Sony Reports 98 Percent Drop in Profits

By | July 24, 2003 at 12:00 AM

Japanese electronics and entertainment giant Sony Corp. reported a 98 percent decline in profit for the April-June quarter as sales faltered in key businesses such as electronics, video games, movies and music.

Sony said Thursday it earned 1.1 billion yen ($9 million) in the first quarter of its fiscal year, down from 57.2 billion yen for the same period last year.

Sales for the Tokyo-based company fell 6.9 percent to 1.6 trillion yen ($13.5 billion) from 1.7 trillion yen.

Sony set off a plunge in Tokyo share prices in April after it reported a loss in the final quarter of fiscal 2002, setting off worries about the state of Japanese industry, which has been struggling to cut costs and switch strategies amid competition from Asian rivals.

Sony has pledged to turn itself around by investing in computer chip production and other research to offer broadband network gadgets and cutting-edge products that rivals can’t easily imitate at lower prices.

But analysts say Sony may have fallen behind in popular products including flat-panel TVs and DVD recorders. Sales of its Vaio computers are lagging.

Sony officials acknowledge that fiscal 2002 profits were partly a fluke, bolstered by the blockbuster movie “Spider-Man.” Sony’s profits for the fiscal year ended March 31 totaled 115.5 billion yen ($972 million), up more than sevenfold from 15.3 billion yen in fiscal 2001.

Kazuharu Miura, analyst at Daiwa Institute of Research in Tokyo, said solid results from Sony’s restructuring efforts can’t be expected to kick in for some time. “The progress must be gradually assessed,” he said.

Nobuyuki Idei, Sony chief executive, said the latest results were weaker than the previous year but still managed to improve on the January-March quarter, when Sony lost 111 billion yen.

“In the third quarter of this fiscal year, we will begin implementation in earnest of the restructuring plan we outlined,” he said in a statement. The company is planning “exciting electronics products” in the second fiscal half, Idei said, promising solid profits by 2006.

Sony said that in its electronics business, operating profit for the latest quarter fell 73.9 percent to 12.8 billion yen ($108 million), down from 49 billion yen a year ago. Sales dipped 9.8 percent to 1.1 trillion yen ($9.2 billion) from 1.2 trillion yen as TV, Vaio and audio equipment sales declined, the company said.

Profits in the video game sector, which had been Sony’s star division with hefty profits until recently, slid 31.6 percent to 1.8 billion yen ($15 million) from 2.6 billion yen, while sales edged down 18.2 percent to 125.2 billion yen ($1 billion) from 153 billion yen.

Worldwide shipments of the PlayStation 2 game machine dropped sharply to 2.65 million units in the quarter from 4.59 million for the same period last year. Software shipments also fell.

The drop in profits in the game sector also reflects increased expenses in research and development for computer chips for future businesses, Sony said.

Sony Pictures Entertainment recorded an operating loss of 2.4 billion yen ($20 million) in the latest quarter versus an operating profit of 9.3 billion yen a year ago.

Sales in the movies unit plummeted 13 percent to 151.1 billion yen ($1.3 billion) from 173.6 billion yen.

Sony said this quarter’s “Hollywood Homicide” proved a disappointment while “Charlie’s Angels: Full Throttle” required hefty advertising and promotion expenses.

Sony Music Entertainment reduced losses for the latest quarter to 6 billion yen ($50 million) from 10 billion yen the previous year by cutting costs in advertising and streamlining operations.

Sales in the music unit fell 8.8 percent to 117 billion yen ($985 million) from 128.3 billion yen, underscoring a shrinking global music industry battered by piracy and Net file-sharing, according to Sony.

Strong sellers included Beyonce’s “Dangerously in Love,” Evanescence’s “Fallen” and Ricky Martin’s “Almas del Silencio.”

Financial services fared better with an operating profit of 14.0 billion yen ($118 million), up 29.7 percent from 10.8 billion yen, while sales climbed 16.3 percent to 149.6 billion yen ($1.3 billion) from 128.7 billion yen.

Sony said it expects to meet its targets for the fiscal year through March 2004 of a profit of 50 billion yen ($421 million) on 7.4 trillion yen ($62 billion) sales.

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