Nov. 27 (Bloomberg) -- Panasonic Corp., the world's largest consumer-electronics maker, slashed its full-year profit forecast by 90 percent as the global recession damped demand and product prices fell.

Net income in the year ending March 31 will be 30 billion yen ($315 million), Panasonic said today. That's less than the 310 billion yen estimate reaffirmed on Oct. 28 and the 281.9 billion reported a year earlier.

Panasonic said prices for flat-panel TVs will probably drop 30 percent this fiscal year, more than its earlier forecast for a 20 percent decline, because of deteriorating demand for consumer electronics. Osaka-based Panasonic joined Sony Corp. in cutting annual profit estimates and said reorganization costs and erosion of stock investments contributed to the worsening outlook.

``Even such a successful company as Panasonic can't weather this harsh economic environment,'' said Naoki Fujiwara, who oversees about $720 million at Shinkin Asset Management Co. ``Plasma TVs, digital cameras, camcorders and DVD players: demand for these products has completely died down.''

Panasonic fell 4.7 percent to close at 1,284 yen on the Tokyo Stock Exchange, before the announcement on the forecast. The benchmark Nikkei 225 Stock Average gained 2 percent.

``The company's business conditions are deteriorating sharply,'' Panasonic said in a statement. ``The current financial crisis originated in the United States, has spread across the world, and the business sentiment in Japan and overseas has significantly worsened.''

Lower Operating Income

Full-year operating profit, or sales minus cost of goods sold and administrative expenses, will be 340 billion yen, 39 percent less than earlier estimated, Panasonic said. The electronics maker had operating income of 519.5 billion yen last year.

Sales will total 8.5 trillion yen, down from the previous projection of 9.2 trillion yen and revenue of 9.07 trillion yen a year earlier.

Still, Panasonic has succeeded in cutting costs and compared with Sony, its operating profit is at an ``acceptable level,'' Fujiwara said.

``Though the stock may be sold tomorrow, they will likely come back to its current level soon,'' he said.

Hitoshi Kuriyama, an analyst at Merrill Lynch & Co., yesterday estimated annual net income of 220 billion yen and operating profit of 420 billion yen and warned the projections might not represent ``the worst-case scenario.''

Kuriyama also cut his investment rating on Panasonic to ``neutral'' from ``buy,'' citing weaker consumer sentiment.

Increased Expenses

The company said today that expenses to reorganize its business will increase by 130 billion yen this fiscal year, while losses on stock investments will widen by 60 billion yen.

The yen's gains will cut full-year operating profit by 22 billion yen, and increased material costs will reduce earnings by 38 billion yen, Panasonic said.

The latest forecast is based on a projection for the euro to average 125 yen in the second half to March 31, compared with 135 yen estimated previously. The company maintained its estimate for the dollar to average 100 yen during the period.

The yen has gained 17 percent against the dollar this year, making it the best performer among 16 major currencies tracked by Bloomberg.

The lower earnings outlook is a setback for President Fumio Otsubo's target of 10 trillion yen sales in the year ending March 2010.

Panasonic is also trying to gain a controlling stake in Sanyo Electric Co., and is in talks with three creditors to buy their holdings.

Goldman Sachs Group Inc., the largest U.S. securities company to convert to a bank, yesterday said it broke off negotiations with Panasonic because of disagreements over terms.

Sanyo Impact

The company hasn't taken into account any effects from the planned Sanyo acquisition in its latest forecasts because nothing has been finalized in discussions with the banks, Director Makoto Uenoyama said at a briefing in Tokyo.

With the latest profit forecast, Panasonic's return on equity will be 0.8 percent, Uenoyama said. Return on equity, or profit divided by book value, measures the earnings generated on the investment by shareholders. The company left unchanged its 10 percent return on equity target for the year ending March 2010.

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

Last Updated: November 27, 2008 06:52 EST