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Sony Cuts Net Forecast on Slowing Demand, Stronger Yen

Sony Corp. (6758), reeling from four consecutive annual losses, cut its full-year profit forecast as Japan’s biggest exporter of consumer electronics suffers from slowing demand while the yen’s gain erodes overseas earnings.

Net income will probably be 20 billion yen ($255 million) in the year ending March 31, the Tokyo-based company said in a statement today, lowering its May projection of 30 billion yen. The new forecast compares with the 10.8 billion-yen average of 16 analyst estimates compiled by Bloomberg.

Sony shares are near their lowest levels in more than three decades after Japan’s currency gained, the global economy slowed and consumers flocked to Apple Inc. (AAPL) and Samsung Electronics Co. (005930) products. Kazuo Hirai, 51, who became chief executive officer in April, is restructuring Sony’s unprofitable TV business, eliminating 10,000 jobs and pledging to revive the company by focusing on game players, digital imaging and mobile devices.

“Investors are waiting to see signs that show Sony’s losses from making TVs and mobile phones will shrink,” Yasuo Nakane, a Tokyo-based analyst at Deutsche Bank AG, said before the announcement. “A recovery in the TV operation may be unlikely this fiscal year, as Sony reduced the number of models. Sony could tap growing demand for smartphones if there is an interesting new model to be introduced.”

Photographer: Tomohiro Ohsumi/Bloomberg

A woman walks near a Sony Corp. logo displayed at the 16th e-Book Expo Tokyo in Tokyo, Japan. Close

A woman walks near a Sony Corp. logo displayed at the 16th e-Book Expo Tokyo in Tokyo, Japan.

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Photographer: Tomohiro Ohsumi/Bloomberg

A woman walks near a Sony Corp. logo displayed at the 16th e-Book Expo Tokyo in Tokyo, Japan.

Sony today also reported a first-quarter net loss of 24.6 billion yen, compared with analysts’ estimate for a loss of 1.23 billion yen.

Slashing Targets

The Japanese electronics maker cut annual TV sales target to 15.5 million units from 17.5 million units; camera sales target to 18 million from 21 million; and personal computer sales to 9.2 million units from 10 million units. The smartphone sales target was raised to 34 million units from 33.3 million earlier.

Sony shares rose 2.4 percent to 964 yen in Tokyo trading today, before the earnings announcement. Worth over $120 billion in 2000, the maker of Walkman music players is now valued at $12.3 billion, compared with $564 billion for Cupertino, California-based Apple. Sony’s shares have slumped 30 percent this year, compared with a 50 percent jump in shares of Apple, the maker of iPhones, iPods and iPads.

The Tokyo-based company’s run of four straight full-year losses, the worst since Sony was listed in 1958, and a stronger yen pushed the shares down to 863 yen last month, the lowest level since April 1980.

Sony Versus Apple

Sony, the world’s third-largest TV maker, will cut 10,000 jobs, or about 6 percent of its workforce; slash costs; reduce the number of TV models; and consider an alliance on batteries for electric cars, Hirai said in April. Its main TV operation is projected to be unprofitable this year after losing about 700 billion yen during the past eight years amid falling prices and competition from Samsung and LG Electronics Inc.

“We cannot avoid facing painful decisions, but if we are scared of pains we cannot change Sony,” Hirai said in April. “My biggest responsibility is to revive the electronics business and shift it into a path for growth.”

Eliminating Jobs

In 2005, Hirai’s predecessor, Howard Stringer, said the company would eliminate 10,000 jobs and shut 11 factories after predicting its first annual loss in more than a decade. After the 2008 financial crisis, Sony cut 19,500 jobs in the year to September 2009.

Sony agreed in June with the Development Bank of Japan to sell its chemical product unit for about 58 billion yen later this year. The company also exited from a liquid-crystal-display venture with Sharp Corp. (6753) by selling its 7 percent stake in the unit for 10 billion yen after the Osaka-based company turned to Foxconn Technology Group for a capital tie-up.

The maker of PlayStation game consoles also took steps to offer more online services. Sony agreed in July to acquire U.S. gaming platform company Gaikai Inc. for about $380 million as it prepares to expand its cloud-based entertainment business. The company introduced its Music Unlimited streaming service last month in Japan, the world’s second-biggest music market.

Image Sensors

Sony is spending 80 billion yen to boost its production capacity of image sensors by 33 percent by 2013, the company said in June. It also agreed with Panasonic Corp. (6752) to jointly develop TV sets that use organic light-emitting diode panels, or OLED screens.

Last month, Samsung, the world’s biggest maker of TVs, mobile phones and computer-memory chips, reported a record profit of 5.19 trillion won ($4.6 billion) in the three months ended in June, helped by surging sales of Galaxy smartphones.

Earlier this week, Panasonic reported a net income of 12.81 billion yen for the period, its first profit in six quarters, citing cost cuts as a main reason for the recovery. The maker of Viera TVs and Lumix cameras is also trying to turn around its unprofitable TV business after closing plants and eliminating 36,000 jobs amid falling prices and a surging yen.

Global LCD TV shipments will probably gain 5 percent to 216 million units in 2012, DisplaySearch said July 10, lowering its previous projection of 220 million. Demand is slowing due to economic uncertainty and less price erosion than last year, the research company said.

To revive Sony, Hirai is also boosting production capacity for its new complementary metal-oxide semiconductors, or CMOS sensors, that are smaller, capture better images and consume less power than older models in cameras and phones.

The restructuring of Sony comes as the yen surged the most against the euro of all major currencies in the second quarter amid the European debt crisis. That erodes profit at Japanese exporters including Sony, which gets about 70 percent of its sales abroad.

Sony loses about 6 billion yen of annual operating profit and 10 billion yen of sales for every 1 yen decline in the value of the euro, according to Mami Imada, a Sony spokeswoman.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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