Battery recall, games loss prompt Sony earnings warning
Sony on Thursday cut its profit outlook by 62 percent because of battery recall costs and a larger loss at its game unit, missing market expectations by a wide mark and putting its nascent recovery in doubt.
The revision follows a series of setbacks for the electronics giant, including recalls of about 8 million Sony-made PC batteries by major computer makers and a delay in the European launch of its upcoming video game console, PlayStation 3.
Sony said it will set aside 51 billion yen ($429.1 million) for costs related to the battery recalls, which it would book in the second quarter ended September.
Sony cut its operating profit target for the year to March to 50 billion yen from its July estimate of 130 billion yen. That compares with a consensus of a 160.9 billion yen in a poll of 20 analysts by Reuters Estimates.
"The size of the downward revision is bigger than expected," said Masahiko Ishino, an analyst at Mitsubishi UFJ Securities. "The battery recall costs were within expectations, but the revision highlights the troubles of its game unit."
Slow sales and a discount
Sony expects losses at its game unit to nearly double from its initial estimate to 200 billion yen for the year to March after it cut the price of a model of the PS3 with a 20GB hard disk drive by 20 percent in Japan to spur demand.
Sony's game unit was also hit by slower-than-expected sales of PlayStation Portable (PSP) handheld players.
The company lowered its PSP shipment target for the year ending March 31 by 25 percent to 9 million units.
In contrast, rival game maker Nintendo earlier this month raised the sales target of its DS portable machines to 20 million units from 17 million for the current business year.
Sony shares in Frankfurt traded at 31.01 euros, which translates to about 4,623 yen, down 3.5 percent from Tokyo's close of 4,790 yen. The announcement came after the Tokyo close.
The deep profit revision comes as a setback for Ryoji Chubachi and Howard Stringer, who have experienced mostly success since becoming president and chief executive of the world's second-largest consumer electronics maker in June 2005.
Stringer and Chubachi moved swiftly to slash jobs, sell off non-core assets and they seemed to have the company on the right track. Sony had become more efficient and even introduced a handful of hit products such as its Bravia brand LCD TVs.
The company also cut its net income forecast to 80 billion yen from the previously expected 130 billion yen.
In other news:
The brand of Sony, the maker of Walkman music players and Vaio computers, has been damaged after PC makers including Dell and Apple Computer have said they would recall Sony laptop batteries, which in rare cases could catch fire from overheating.
Sony said the latest revision does not factor in potential costs of any legal action that might arise from the global battery recall, which could result in some investor concern about further downward adjustments to forecasts.
Toshiba said on Monday it may seek compensation from Sony for possible damage to its brand name and loss of potential sales due to the recall.
Before the announcement, shares in Sony closed down 0.4 percent at 4,790 yen, slightly outperforming the Tokyo stock market's electrical machinery index, which fell 0.61 percent.
