Sony’s Hirai Sells Property Instead of TVs as Revival Stalls

Sony Corp. President Kazuo Hirai is relying on selling real estate to make the company’s first profit in five years as he struggles to find products able to compete with Apple Inc. and Samsung Electronics Co. devices.

Japan’s largest consumer-electronics maker posted an eighth straight quarterly loss and again cut sales targets for TVs, gaming devices and compact cameras. It reiterated a forecast for full-year net income of 20 billion yen ($215 million), including gains from the $1.1 billion sale of a New York building.

The company dropped 10 percent, the most since Nov. 6, 2008, to close at 1,365 yen in Tokyo trading. It was the worst performer among the 225 members of the benchmark Nikkei 225 Stock Average, which slid 1.8 percent. Bonds slumped.

“Sony’s earnings underscore the difficulties in the electronics market,” Goldman Sachs Group Inc. analysts, led by Takashi Watanabe, said in a note today. “We stay cautious considering the shrinking market for Sony’s conventional products and tougher competition.” They reiterated a neutral rating.

The company’s zero-coupon convertible notes maturing in November 2017 dropped 8.8 percent to 147 yen per 100 yen face value as of 3:12 p.m. in Tokyo, according to prices from Nomura Holdings Inc.

Targets Cut

Hirai made progress toward turning around an unprofitable TV business even as Sony posted a quarterly net loss of 10.8 billion yen on sluggish sales of liquid-crystal display sets, digital cameras and personal computers. His revival plan featuring 10,000 job cuts hasn’t delivered the same results as that of Panasonic Corp. President Kazuhiro Tsuga, whose company posted surprise net income of 61 billion yen.

“Sony’s earnings are really disappointing,” said Ichiro Takamatsu, a fund manager at Bayview Asset Management Co., which oversees about 150 billion yen. “It hasn’t restructured its business thoroughly enough.”

The company cut its sales forecast for portable game players in the year ending March to 7 million units from the 10 million predicted three months ago and the 16 million forecasted in May. The TV sales outlook was pared to 13.5 million units from 17.5 million predicted in May.

The electronics business faces a “tough environment,” Chief Financial Officer Masaru Kato said at a briefing. The company expects an 80 billion-yen loss at its TV-making operations this fiscal year. The imaging and gaming divisions will have “significant” drops in operating profits, it said.

Asset Sales

The TV maker reported a nine-month net loss of 50.9 billion yen, meaning it needs a profit of about 70 billion yen in the fourth quarter to hit its full-year goal. It expects operating-income gains of about $685 million (64 billion yen) from selling the New York building, with the sale to Chetrit Group due to close next month.

The company is also looking at other possible asset sales, some of which are included in the full-year forecast, Shiro Kambe, a spokesman, said yesterday. It has previously sold land, buildings, businesses and securities holdings, Kato said.

Sony may fetch 100 billion yen by selling its 25-story office building in Tokyo, Reuters reported Jan. 10, citing people with direct knowledge of the plan.

Sony sold a chemical-products making unit and stakes in two display-making ventures after racking up 692 billion yen in losses selling TVs.

“Having assets to sell is saving Sony,” said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc. “It isn’t really clear yet what can start driving growth.”

Currency Swings

Sony posted a third-quarter operating profit of 46.4 billion yen, compared with an operating loss of 91.7 billion yen a year earlier, and boosted sales to 1.95 trillion yen from 1.82 trillion yen. The company was expected to post net income of 21 billion yen, based on the average of three analyst estimates compiled by Bloomberg. Its restructuring charges more than tripled to 16.7 billion yen.

“Sony is supposed to sell strong products that aren’t reliant on currency swings,” said Yuuki Sakurai, president of Fukoku Capital Management Inc. “We need to see those products before we’ll invest in Sony again.”

Panasonic is in “transition” toward profitability, Chief Financial Officer Hideaki Kawai said Feb. 1 after the company eliminated more than 38,000 jobs in the past year. Domestic rival Sharp Corp. also reported made its first operating profit in five quarters.

Weak Yen

The yen has plunged since the end of September, helped by new Prime Minister Shinzo Abe’s call for “bold monetary policy” to beat deflation and weaken the currency. Currency depreciation will boost Sony’s second-half sales by 130 billion yen and operating profit by 17 billion yen, Kato said.

“It’s not that we are counting on a weaker yen trend, but if the trend continues, there will be a significant upside for our earnings in the coming fiscal year,” he said.

Speculation that the weaker yen will boost earnings had helped Sony’s shares almost double in Tokyo trading in two months.

Hirai, who took over in April, is trying to revive the electronics business by focusing on mobile devices, games and digital imaging. He is cutting jobs and has pledged to make the TV unit, the world’s third-biggest, profitable in the year starting April 1.

Apple, Samsung

The company also raised 150 billion yen selling five-year convertible bonds in November, its first offering of such securities since 2003.

The mobile-products division, which makes Xperia smartphones and tablet computers, posted an operating loss of 21.3 billion yen, narrower than the loss of 48.4 billion yen a year earlier. The loss at the home-entertainment unit, which includes TVs, narrowed to 8 billion yen from 89.8 billion yen.

Sony is adding new products in a bid to lure consumers from Apple iPads and Samsung Galaxy devices. At last month’s Consumer Electronics Show in Las Vegas, it introduced new higher-definition TVs, water-resistant smartphones and a more-powerful digital camera. The company also revealed plans to offer Ultra-High Definition content from Sony Pictures for downloading on its TVs.

Next PlayStation

A PlayStation event has been announced for Feb. 20, stoking speculation the company will unveil a fourth-generation gaming console. Sony also has invested in medical-device maker Olympus Corp. and gaming platform company Gaikai Inc., and in facilities to make image sensors.

Suwon, South Korea-based Samsung -- the world’s biggest maker of smartphones, TVs and computer-memory chips -- last month warned that profit this year would be hit by a strengthening won. It also said global demand for smartphones was slowing.

Apple’s profit grew at the slowest pace since 2003 in the quarter ended December as the lack of a low-cost iPhone dented growth in emerging markets.

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