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Sony Expected to Report Weak Earnings

Sony Corp is expected to report weak results for the July-September quarter after a profit warninglate last month, with analysts looking for more aggressive restructuring moves to confront the slowing global economy.

The world’s largest maker of audio and video equipment cut its consolidated operating profit forecast for the full year to next March by more than half to 120 billion yen ($980 million) and announced a handful of restructuring steps, including procurement cost cuts.

“That’s not enough,” said Merrill Lynch analyst Hiroshi Kuriyama. “Of course it has made efforts in the past, but current business conditions are far worse than what they were looking at before.”

Analysts widely considered the company’s revised estimates overly optimistic, with a survey of full-year operating profit forecasts at six major securities firms yielding a range of 70 billion to 100 billion yen, while those giving second-quarter estimates produced a range of five to 12.5 billion yen.

Sony will report its quarterly results on Thursday.

In the year-ago period, Sony reported a second-quarter consolidated operating profit of 60.5 billion yen and a net profit of 19.8 billion yen, on sales of 1.7 trillion yen.


The lion’s share of Sony’s profits usually come in the October-December quarter, when shipments pick up for the year-end and Christmas shopping seasons.

The electronics division – Sony’s main source of revenues – accounted for nearly all of its September 28 reduction in earnings targets. At that time it also cut its 2001/02 net profit forecast to 10 billion yen from 90 billion yen while the sales projection was trimmed to 7.5 trillion yen from 7.7 trillion yen.

Hardest hit were its original equipment manufacturing operations for electronic components, displays, disk drives and semiconductors.

Sony also estimated that problems with its cell phone operations, which encountered costly recalls in the spring, lopped 40 billion yen off its operating profit in the first two quarters of the business year.

But the company left its 2001/02 targets for its game division unchanged, including planned shipments of 20 million PlayStation 2 game consoles.

Several analysts said the decision this month to take an 18.6 percent stake in Japanese game software developer Square Co Ltd would likely bolster the division.

Sony also left unchanged its capital expenditure target for 2001/02, which was cut in July to 350 billion from 400 billion yen, and further cuts are considered likely at Thursday’s earnings announcement.


In its entertainment businesses, Sony trimmed its full-year profit targets for the music division, where sales have slipped, although no changes were announced for the movie segment, which incurred massive losses last year due to accounting rule changes.

The September profit warning sent Sony’s shares sliding to their lowest since January 1999, at 3,960 yen, although they have since jumped about 30 percent, joining a global high-tech rebound after a sell-off sparked by the September 11 attacks.

Sony’s shares are nevertheless down about 35 percent from the start of the year, underperforming the benchmark Nikkei 225 average’s 20 percent drop.

The company said it aims to trim its global workforce by 5,000 this business year, to 159,000, after eliminating 7,000 jobs last year.

Merrill Lynch’s Kuriyama, while acknowledging the difficulty of cutting jobs in Japan, said Sony was not doing enough.

“It has the image of a leader in taking more drastic steps than other Japanese companies, but with other companies now in rather aggressive restructuring, Sony doesn’t look very aggressive at all,” he said.

“It has steadily restructured and cut headcount in its electronics operations, but most of those reductions have been overseas. Domestically, and around Shinagawa (the site of Sony’s Tokyo headquarters), there hasn’t been much progress.”

Sony executives have also indicated that more must be done.

“I think a reduction in domestic employees is unavoidable,” Sony Chairman Nobuyuki Idei told reporters at a briefing earlier this month. But he added: “There are a lot of disadvantages to being a global company located in Tokyo.”

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