Bloomberg News

Sony Cuts Guidance a Third Time as Hirai’s Recovery Founders (1)

May 02, 2014

Sony CEO Kazuo Hirai

Kazuo Hirai, president and chief executive officer of Sony Corp. Photographer: Kiyoshi Ota/Bloomberg

Sony Corp. (6758), the maker of Xperia smartphones and PlayStation consoles, posted a loss wider than forecast as Chief Executive Officer Kazuo Hirai’s turnaround founders amid slumping consumer electronics sales.

Sony posted a preliminary net loss of 130 billion yen ($1.3 billion) in the 12 months ended March, the Tokyo-based company said in earnings reported yesterday. That’s the third downward revision after a February loss projection of 110 billion yen, itself a reduction from a revised October forecast for profit of 30 billion yen.

The wider loss is a setback to Hirai’s plan to revive the fortunes of the Japan technology icon with new game consoles, smartphones and cost cuts. While the PlayStation 4 has won sales, Sony is struggling to come up with other hits as demand for traditional products like televisions, cameras and personal computers decline.

“There is no stop to their downward revision of earnings,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co. “They can’t get into a growth stage, and it’s difficult to recover. Unless they announce sales of the TV business, the market won’t think Sony is serious.”

Hirai issued the earlier forecast in February as the company announced the sale of its PC business, which produces notebooks under the Vaio brand, to buyout firm Japan Industrial Partners Inc. and a plan to split its TV making unit into a separate unit.

Shares of Sony fell 0.6 percent to 1,800 yen at the close of trade in Tokyo. The stock has declined 1.4 percent this year, compared with a 9.2 percent drop in the benchmark Topix index.

Slumping Demand

The company’s full-year operating income was 26 billion yen, about a third of the 80 billion yen projected in February.

When Hirai took over as CEO in 2012, he said the pillars of his revival strategy were mobile devices, games and imaging products. Since then, the company has sold assets to generate one-time profits and cut jobs, including at its Hollywood film studio.

Changes at its entertainment unit, which aim to cut $250 million of costs, follow Hirai’s rejection of a push by billionaire investor Daniel Loeb for a spinoff of a portion of the entertainment units, which also includes music and television programming.

Sales for the past financial year were 7.77 trillion yen, or about 0.9 percent more than its forecast, Sony said.

The company will announce full earnings and its forecast for the current year on May 14, it said yesterday.

‘Same Mistakes’

Sony will book about 30 billion yen of extra expenses for the PC unit after sales were below target. The company expects to write down excess components and compensate suppliers for unused materials in its PCs and record some restructuring charges ahead of schedule.

The early booking of charges is “essentially a positive,” Eiichi Katayama, an analyst at Bank of America Merrill Lynch, wrote in a report. Additional restructuring now appears likely as the company’s management looks to complete revamping efforts in the current fiscal year that may include shrinking its overseas sales network, according to Katayama.

Sony and Japan Industrial Partners signed a definitive agreement for a sale of the PC unit with the transaction due to be completed July 1, the company said in a statement today.

“Without the disposal of under-performing businesses, Sony will repeat the same mistakes,” said Makoto Kikuchi, Tokyo-based chief executive officer for Myojo Asset Management Co. “The company should leave from commodity-type businesses. It has already left PC. The remaining is TV.”

Hirai hasn’t ruled out selling the TV business after receiving “various offers,” he said in February without elaborating.

Sony will also take about 25 billion yen of impairment charges for its overseas disc manufacturing operations as demand slumps. Sony has nine production sites outside of Japan producing compact discs, including factories in the U.S., Russia, Australia and India, spokesman Koji Kurata said by phone yesterday.

To contact the reporters on this story: Grace Huang in Tokyo at xhuang66@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Aaron Clark, Robert Fenner


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