May 15 (Bloomberg) -- Sony Corp. plunged in Tokyo trading after unexpectedly forecasting an annual loss, the sixth in seven years, casting further doubt on Chief Executive Officer Kazuo Hirai’s ability to revive the company.
Sony shares fell 6.1 percent, the most since Nov. 1, to 1,695 yen at the close in Tokyo. UBS AG cut Sony to a sell rating, and Goldman Sachs Group Inc. lowered its share-price estimate for the company.
Hirai, who cut last year’s net-income forecast three times, is trying to overcome slumping demand for the TVs and personal computers that underpinned Sony’s rise into a Japanese electronics icon. The company, which is cutting 5,000 more jobs and selling assets as it searches for new hits to build on its success with the PlayStation 4 game console, expects 135 billion yen ($1.3 billion) of costs related to restructuring and exiting the PC business this year.
“If Hirai were in the U.S., shareholders would call for his resignation,” said Yasuaki Kogure, chief investment officer at Tokyo’s SBI Asset Management Co., which holds Sony shares. “Hirai will say he needs time, but the market can’t wait. There will be growing concern about his ability.”
The net loss will probably be 50 billion yen in the 12 months ending March, the Tokyo-based company said in a statement yesterday. That compares with the 57.1 billion-yen profit average of 19 estimates compiled by Bloomberg and a 128.4 billion-yen net loss the year earlier.
Operating profit, or sales minus the cost of goods sold and administrative expenses, will probably be 140 billion yen this year, the company said. That compares with the 231.8 billion-yen average of 21 estimates compiled by Bloomberg and a 26.5 billion-yen profit a year earlier. The company is forecasting annual sales of 7.8 trillion yen.
The larger operating loss is a result of Hirai’s restructuring efforts, said Daniel Ernst, an analyst at Hudson Square Research in New York. Because Sony has fewer products to sell, it needs fewer people in sales and has to pay large severance packages, particularly in Europe, he said.
“The question is, do you believe next year has to be better?” Ernst said in an interview. “It’s certainly understandable after six or seven years of restructuring that the market does not have that patience.”
Sony expects to book an 80 billion-yen loss at the PC unit, which includes 36 billion yen in losses related to leaving the business, the company said. Sony previously agreed to sell its PC division, which produces notebooks under the Vaio brand, to buyout firm Japan Industrial Partners Inc.
“The high cost to exit PCs shows that it will be even harder for Sony to exit TVs,” said Yasuo Nakane, an analyst at Deutsche Bank AG in Tokyo. “The TV sales target and smartphone sales target are too bullish and may not be achievable.”
Sony said it expects to sell more so-called 4K ultra high-definition TV sets. Global sales may get a boost in demand from the upcoming soccer World Cup in Brazil.
When Hirai took over as CEO in 2012, he said Sony’s revival would be driven by games, imaging products and mobile devices. Since then, the company has announced job cuts and a restructuring to make TV manufacturing a separate unit. Hirai has trimmed the TV product lineup to focus on larger-screen models.
Ryosuke Katsura, an analyst at UBS, cut Sony’s rating to sell from neutral, according to a note today. Goldman Sachs analysts including Takashi Watanabe lowered their price target for the company to 1,900 yen from 2,000 yen.
Sony also sold its Gracenote audio-recognition software business to Tribune Co., as well as stakes in Japanese satellite broadcaster SKY Perfect JSAT Holdings Inc. and game maker Square Enix Holdings Co.
“The biggest challenge for Sony is whether it can change its high corporate cost structure,” Chief Financial Officer Kenichiro Yoshida said yesterday. “Electronics are a high volatility business; we need to bring the volatility down.”
The 53-year-old Hirai also pledged to make Sony’s TV-manufacturing unit profitable, a business that has now lost more than 790 billion yen over the past 10 years, the company said yesterday.
Sony expects sales this year of 16 million LCD TV sets, 8 million cameras, 17 million game consoles and 50 million smartphones, it said.
“We see some downside risk to the firm’s sales volume forecasts for the TV and mobile products,” Mika Nishimura, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said in a report yesterday. “We think additional measures will be needed to prevent earnings deteriorating over the medium term, and we await swifter action from management.”
“The Amazing Spider-Man 2,” the biggest release this year for Sony Pictures, has generated more than $146 million in U.S. box-office receipts in two weeks, although it was ousted from the top spot after just one week, according to researcher Rentrak Corp. Sony has additional sequels set for 2016 and 2018. The company today also announced it has optioned the film rights to a book based on Edward Snowden, who leaked confidential documents about U.S. National Security Agency surveillance activities.
“‘The Amazing Spider-Man 2’ is performing very well overseas and that makes up for the fact that its grosses have been a little underwhelming in North America,” said Phil Contrino, chief analyst at boxOffice.com.
Sales of the PS4 surpassed 7 million consoles as of April 6, the company said last month. The game machine has outpaced Microsoft Corp.’s Xbox One, which had sold more than 5 million units.
Company executives will return their bonuses for the year ended March, Yo Kikuchi, a spokeswoman for Sony said May 13. The company also nominated four new external board directors, whose appointments are subject to approval in June.
Sony controlled 3.8 percent of global smartphone sales in 2013, according to data compiled by Bloomberg from IDC. That ranked the company sixth in the world and compares with about 31 percent for South Korea’s Samsung Electronics Co.
“Rivals in consumer electronics are recovering,” said Masahiko Ishino, a Tokyo-based analyst for Advanced Research Japan. “The net loss makes it clear that Sony is falling behind others.”
The company’s film unit has rebounded from a loss in the September quarter after “White House Down” flopped at the box office. Sony has found success with “American Hustle” and “The Monuments Men,” and its studios ranked second in the U.S. in the year through May 11 with about $535.7 million of gross receipts, according to Boxofficemojo.com.
The company is also testing an Internet-based pay-television service in the U.S. this year, bringing live and on-demand programming to TVs and its PlayStation consoles.
Forecast operating profit from the music unit, where best-selling artists the last year included Daft Punk and Miley Cyrus, will decline 4.4 percent to 48 billion yen, Sony said.
One of Sony’s successful products has been complementary metal-oxide semiconductors, known as CMOS sensors, that act as digital eyes in smartphones and cameras made by Apple Inc. and Samsung.
Sony said its assumptions for the yen’s exchange rate to the dollar and the euro are 103 yen and 137 yen respectively.
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