Sony Q2 profit down 90 pct,may miss latest outlook

Sony Q2 profit down 90 pct,may miss latest outlook
10.29.08, 9:55 AM ET

Korean Republic (south) - *Q2 oper profit down 90 percent on firmer yen, weaker stocks

*Reiterates annual forecast for 58% profit fall

*May miss outlook by 90 bln yen if yen unchanged

*Shares close up 2 percent ahead of results (Adds comments from Sony (nyse: SNE - news - people ) CFO, analyst)

By Kiyoshi Takenaka

TOKYO, Oct 29 (Reuters) - Sony Corp posted a 90 percent fall in quarterly profit as the global slowdown boosted the yen, battered stocks and stoked price competition, and the company kept its annual profit outlook of a 58 percent decline.

The steep profit slide was expected after the electronics and entertainment conglomerate last week cut its annual operating profit forecast by 57 percent, citing yen strength, slowing digital camera and flat TV demand and tumbling share prices.

The maker of Bravia flat TVs, Cyber-shot digital cameras and PlayStation game machines warned on Wednesday it might miss even the revised-down target by a large margin if the yen continues to trade at current levels against the dollar and euro.

A firmer yen eats into exporters' overseas revenues when they are converted into the Japanese currency.

Operating profit totalled 11.05 billion yen ($111.5 million) in July-September, down from 111.62 billion yen a year earlier as a sharp fall in Tokyo shares forced Sony's financial unit to post appraisal losses in its convertible bond holdings.

A one-off profit of 60.7 billion yen from a land sale that Sony posted in the corresponding period a year earlier also made impacted the scale of the decline.

Net profit fell 72 percent to 20.8 billion yen on sales of 2.07 trillion yen, down 0.5 percent.

The electronics and entertainment conglomerate competes with Canon Inc (nyse: CAJ - news - people ) in digital cameras, Samsung Electronics Co Ltd in LCD TVs, and Microsoft Corp (nasdaq: MSFT - news - people ) and Nintendo Co Ltd (other-otc: NTDOY.PK - news - people ) in video games.

Sony reaffirmed an operating profit forecast it issued last Thursday of 200 billion yen for the year to March, down from 475.3 billion yen a year earlier.

Earlier this week, Canon cut its annual operating profit forecast by one quarter on a firmer yen and cooling consumer sentiment, while Panasonic Corp stood by its original full-year outlook of 8 percent profit growth.

"If Panasonic ends up posting a year-on-year profit decline, it would be a fall of 20 or 30 percent tops," Daiwa Institute of Research analyst Kazuharu Miura said.

"On the other hand, Sony's earnings cannot help swing violently due to changes in outer factors. Unless Sony rectifies this structural problem, it would be experiencing a profit decline of a similar magnitude in five years or so."

In announcing its latest outlook on Thursday, Sony said it may close some plants, reduce capital spending and cut jobs.

For a graphic on Sony's historical operating profits, click https://customers.reuters.com/d/graphics/JP_SNYQ1008.gif

DOWNSIDE RISK

Reiterating similar comments made last week, Sony said it might miss its latest outlook by 90 billion yen if the Japanese currency stays at 97 or 98 yen per dollar and at 125 yen a euro, levels seen on Wednesday morning.

Its annual forecast is based on assumptions that the yen trades at 100 yen per dollar and 140 yen a euro in the fiscal second half, and on the premise that the Tokyo stock market will remain unchanged from levels of Sept 30 in the six months.

In reality, Tokyo's benchmark Nikkei average has lost more than a quarter of its value so far this month.

Analysts polled by Reuters Estimates on average expect Sony to post an annual operating profit of 158.2 billion yen.

Adding to Japanese technology companies' woes is a softer won since a weaker South Korean currency helps boost the price competitiveness of products made by rivals Samsung and LG Electronics Inc.

"Samsung seems to have been getting more aggressive recently on TV pricing and promotional campaigns," Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

"I assume a softer won is one factor behind those moves."

Samsung is the No.1 LCD TV maker while Sony ranks second.

Prior to the announcement, shares in Sony closed up 2 percent at 2,035 yen, underperforming the Tokyo stock market's electrical machinery index, which rose 6.7 percent.

Sony shares have lost 68 percent since the start of the year through Tuesday, while the subindex slid 56 percent. (Reporting by Kiyoshi Takenaka; Editing by Dhara Ranasinghe and David Cowell)

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