Oct. 26 (Bloomberg) -- Sony Corp., the world's second- largest consumer-electronics maker, reported fiscal second- quarter profit fell 94 percent after computer makers recalled millions of its batteries because some were fire hazards.

Net income slid to 1.7 billion yen ($14 million), or 1.6 yen per share, in the three months ended Sept. 30, from 28.5 billion yen, or 27.32 yen, a year earlier, the Tokyo-based company said in a statement today. The result is in line with Sony's preliminary earnings released last week.

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. Last week, the company cut its annual profit outlook to the lowest level in five years, citing rising costs for its PlayStation 3 console and slower than expected sales of the PlayStation Portable player.

``We had factored in the decline in Sony's profitability, yet I'm still not motivated to buy the stock with an unclear outlook for PlayStation 3 sales,'' said Koichi Takatsuka, who oversees $1 billion at UAM Japan Inc. in Tokyo.

Sony reported an operating loss, or sales minus the cost of goods sold and administrative expenses, of 20.8 billion yen, compared with a 74.6 billion yen profit a year earlier. The company is taking a 51.2 billion yen charge for replacing 9.6 million lithium-ion batteries used in notebook computers.

Computer makers including Dell Inc., Apple Computer Inc. and Lenovo Group Ltd. are involved in the recall, the largest in the consumer-electronics industry. Sony blamed metal particles that got into battery cells during the manufacturing process, which can cause short circuits that lead to overheating.

Bravia, Vaio Sales

Revenue gained 8.3 percent to 1.85 trillion yen, helped by its Bravia liquid-crystal display televisions, Vaio computers and Cyber-shot digital cameras. A weaker yen against the dollar and euro also helped boost the value of overseas earnings, said Sony, which relies on markets outside Japan for 82 percent of electronics sales.

Net income for the year ending March 31 is forecast to drop 35 percent to 80 billion yen, compared with an earlier estimate of 130 billion yen, the company said last week. Operating profit will decline 62 percent to 50 billion yen. The sales forecast was kept at 8.23 trillion yen.

Standard & Poor's cut Sony's debt rating outlook to negative from stable after the profit forecast cut. Sony has an A- rating, the seventh-highest of S&P's 10 investment grades.

Sales at Sony's electronics division, which accounts for about 70 percent of total revenue, gained 12 percent to 1.38 trillion yen in the fiscal second-quarter. Operating profit slid 71 percent to 8 billion yen because of the battery recall charge.

Games Losses

The games division posted a 21 percent decline in sales to 170.3 billion yen, and an operating loss of 43.5 billion yen, compared with a profit of 8.2 billion yen a year earlier.

Sony last week said losses at the game division will widen by 60 billion yen this fiscal year, because of a planned price cut of the PlayStation 3 and slower PlayStation Portable sales. A delay in production of chips and laser diodes for the PlayStation 3 will cost the company another 33 billion yen in profit.

The games business will post a full-year operating loss of about 200 billion yen, Nobuyuki Oneda, Sony's chief financial officer, said in Tokyo today, reiterating an earlier forecast.

Sony last month cut the price of the cheapest PlayStation 3 model by 20 percent and added a port and cable for high- definition content to compete with less-expensive players from Microsoft Corp. and Nintendo Co.

The company last week lowered its outlook for PlayStation Portable shipments this fiscal year to 9 million units from 12 million. The handheld game player debuted last year.

Console Sales

Sony, the world's biggest maker of video-game consoles, is equipping the PS3 with the Blu-ray high-definition DVD player and the Cell chip, which enables more lifelike graphics by making the console about 35 times faster than PS2. The company expects these features to justify the price, the highest in the industry.

The PlayStation 3 goes on sale Nov. 17 in the U.S. for about $500, while Nintendo will release the Wii console two days later for $250. That compares with a $300 starting price for Microsoft's Xbox 360, which started sales last year.

Sony in September halved global shipments of the PlayStation 3 to 2 million units for this year, and delayed shipments to Europe until next March because of parts shortages.

Sales at Sony's movie division rose 12 percent to 178.2 billion yen because the company had more studio releases. The division posted a 15.3 billion yen loss from the marketing costs of films that underperformed including ``All The King's Men,'' Sony said.

Financial services, which include Sony Life Insurance Co. and Sony Bank, recorded a 4 percent decline in sales to 168.1 billion yen and a 39 percent drop in profit to 24.6 billion yen.

Shares of Sony closed unchanged at 4,820 yen today in Tokyo.

To contact the reporters for this story: Young-Sam Cho in Seoul at ycho2@bloomberg.net; Yoshinori Eki in Tokyo at yeki@bloomberg.net

Last Updated: October 26, 2006 06:10 EDT