Poor TV sales push Sony to first quarter loss

Poor performance at its TV division hit first quarter results at Sony, which recorded a loss for the period.

Sony's failure to quickly embrace the flat-panel TV market hit the company again during the first quarter of its fiscal year, contributing to lower sales and wiping out profits. The TV group's poor performance also forced Sony to sharply lower its financial forecast for the full year.

Demand for cathode ray tube televisions, an area where Sony has traditionally been strong with its Trinitron tubes, fell sharply in the first quarter as customers continued to switch their attention to flat-screen LCD (liquid crystal display) and PDP (plasma display panel) models. Sony was late to these markets and severe price competition is now squeezing profits despite rising unit sales.

The poor performance in the TV market hit the company's electronics business, which failed to make money during the quarter, and that in turn hit its overall business results.

Sony reported a group net loss for its first quarter, the period from April to June, of YEN 7.3 billion, compared to a profit of YEN 23.3 billion in the same quarter last year.

Its overall net sales declined 3.3 percent from a year ago, to YEN 1.6 trillion.

In response to the poor performance of its TV business, Sony announced a number of measures intended to return that group to profitability by the second half of next year.

They include investing more money in LCD research and development and trying to expand its rear-projection TV business. Such TVs are currently popular in North America, and Sony will attempt to increase sales in Europe and Japan. Sony will also extend the sale of its "Happy Wega" low-priced LCD TVs to markets outside of Japan, said Katsumi Ihara, president of Sony's home electronics network division, at a Tokyo news conference.

Sony shipped 12 million TVs altogether last year, and had been expecting to ship 13.2 million this year. The company now believes that its shipments this year will drop to 11.4 million units.

Results weren't as bad in all parts of the electronics business. Sony enjoyed higher sales of its flash memory and hard-disk-based Network Walkman audio players, and its Vaio notebook computers, it said. Its Walkman players are now the top-selling flash-based digital music players in Japan, and its camcorders have also sold well in the country, Sony said.

The company's games division, which makes the PlayStation consoles and software, saw strong sales up 64 percent on the back of the PlayStation Portable handheld device. However, the division reported an operating loss of YEN 5.9 billion, which was attributed to an increase in selling, general and administrative and research and development expenses.

Shipments of the PlayStation Portable totalled 2.1 million units during the quarter, while those of the PlayStation 2 reached 3.5 million units. For the full year Sony increased its production estimates for both the PSP and PS2 from 12 million units each to 13 million units each.

Sony cut its full-year financial forecast because of the poor results from the TV business. The company now expects to report a group net profit of YEN 10 billion, a steep drop from its previous estimate of YEN 80 billion, and from its 2004 net income of YEN 164 billion. Net sales are expected to be YEN 7.25 trillion, down from Sony's previous estimate of YEN 7.45 trillion but higher than the YEN 7.16 trillion it reported for 2004.

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Martyn Williams

IDG News Service
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