Sony Corp. (6758) and Nintendo Co. unexpectedly slashed their profit forecasts in response to the failure of their televisions and handheld game players to keep pace with products from Samsung Electronics Co. and Apple Inc. (AAPL)
Sony, Japan’s largest exporter of electronics, yesterday cut its profit estimate 25 percent, citing lower TV demand in Europe and the U.S. Nintendo, the world’s biggest maker of video-game players, slashed its net income forecast 82 percent to the lowest in a quarter century and lowered the price of its new 3-D portable game player by as much as 40 percent.
“Both companies need to forget their past successes and overhaul their businesses to adapt to the present,” said Yuuki Sakurai, president of Fukoku Capital Management, which oversees about $7 billion of assets. “Competition is harsh. You really need to make something that cannot be copied by others to make profit in such a market.”
Sony, reeling from three straight years of losses without a hit product, has dropped 31 percent this year. Nintendo has plunged 41 percent as it failed to replicate the success of the Wii. Deteriorating demand for the two electronics makers follows disruptions in manufacturing from the record earthquake that crippled the nation’s factories this year.
Nintendo tumbled to as low as 11,200 yen as of 9:34 a.m. on the Osaka Securities Exchange. That’s the stock’s biggest drop according to exchange data compiled by Bloomberg stretching back to May 18, 1990. Sony fell as much as 2.7 percent to 1,959 yen, the biggest intraday drop in more than two weeks.
Sony, led by Chairman and Chief Executive Officer Howard Stringer, cut its target for Bravia TV sales 19 percent to 22 million units, citing worse-than-expected demand from consumers in the U.S. and Europe.
The TV unit, which posted a loss of 75 billion yen ($964 million) in the year ended in March, may lose as much money this fiscal year because shipments are “significantly” lower than the company had anticipated, Chief Financial Officer Masaru Kato told reporters in Tokyo. The business has posted seven consecutive years of losses.
“It’s unthinkable Sony will start making money from TVs any time in the foreseeable future,” Fukoku’s Sakurai said. “Sony should seriously consider whether to stay in that business.”
Samsung Electronics, the world’s largest maker of TVs, earlier this month reported a 26 percent drop in second-quarter operating profit after a slump in sales of flat screens masked a surge in demand for smartphones and tablet computers.
In Osaka, Nintendo, which dominated game hardware in consoles with the Wii and in portable players since the Gameboy in 1989, said it will cut the price of its five-month old 3DS handheld player by 40 percent to 15,000 yen in Japan and 32 percent to $170 in the U.S. starting mid-August.
“This 40 percent price cut was very surprising, much more than I had expected,” said Eiji Maeda, a Tokyo-based analyst at SMBC Nikko Securities Inc. “I’ve never heard of such a big price cut from Nintendo.”
The reductions led Nintendo to lower its annual profit forecast to 20 billion yen, almost 70 percent below the lowest of the 21 analyst estimates compiled by Bloomberg, and a level last seen in the year ended August 1986.
President Satoru Iwata is counting on the reduced prices and new titles such as “Mario Kart” to spur demand for the new portable player, as gamers flock toward Apple’s iPhone and online games played on Facebook Inc.
Cheaper Than Vita
“Nintendo is getting desperate,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages $28 billion. “The video-game industry is in a tough period with consumers shifting to playing on their smartphones.”
The price cut will make the 3DS cheaper than the PlayStation Vita portable player that Sony plans to introduce later this year. In June, Nintendo unveiled the Wii U as a successor to its best-selling Wii model.
“We needed to take a drastic measures,” said Iwata.
Nintendo is also facing increasing competition from Apple, which has sold more than 200 million devices capable of downloading and playing games. Apple’s App Store offers a choice of more than 100,000 game and entertainment applications to users of the iPad, iPhone and iPod Touch.
The forecasts come as Japanese companies aim to recover from the damages of the March 11 earthquake, which shuttered scores of factories and disrupted production worldwide. Sony said it booked net charges of about 700 million yen in the quarter ended in June for restoring its plants.
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