Justin McCurry in Tokyo 

Sony looks ahead after tricky first quarter

Midday: Strong sales of flat-screen TVs and the success of its film division take the edge off Sony's problems in rolling out the PlayStation 3. By Justin McCurry in Tokyo.
  
  

Spider-Man 3
Spider-Man 3: a resounding success in Japan Photograph: PR

Sony was today counting the cost of glitches in the production of its PlayStation 3 game console as the consumer electronics giant announced that group losses in the January-March quarter widened to ¥67.6bn (£283m) from ¥66.5bn a year ago.

But on a brighter note, it forecast a better year ahead on the strength of a significant recovery in its key electronics division, with overall results suggesing that the long-awaited revival under its chief executive, Sir Howard Stringer, is under way.

Sony said quarterly sales had risen nearly 13% to more than 2 trillion yen thanks to a sustained recovery in sales of consumer electronics and the success of its film division, which enjoyed box office successes with The Da Vinci Code and Casino Royale. Net profit for the fiscal year through March rose 2% to ¥126.3bn, the firm said.

But Sony said it had shipped 5.5m PS3s worldwide by the end of March, failing to achieve its target of 6m units. "The product delays have now been resolved," the firm's senior vice president, Takao Yuhara, told a news conference. "We didn't have enough units for Japan and the US so the launch was not ideal, but sales in Europe have been strong because we had enough units available there."

The US and Japan launch of the powerful PS3 was delayed until last November because of a shortage of a key component, and the console, whose price is double that of Nintendo's rival Wii machine, did not appear in Europe until two months ago.

The firm added, however, that it expected to ship 11m PS3s worldwide by the end of March 2008, but conceded that software sales would continue to drop as demand decreases for games for the best-selling PS2. "The PS2 is in its eighth year so it is only natural for demand to decrease," said Sony's chief financial officer, Nobuyuki Oneda. "On that basis there will be a marginal decrease in software sales."

Executives also conceded that an operating loss in the past year of ¥232bn would hinder their attempts to bring the gaming division into the black during the current fiscal year.

The firm's main rival, Nintendo, by contrast, has shipped 5.84m Wii machines worldwide since late last year.

Sony, however, said the gaming unit's fortunes would improve significantly with the introduction of new PS3 games this summer, thereby driving sales of the console. "The PS3 business will really get off the ground this fiscal year," Mr Oneda said.

Elsewhere, Sony was buoyed by the success of its film division, which saw sales increase 30% last year. Speaking briefly to reporters on the sidelines of the news conference, Sir Howard said he was particularly pleased with the performance of Spider-Man 3, which has racked up huge box office sales since it premiered in Japan last month.

Bravo Bravia

But it was the success of Sony's electronics unit during the final quarter, driven by its Bravia range of flat-screen TVs, Vaio personal computers and Handycam video cameras, that will have given the Welsh-born Sir Howard most cause for satisfaction.

The electronics unit registered an operating profit of ¥157bn in the last fiscal year, up from a ¥7bn profit the previous year. Electronics sales were up across the board, gaining 7% over the year to the end of March in Japan, 8% in the US and 24% in Europe. Sony also said it aimed to ship 10m LCD TVs for the year to March 2008.

Despite the PS3's teething problems, Sony was upbeat about its fortunes in the year ahead.

It expects profit to more than double to ¥320bn by the end of March as sales of consumer electronics, the traditional driving force behind the Sony brand, continue to increase after years of losing out to domestic rivals such as Sharp and foreign competitors that include South Korea's Samsung.

Sales, for example, are expected to rise 6% to ¥8.78 trillion during the current fiscal year, with profits from the recent sale of its previous headquarters in Tokyo bringing a windfall of a further ¥59bn. The firm will also be unburdened by the cost last year of a global worldwide recall of 9.6m potentially faulty computer batteries, which added ¥51bn to its 2006 costs.

Some analysts regard the new optimism surrounding Sony as a vindication of the focus on consumer electronics and the ditching of unprofitable businesses under Sir Howard, who became the firm's first non-Japanese CEO in mid-2005.

"The good news is that profitability is being maintained in the electronics unit as well as sales," Mitsuhiro Osawa, electronics analyst at Mizuho Investors Securities, told the Associated Press.

"The results came about because of wise steering on the part of management."

Other analysts were similarly upbeat. "The forecast looks really good. It will be a matter of whether the company can actually achieve that goal," said Tomomi Yamashita, a 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 under-performing and whether it can fix that too will be closely watched."

 

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