Slashes Profit Outlook on Falling Sales, Restructuring Costs

Sony Corp. announced its second quarterly loss in a row Thursday and slashed its profit outlook, highlighting the challenges Sony's new chairman faces as he tries to revive the company's faltering consumer electronics business.

Appointed the first foreigner to head a major Japanese technology company in March, Howard Stringer is fighting falling prices and rising competition from cheaper Asian rivals such as Samsung Electronics Co. His company is also falling behind rivals in introducing hit products like the iPod from Apple Computer Inc.

Sony posted a net loss of 7.3 billion yen ($65.2 million) in the three months ended June 30, compared with a profit of 23.3 billion yen a year earlier. Sales dropped 3.3 percent to 1.56 trillion yen ($13.9 billion), from 1.61 trillion yen.

In need of a turnaround, the Tokyo-based company instead cut its full-year profit forecast by almost 90 percent on Thursday, citing tumbling television prices and higher than expected restructuring costs at the ailing electronics unit.

Net income is now projected to total 10 billion yen ($89.3 million) in the year to March 31, 2006, compared with an April forecast of 80 billion yen ($714 million). Sales will be 7.25 trillion yen, 3 percent lower than its April outlook.

Stringer -- a dual British-American citizen who ran Sony's entertainment operations before assuming the corporate helm -- said last month that a detailed turnaround plan will be announced in late September.

Pledging major cost cuts, he said, "first and foremost, my responsibility is to revitalize Sony's electronics business."

Foreign executives at major Japanese companies are still extremely rare. One exception has been Brazilian-born Carlos Ghosn, chief executive at Nissan Motor Co., who has become a hero here by reviving the automaker from near-collapse to growth in the past several years.

Results for the April-June quarter were slammed by a 15.9 billion yen ($142 million) restructuring charge, of which 15.5 billion yen was dedicated to reviving the electronics units.

Electronics sales declined 1.4 percent to 1.12 trillion yen ($10 billion) in the period. Falling unit prices for such goods as liquid crystal display televisions were responsible for the division chalking up a 35.3 billion yen ($315 million) operating loss, the company said.

Executive Deputy President Katsumi Ihara said Sony is aiming to turn around its television operations by the second half of next year, adding that "painful job cuts will be inevitable."

"The one critical issue is how to improve the TV profitability," said Koya Tabata, an analyst with Credit Suisse First Boston in Tokyo. "It's an industry wide problem."

Sony's game unit, which makes the PlayStation 2 and PlayStation Portable gaming consoles, saw a 64 percent sales increase to 105.4 billion yen ($941.1 million). But the division also booked a 5.9 billion yen ($52.7 million) operating loss due to marketing and research expenses. That loss widened from 2.9 billion yen the previous year.

Shipments of the PSP, which went on sale late last year in Japan and earlier this year in the United States, totaled 2.09 million worldwide, while PS2 sales rose nearly fivefold to 3.53 million units.

In the motion picture segment, Sony reported a 3.5 percent rise in operating profit to 4.1 billion yen ($36.6 million) on a 2.6 percent decline in sales. Profits were bumped up by distribution fees from the library of titles associated with U.S. film and television studio Metro-Goldwyn-Mayer.

Stringer, a former executive at U.S. TV network CBS Inc., oversaw the April acquisition of MGM for about $2.94 billion cash, and assumed debt of about $1.9 billion.

Home video releases of "Hitch," "Are We There Yet?" and "Boogeyman" helped offset lower box office revenues in the United States and the release of fewer films, Sony said.

Sony's shares, which have risen slightly this year but are still worth about half of what they were four years ago, gained 0.26 percent to 3,850 yen Thursday on the Tokyo Stock Exchange. The company released earnings after the market closed.

In the fourth quarter that ended in March, Sony chalked up a loss of 56.5 billion yen. Like most Japanese companies, Sony's fiscal year starts in April.

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