Sony Corp., Japan’s largest exporter of consumer electronics, said it expects a “huge impact” on earnings from the weaker euro, underscoring the company’s vulnerability to the European debt crisis.
Sony doesn’t buy many components from Europe while its Asian suppliers settle in dollars, limiting its ability to hedge against the euro’s decline, Hiroshi Kurihara, corporate treasurer at Sony, said in an interview in Tokyo yesterday.
“There are no countermeasures that we can take for the moment,” he said. “There is a huge impact on our earnings.”
The euro’s slump to a decade low against the yen compounds the challenge for Chief Executive Officer Howard Stringer, eroding the value of sales in Sony’s biggest export market just as a weakening won helps South Korean competitor Samsung Electronics Co. Stringer has shut factories and focused on new products such as tablet computers in a bid to end losses.
“Even as companies take various measures against exchange rate fluctuations, it’s going to be tough for those with higher sales ratios in Europe,” said Yoji Takeda, who manages $1.1 billion at RBC Investment Management (Asia) Ltd. in Hong Kong. The euro’s sharp drop “is a problem for Japanese exporters.”
Europe is the biggest market for some Japanese companies including Nintendo Co. and Canon Inc. Kyoto-based Nintendo, the world’s biggest maker of game players, got 41 percent of revenue in the quarter ended June 30 from Europe, data on the Bloomberg show. Tokyo-based Canon, the world’s biggest maker of cameras, generated 32 percent of sales in the region last fiscal year.
The 17-nation euro, which tumbled to a decade-low of 101.94 yen this month, has fallen 11 percent against the Japanese currency in the past three months and traded at 104.22 as of 3:56 p.m. in Tokyo. The yen has appreciated 4.2 percent against the euro in 2011, the biggest gainer among 16 major peers to the shared currency. South Korea’s won has declined 5.7 percent against the common European currency in the same period.
The Japanese company’s relocation of some manufacturing operations to China and other Asian sites, combined with an increase in outsourcing, helped Sony balance its revenue and costs in U.S. dollar terms, reducing the risk of losing money from the currency’s moves, Kurihara said.
In the past two years, Sony has sold three TV factories, including one in Barcelona and another in Slovakia as part of its streamlining efforts.
Sony rose 0.8 percent to 1,515 yen at the 3 p.m. close in Tokyo trading. The stock has lost 48 percent this year, compared with the benchmark Nikkei 225 Stock Average’s 15 percent drop.
In July, when the maker of Bravia televisions forecast full-year operating profit of 200 billion yen ($2.6 billion), Sony assumed the euro would trade at about 115 yen from July to March. The company loses about 6 billion yen of annual operating profit, or sales minus the cost of goods sold and administrative expenses, for every 1 yen decline against the euro, according to Mami Imada, a Sony spokeswoman.
The company will likely miss the full-year earnings forecast by about 7 percent, according to the average of 21 analyst estimates compiled by Bloomberg.
“It’s difficult to raise prices in Europe due to the competition with Korean makers,” said Kurihara. “We can’t run away from currency risk as long as we sell overseas.”
Sony made 30 percent of its revenue in Japan, 21 percent in Europe, 20 percent in the U.S. and 18 percent in Asia excluding Japan, in the year ended March 31, according to data compiled by Bloomberg.