Sony poor performance yet high share price

According to Reuters, the Sony Play Station 3 (PS3) and the recall of laptop batteries has been blamed for Sony not hitting forecast profits; however the company does claim that the future is looking good. Although it may add to the bottom line, the launch of the new Sony DSLR's may help help push up profits.

Here's what they say:

Sony has reported a profit downturn due to losses in its game unit, but it has forecast a sharp rise in profits this year as it boosts sales of its PlayStation 3 video game machine and LCD TVs.

The Japanese electronics and entertainment conglomerate was hit hard last year by massive costs to launch the PS3 and recalled 9.6 million units of its laptop PC batteries, which in rare cases could catch fire from overheating.

But it is taking steps to cut production costs for the PS3 and is starting up an advanced liquid crystal display (LCD) panel plant with Samsung Electronics this year, which should help it make TVs more efficiently.

Sony, which is locked in a battle with Microsoft and Nintendo for dominance in the $30 billion video game industry, forecasts an operating profit of $3.66 billion for the year to March 2008.

The estimate represents a six-fold gain on 2006/07 and beats the consensus of 377.8 billion yen in a poll of 20 analysts by Reuters Estimates, though it includes a 59 billion yen profit from a sale of land not likely reflected in the consensus.

Sony expects sales to grow 5.8 percent to 8.78 trillion yen. Analysts said Sony's forecasts looked strong.

"The forecast looks really good. It will be a matter of whether the company can actually achieve that goal," said Tomomi Yamashita, senior fund manager at Shinkin Asset Management.

"Investors think highly of Sony's efforts to turn around its struggling electronics business. Now its game business is underperforming, and whether it can fix that too will be closely watched."

For January-March, the fourth quarter of the past business year, Sony booked an operating loss of 113.4 billion yen, against a loss of 51.9 billion yen a year earlier and the consensus of a 94.5 billion yen loss according to five analysts. Operating profit at Sony came to 71.75 billion yen in the year ended March 31, down from 226.42 billion yen a year earlier.

Sales rose 10.5 percent to 8.295 trillion yen while net profit rose 2.2 percent to 126.3 billion yen, boosted by the strong performance by Sony Ericsson, the world's fourth-largest mobile phone maker owned jointly by Sony and Ericsson .

Sony, which offers Bravia LCD TVs, Cyber-shot digital cameras and Vaio PCs, has packed its cutting-edge technology such as a Blu-ray high-definition DVD player into the PS3, enabling lifelike graphics but driving up its manufacturing costs. The basic version of the PS3 is priced at twice as much as Nintendo's new console, the Wii, which has been outselling the Sony machine in Japan and the United States since the devices were launched late last year.

Sony said it would aim to nearly double shipments of the PS3 to 11 million units in 2007/08, but it warned that it would be difficult to bring its game division into the black following an operating loss of 232 billion yen in the past year.

It is banking on a better showing for the PlayStation Portable. Shipments of the handheld game player fell 41 percent in 2006/07 amid competition with Nintendo's popular DS device.


Howard Stringer, who became the company's first non-Japanese chief executive in 2005, has pledged to put Sony on the right track by selling non-core assets and pouring resources into its electronics segment that makes up two-thirds of overall sales.

The electronics unit improved to an operating profit of 157 billion yen in 2006/07 from a 7 billion yen profit in the prior year as it enjoyed robust demand for digital cameras, high-end camcorders and benefited from a weaker yen.

Sony also more than doubled sales of LCD TVs to 6.3 million units and predicted a further surge to 10 million this year.

"We expect profits from TVs to get a boost this year, led by LCDs. We had a huge cost for the battery recall, but we won't have such expenses this year," Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

The upbeat forecast will likely underpin the perception among investors that Sony is on a recovery path, even if it is still playing catch-up with Apple Inc. in the portable music player market and faces cut-throat competition with Matsushita Electric Industrial Co. in flat screen TVs.

Prior to the announcement, shares in Sony closed up 1.3 percent at 6,460 yen, having gained about 27 percent since the start of the year. The stock is now up about 70 percent since Stringer took the helm in June 2005.

"I think investors will be positive about the results. It won't be a case of the stock taking off, but there should be some gains. It would not be strange to see Sony's stock go as high as 7,000 yen," said Shigemi Nonaka, adviser at Polestar Investment Management".



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