Sony Expects ‘Huge Impact’ on Earnings From Euro Slump

By Mariko Yasu and Takashi Amano - Sep 29, 2011 8:50 AM GMT+0700
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Sony 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. Photographer: Tomohiro Ohsumi/Bloomberg

Sony Corp. (6758), 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.

While the company hedged risks against the U.S. currency by hiring Asian contract manufacturers that settle orders in dollars, Sony can’t use that tactic with the euro, Hiroshi Kurihara, corporate treasurer at Sony, said in an interview in Tokyo yesterday. The electronics maker also doesn’t purchase many components from the region, limiting its ability to benefit from a weaker European currency, he said.

“There is a huge impact on our earnings,” he said. “There are no countermeasures that we can take for the moment.”

The comments highlight the difficulties Japanese exporters face as concerns over Greece’s debt push the yen close to 10- year highs against the euro, presenting an opportunity for South Korean exporters including Samsung Electronics Co. who are benefiting from a weaker domestic currency. Europe was Tokyo- based Sony’s largest export market last fiscal year, accounting for 21 percent of the company’s overall sales.

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 103.67 at 10:38 a.m. in Tokyo. The yen has appreciated 4.7 percent against the euro in 2011, the biggest gainer among 16 major peers to the shared currency.

Missing Forecast

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.”

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.

Shares of Sony have declined 49 percent this year, compared with the 17 percent drop in the benchmark Nikkei 225 Stock Average.

Sony made 30 percent of its revenue in Japan, 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.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net