July 29 (Bloomberg) -- Sony Corp. said profit will fall more than previously forecast on lower-than-anticipated earnings from its handset venture with Ericsson AB and a slide in electronics prices that caused first-quarter earnings to miss estimates.

Sony, the world's second-largest maker of consumer electronics, tumbled to a five-year low in Frankfurt trading after the Tokyo-based company said net income dropped 47 percent to 35 billion yen ($326 million) in the quarter ended June 30. Profit was 41 percent lower than the median estimate of five analysts surveyed by Bloomberg.

Chief Executive Officer Howard Stringer delivered the electronics division's biggest profit drop in two years and the movie operation's first loss in seven quarters. The company projected a ``cautious'' outlook on demand for Bravia televisions and Cyber-shot cameras as economic growth in the U.S. and Europe slows and demand starts to falter in China.

``I can't become bullish on Sony until I see further expansion in the company's game business to offset a slowdown in consumer electronics,'' said Mitsushige Akino, who oversees $560 million as chief investment officer of Ichiyoshi Investment Co. in Tokyo. ``There will be no chance for Sony to avoid being affected by increasingly disheartened consumers in North America.''

Sony lost as much as 7.8 percent in German trading. The company said net income will probably fall 35 percent to 240 billion yen in the year ending March 31, 2009. That's 17 percent lower than the 290 billion yen forecast in May.

Revenue Falls

First-quarter revenue climbed 0.1 percent. Operating profit, or sales minus the cost of goods sold and administrative expenses, declined 39 percent to 73.4 billion yen, based on revised figures using a new accounting method.

Sony this quarter began including earnings from Sony BMG, Sony Ericsson Mobile Communications Ltd., and S-LCD Corp. at the operating level. Analyst estimates don't reflect the accounting changes.

Profit at Sony's electronics business, the world's second largest after Matsushita Electric Industrial Co.'s, slid 57 percent to 44.4 billion yen, missing the 67.6 billion yen median estimate in the Bloomberg survey. Contributions fell from Sony Ericsson, which plans to cut 2,000 jobs after lower mobile-phone prices wiped out almost all profit last quarter.

``We have to take a cautious stance on the consumer electronics market in the U.S. overall,'' Chief Financial Officer Nobuyuki Oneda told reporters in Tokyo. ``In Europe, we have questions about profit growth in the audio and visual product division, partly because of digital camera price competition, which is becoming more severe.''

China Concern

China is also a ``concern'' because demand ahead of the Beijing Olympics in August has been less than the company expected and sales are slowing after the May earthquake in Sichuan province, Oneda said.

The World Bank said last month that global economic growth will probably slow to 2.7 percent this year from 3.7 percent in 2007 because of rising food and fuel prices and losses from the subprime-credit market.

Stringer, 66, said at a media conference in Idaho this month that ``everybody is struggling'' and a recovery may not occur until next year.

Matsushita today reported first-quarter profit surged 86 percent to 73 billion yen, exceeding the median estimate in a Bloomberg survey by 72 percent. Still, the company left its full- year profit forecast unchanged.

Sustaining Growth

``I can't say Matsushita will manage to keep the current pace of earnings growth,'' said Yuuki Sakurai, a Tokyo-based general manager at Fukoku Mutual Life Insurance Co. ``Looking at the turbulence in U.S. financial markets, the recovery of the country's economy will likely be slow and the situation will remain tough for exporters dependent on the U.S.''

The yen, which gained 15 percent against the dollar in the year to June 30, eroded the value of Sony's exports. Sony generated 77 percent of revenue from overseas last fiscal year, while domestic sales accounted for half of Matsushita's revenue.

Sony said in May that every one-yen increase in the exchange rate with the U.S. dollar cuts operating profit by 4 billion yen.

The movie division posted a loss of 8.3 billion yen in the absence of blockbuster films like ``Spider-Man 3'' a year earlier. Analysts predicted the business, which released ``You Don't Mess With the Zohan'' would post profit of 650 million yen.

Game Division Profit

The game division unexpectedly posted profit of 5.4 billion yen after PlayStation 3 console shipments doubled to 1.56 million. Analysts in the Bloomberg survey projected the business would post a 7.5 billion yen loss.

Sony reiterated its target for the fiscal year to ship 10 million PlayStation 3 machines and 9 million PlayStation 2s. The forecast means Sony may lose its title as the world's largest maker of game consoles for the first time in at least 13 years because Nintendo Co. has projected it will sell 25 million of the motion-sensitive Wii this year.

Separately, Oneda declined to confirm or deny a Nikkei newspaper report that Sony may buy Bertelsmann AG's 50 percent stake in their music venture, Sony BMG, for more than 100 billion. An agreement may be reached as early as next month, according to the report, which cited people familiar with the matter.

Sony will make an announcement should there be any progress on the matter, Oneda said.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

Last Updated: July 29, 2008 09:32 EDT