Oct. 19 (Bloomberg) -- Sony Corp., the world's second- largest consumer-electronics maker, said profit will fall to the lowest in five years after the company cut the price of the PlayStation 3 console and recalled millions of computer batteries.

Net income for the year ending March 31 will drop 35 percent to 80 billion yen ($675 million), the company said in Tokyo today. Earnings in the fiscal second quarter slid 93 percent to 2 billion yen after the company recalled notebook batteries because several burst into flames.

The profit slump undermines Chief Executive Officer Howard Stringer's plan to rebuild the brand following a surprise loss in 2003, dubbed the Sony Shock by investors. A turnaround may hinge on whether the company can meet a target of shipping two million PlayStation 3 consoles this year.

``The reform process at Sony is not fully complete,'' said Pascal Masse, a director at the Japanese unit of Aberdeen Management Asia Ltd., which oversees about $2 billion of Japanese equities. ``The issues may have been deeper than they expected.''

Sony shares in Frankfurt fell as low as 30.25 euro, or 4,512 yen, down 5.8 percent from its Tokyo close. The announcement came after the Japan market closed.

Operating profit, or sales minus the cost of goods sold and administrative expenses, will fall 62 percent to 50 billion yen this fiscal year, while the sales forecast was kept at 8.23 trillion yen, the company said.

PlayStation 3

Losses at the game division will be wider than Sony expected because of a planned price cut for its PlayStation 3 and slower sales of the PlayStation Portable. The price reduction will erase 60 billion yen of profit from the division, the company said.

Sony cut the price of the low-end model of the PlayStation 3 by 20 percent and added a HDMI connection for high-definition content to compete with less expensive players from Microsoft Corp. and Nintendo Co.

Shipments of the PlayStation Portable handheld player, which launched last year, were cut to 9 million units from 12 million, Oneda said.

Sony in September halved global shipments of the PlayStation 3 for this year, and delayed shipments to Europe until next March because of parts shortages.

Widened Recall

The company earlier this week said it may revise its profit forecast after recalling 90,000 batteries in its own Vaio computers on concern some of the cells could catch fire. The company today widened its global recall to 9.6 million units, saying replacing the cells will cost 51 billion yen.

``The cost of the recall is our best estimate,'' Nobuyuki Oneda, Sony's chief financial officer, told reporters in Tokyo today. ``It may rise or fall.''

Dell Inc., Apple Computer Inc. and Toshiba Corp. are among eight Sony customers that recalled the batteries. Sony said in August it's spending between 20 billion yen and 30 billion yen to replace about 6 million batteries in Dell and Apple laptops.

Toshiba, the world's fifth-biggest PC maker, may seek compensation for the recall, Oneda said.

Lithium-ion batteries are used in notebook computers, mobile phones, portable music players and other devices because they are lighter and store more power than most other types. Sony today said it doesn't expect fire hazard concerns to spread beyond laptop computers.

No `Similar Problems'

``Because of the difference in batteries for PCs and consumer electronics, we don't foresee similar problems with batteries for other products,'' Naofumi Hara, a Sony senior vice president, said today. ``We haven't had any reports of such problems yet.''

Sony reported a second-quarter operating loss of 21 billion yen, compared with a 65.9 billion profit a year earlier, according to the preliminary earnings statement. Sales rose 9 percent to 1.85 trillion yen, helped by a weaker yen against the euro and dollar and its consumer electronics business.

Sales of its Bravia liquid-crystal display televisions and Cyber-shot digital cameras helped the company beat analyst estimates in the first quarter, and will ``continue to recover favorably,'' Sony said.

``It's disappointing that the troubles with Sony's battery and game units come just as its digital camera and TV businesses improve,'' said Kazumasa Kubota, an analyst at Okasan Securities Co. in Tokyo.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net.

Last Updated: October 19, 2006 07:22 EDT