Sony Doubles Loss Forecast

By Mariko Yasu and Naoko Fujimura - Feb 2, 2012 6:25 PM GMT+0700

Sony Corp. (6758) more than doubled its annual loss forecast, underscoring the challenge for incoming Chief Executive Officer Kazuo Hirai in reviving Japan’s biggest consumer-electronics exporter.

The company blamed a stronger yen, cuts in production caused by last year’s Thailand floods and the cost of exiting a display-panel venture with Samsung Electronics Co. for widening its forecast to 220 billion yen ($2.9 billion) from 90 billion yen in November. The loss in the 12 months ending in March will be the fourth in a row, a first since the Tokyo-based company was listed in 1958.

Sony today cut sales targets for cameras, personal computers and PlayStation 3 game consoles, and said its mobile- phone unit performed worse than expected. It will consider alliances to pare TV operating costs, close down less- competitive businesses, and make the medical business a core unit, Hirai said in his first public comments since being named to replace Howard Stringer starting April 1.

“Sony is a very weak company,” said Edwin Merner, president of Atlantis Investment Research in Tokyo who manages $300 million and does not hold Sony shares. “To turn around at this time will be very, very difficult. As they go downhill, they pick up speed.”

TV Commitment

Hirai, 51, who worked in Sony’s music and entertainment divisions, established his reputation by turning around the PlayStation unit and edged out three other candidates with engineering backgrounds for the top job. Stringer, 69, will become chairman of the board after a shareholders meeting in June, the company said in a statement yesterday.

During a joint news conference today, Hirai reaffirmed his commitment to TVs. The world’s No. 3 maker is maintaining a sales target of 20 million sets, though the business may lose between 220 billion yen and 230 billion yen, including the cost of exiting the venture with Samsung (005930), Chief Financial Officer Masaru Kato said today.

That compares with a November forecast for a 175 billion- yen loss and adds to 480 billion yen in losses since 2004. The company took a 63 billion-yen loss for ending the venture with Samsung.

“Televisions are important as an output device,” Hirai said. “Withdrawing or shrinking would cut a link for customers to experience” Sony content.

‘Dipped in Poison’

The maker of Bravia TVs has lost ground to Samsung and LG Electronics Inc. (066570), both of which sell TVs profitably. Sony’s rating was cut by Moody’s Investors Service last month and Fitch Ratings in December, with both citing the difficulty of turning around TV operations.

Sony and fellow Japanese television makers Sharp Corp. and Panasonic Corp. (6752) have been crippled by the strengthening yen, which forced Sharp to predict a record $3.8 billion loss yesterday.

“Sony is dipped in poison,” said Yoshihiro Okumura, who helps manage the equivalent of $365 million at Chiba-Gin Asset Management Co. in Tokyo. “Sony’s president will change, but no one can see how Sony will change.”

Sony forecasts the euro trading at 100 yen, compared with an earlier projection of 105 yen. An appreciating yen damps the repatriated value of Sony’s overseas sales, while a weakening won inflates Samsung and LG’s. The strengthening currency will hurt profit by as much as 20 billion yen, Kato said.

Medical Chips

The company dropped 2.6 percent to close at 1,328 yen in Tokyo trading today, before the announcement. The stock has plunged 53 percent in the past 12 months and more than 60 percent since Stringer, 69, took over in June 2005.

Hirai said he will close down less-competitive businesses and consider forming partnerships, though he will present specific plans in the future.

“Unless we steer drastically toward reform, we may confront a situation where decision-making comes with enormous pain,” he said. “If we hold back, we cannot take a step forward.”

Today, he named Executive Vice President Hiroshi Yoshioka to head the medical business, saying Sony should rely on its technological strengths in image sensors to expand in the field.

The company developed three sensors it says are smaller, capture better images and consume less power. Sony is spending 140 billion yen by March 31 to double its production capacity of complementary metal-oxide semiconductors, or CMOS, said Tadashi Saito, head of the chip business.

Sales Cuts

“We will speed up innovation, especially in the medical business,” Hirai said.

Sales targets for the PlayStation 3 were cut to 14 million units from 15 million. The console will have a 10-year lifespan, Hirai said recently, suggesting the five-year-old player won’t be replaced soon.

In December, Sony introduced its latest handheld device, PlayStation Vita, in Japan. Sales reached 500,000 units during the first three weeks, Hirai said last month. The product will be offered in the Americas and Europe starting Feb. 22.

Sony cut sales projections for cameras to 21 million units from 23 million and reduced its forecast for personal-computer sales to 8.4 million from 9.4 million. Camcorder and Blu-ray disc sales also should be lower than projected, the company said.

The impact from Thailand’s worst floods in 70 years is estimated at as much as 70 billion yen, Kato said. Japan’s worst earthquake on record in March also cost the company as much as 70 billion yen.

In the fiscal year starting April 1, the company may project an operating profit of about 200 billion yen because it won’t repeat those one-time costs, Kato said.

“All they can do now is downsize by shutting unprofitable businesses and reducing the number of products,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm. “It is inevitable.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.