Japanese Stocks Slump as Sony Forecast Sparks Earnings Concern

By Masaki Kondo

Oct. 24 (Bloomberg) -- Japanese stocks slumped a third- straight day and headed for a weekly drop after Sony Corp. cut its annual earnings target by more than half, sparking concern the stronger local currency will weigh on company earnings.

Sony, which gets three-quarters of its sales outside of Japan, dived 11 percent to the lowest in 13 years. Larger rival Panasonic Corp. lost 5.9 percent, while Canon Inc., the world's biggest digital-camera maker, dropped 5.7 percent.

``Sony's announcement casts a shadow on all electronics shares,'' Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television.

The Nikkei 225 Stock Average declined 335.31, or 4 percent, to 8,125.67 as of 9:32 a.m. in Tokyo, the lowest since May 2003. The broader Topix index fell 29.85, or 3.4 percent, to 841.85. The Nikkei headed for a 6.5 percent weekly drop, while the Topix was poised to record a 5.8 percent slump.

Sony, the world's second-biggest maker of consumer electronics, yesterday slashed its forecast for annual operating profit by 57 percent, citing the stronger yen and worsening market conditions for televisions and digital cameras. A 1 yen change against the dollar alters Sony's annual profit by 4 billion yen ($41 million), the company said in May.

The company's announcement may precede lower earnings forecasts from other overseas-dependent manufacturers as the dollar and demand weaken. The Bank of Japan's Tankan survey released on Oct. 1 showed the nation's large manufacturers expect pretax profit to fall by a 10th this year on the assumption the yen would average 102.82 against the dollar. The currency yesterday strengthened to as much as 95.94.

`Further Shortfalls'

``We see risk of further shortfalls and think negative news is not exhausted,'' Yuji Fujimori, a Tokyo-based analyst at Goldman Sachs Group Inc., wrote in a note on Sony to clients. He reduced his price estimate on the company by a third to 1,900 yen and kept his ``neutral'' rating.

The company's shares plummeted 11 percent to 2,040 yen, headed for the lowest since June 1995, while Panasonic sank 5.9 percent to 1,440 yen. Canon fell 5.7 percent to 2,875 yen and Ricoh Co., Japan's second-largest office-equipment maker, retreated 4.1 percent to 1,016 yen.

UBS AG yesterday slashed 12-month price estimates on Canon and Ricoh by almost half to 3,300 yen and 1,050 yen respectively. Yoshitsugu Yamamoto, a Tokyo-based analyst for UBS, cited the stronger yen and weakening demand for the revisions.

Nikkei futures expiring in December retreated 3 percent to 8,200 in Osaka and slid 2.6 percent to 8,195 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.