trading before the announcement, trimming its gain this year to 82 percent. Japan’s benchmark Nikkei 225 (NKY) Stock Average has gained 37 percent this year. The company’s German shares fell as much as 2.4 percent. Its American Depositary receipts rose 0.8 percent to $18.08 in New York trading.

Net income last fiscal year was 43 billion yen, the company said yesterday. Operating profit may rise to 230 billion yen, Sony said, compared with the 208 billion-yen average of analyst estimates. Sales will increases 10 percent from a year earlier to 7.5 trillion yen, it said. That compares with the 7 trillion-yen average of analyst estimates for revenue.

“We’ve improved our cost structure and are able now to pursue volume growth,” Chief Financial Officer Masaru Kato said.

The TV business, the world’s third-largest, was unprofitable for a ninth straight year with a loss of 69.6 billion yen, excluding charges, amid sluggish demand and competition from Samsung and LG Electronics Inc. (066570)

Sony’s share of revenue in the market for flat-panel TVs fell to 7.8 percent compared with 27.7 percent for Samsung, according to Santa Clara, California-based DisplaySearch.

Profit Target

Sony expects to sell 16 million TVs this fiscal year, up from 13.5 million, as it focuses on ultra-high definition screens that offer resolution four times sharper than conventional models.

“I don’t know how Sony would be able to spur TV sales to 16 million,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co. “Are there that many people buying TVs?”

The company reiterated its target for the TV operation to post a profit this year after racking up 800 billion yen in losses since 2004.

Hirai’s plan to revive the consumer-electronics business focuses on games, cameras and mobile devices, including the flagship Xperia Z smartphone revealed at January’s Consumer Electronics Show in Las Vegas.

Smartphone Sales

Sony’s electronics operation will turn an operating profit of about 100 billion yen this fiscal year, compared with a loss of 130 billion yen a year earlier, Kato said. Smartphone sales are expected to rise to 42 million units from 33 million units.

“Smartphones are going to start making contributions to profit this year,” Kato said in Tokyo. “Xperia Z has been getting great response from customers.”

Sony, Japan’s biggest smartphone maker, expanded its share of the global market to 4.5 percent from 3.9 percent in the final quarter of 2012, according to research company IDC. Sony shipped 30.4 million units last year, compared with Samsung’s 218.2 million, according to Bloomberg Industries.

In February, Sony previewed the PlayStation 4 video-game console that will go on sale for the year-end holiday season. The company’s first home-gaming machine in seven years will make its debut amid an industry shift toward games played on smartphones and tablets.

PlayStation, Movies

Profit at the game unit will be “essentially flat” as the company boosts spending on research, development and marketing, it said. Sales will rise “significantly” on the introduction of the PS4.

Sales of handheld players, including the PS Vita and PSP, will probably fall to 5 million from 7 million, and camera sales are expected to fall 20 percent to 13.5 million units, Sony said.

The movies unit may post little changed earnings, Sony said. The company’s Columbia and Sony Classics divisions have garnered 7.4 percent of U.S. gross ticket sales in 2013, according to Boxofficemojo.com, a movie research site.

Income at the financial-services business may be little changed while profit at the music unit, featuring Adele and Bruce Springsteen, will rise, the company said, citing digital revenue and benefits of a weaker yen.

Sony said it’s assuming exchange rates of 90 yen to the dollar and 120 yen to the euro for the fiscal year. Each 1-yen gain in the value of the dollar would erode Sony’s annual operating profit by about 3 billion yen, while a 1-yen gain in the value of the euro would boost profit by about 7 billion yen, Kato said.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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