Sony reports better sales but electronics weak

Sony Corp. saw higher sales and smaller net losses in the first half of the current financial year, but the harsh economic conditions proved tough in its core electronics business, the company announced Thursday.

The company said group sales in the first half of the current financial year, the period from April to September, were 3.4 trillion yen (US$28.6 billion as of Sept. 30, the last day of the period being reported), a rise of 5.2 percent on the same period a year earlier. At net income level the company said losses were reduced, reaching 43.3 billion yen in the first half of this year against a loss of 73.8 billion yen a year earlier.

Income at other levels was sharply lower, dropping from profits to losses. Operating income, which excludes profits and losses from businesses other than the company's main operations, was a loss of 388 million yen, down from a profit of 83.7 billion yen a year earlier, while pretax income dropped to a loss of 13.7 billion yen from a profit of 113.7 billion yen a year earlier.

The higher net sales and narrower net loss don't tell the whole story. Better performance at the company's games, music, movies and financial services divisions offset a bad six months in Sony's core electronics operations, which make up around 65 percent of the company's total revenues.

In that sector sales to customers dropped 3.2 percent in value terms and would have dropped more than four times that if it were not for changes in the exchange rate during the half year, compared with the rate last year. Sony blamed falling prices worldwide for the lower sales and said it was facing tougher competition in all major markets, including Japan, U.S., Europe and Asia.

With a worldwide slump in the semiconductor market continuing to batter many chip makers, it was no surprise that Sony's semiconductor operations were among the worst performing in the electronics group. Sales fell 12.5 percent on the half to 97.4 billion yen and the company reported lower sales on most products.

However, "half of the chips we produce are destined for our own products," said Teruhisa Tokunaka, executive deputy president and chief financial officer of Sony. "Therefore, even under these tough market conditions, our semiconductor sector has not been not as badly affected as others have been."

Also contributing to the weak picture were lower sales of CD-R/RW drives, CRT (cathode ray tubes) for computer monitors, televisions, video cameras, displays and personal computers. Bright spots were mobile telephones and personal digital assistants (PDAs), said Sony.

Operating profits in the electronics business, which stood at 123.2 million yen a year earlier, evaporated and the company reported an operating loss of 25.7 billion yen.

The company is prepared to ride out a tough business period, which it expects will continue for a while, Tokunaka said.

In other sectors, Sony's games business, which includes its PlayStation series of consoles, returned to profitability in the first half on 70.6 percent higher sales to customers of 390 billion yen. Operating profit was 947 million yen, a bounce back from a 20.9 billion yen loss in the first half of 2000. Sony attributed the better results to higher sales of PlayStation 2 software and hardware.

Elsewhere, the music sector saw sales rise and profits narrow and the pictures group reported sharply higher sales and a return to profitability on strong business in the home video and DVD (digital versatile disc) sectors. Sony's financial services group reported higher sales but lower profits.

For the full year, the company restated earnings estimates that had been lowered in late September. They call for full year group sales of 7.5 trillion yen, group operating profit of 120 billion yen, group pretax profit of 70 billion yen and group net profit of 10 billion yen.

Some analysts and media were predicting the company would downsize its full year earnings forecast again at Thursday's announcement. However, Sony kept the same figures from Sept. 28, confident that sales of its own brand products, such as Vaio, will do well as Windows XP's Japanese launch (due in November) approaches, Tokunaka said.

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