Sony slashes full-year profit forecast by 40%

The newly launched the new Xperia Z ultra waterproof smartphone Sony has launched new models in an attempt to boost its share of the smartphone market

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Japanese electronic giant Sony has slashed its full-year profit forecast by 40% as it continues to struggle.

It now expects to make a net profit of 30bn yen ($305m; £190m) in the financial year to 31 March 2014, down from its earlier projection of 50 bn yen.

The cut came as Sony said its loss in the July-to-September quarter widened 25% from a year ago to 19.3bn yen.

One of the big drags on its earnings was its Pictures division which made a loss due to some high profile flops.

The division, which also includes production of movies as well as TV shows, recorded an operating loss of 17.8bn yen during the period, compared to an operating profit of 7.9bn a year earlier.

Analysis

Sony still wants to be the king of consumer electronics.

Sony's boss Kazuo Hirai has repeatedly said the company that invented the Walkman, will not retreat from the market it once dominated. And so Sony struggles.

Making money out of making TVs has never been harder. It's the same with computers and digital cameras. The competition from South Korea, and increasingly from China, is intense.

Yes, Sony's latest Xperia Z smart phones are selling well. But once again Sony's main profit centre is music and insurance.

The contrast with Panasonic couldn't be starker. Until last year the Japanese giant was haemorrhaging cash even faster than Sony. It lost $15 billion in just two years.

That forced Panasonic's management to make some tough decisions. They decided to get out of loss making plasma TVs and smartphones, and to concentrate on industrial systems: things like engine management computers for cars, satellite navigation systems and high-power lithium ion batteries.

It seems to be working

"The current quarter reflects the theatrical underperformance of White House Down, while the previous fiscal year included the strong theatrical performance of the Amazing Spider-Man," the firm said in a statement.

There was also a decline in television licensing revenue due to fewer movies being licensed year-on-year.

TV troubles

Sony has also been hurt by increased competition and slowing global demand for TVs.

A decline in TV prices has further hurt the profitability of the sector.

Sony's TV division posted an operating loss of 9.3bn yen for the three months to the end of September.

At the same time, its gaming division which makes the PlayStation consoles also reported an operating loss during the period.

The firm said that the division's earnings were hurt after it cut the price of its PlayStation Vita consoles.

Sony cut the prices of the original PS Vita earlier this year in a bid to boost sales, which have been affected by an increasing number of users playing games on their smartphones and tablet PCs.

Sony's Game division made an operating loss of 800m yen during the period, compared to an operating profit of 2.3bn yen during the same quarter a last year.

Contrasting fortunes

Sony's results are in contrast to rivals Sharp and Panasonic who reported profits for the July-to-September quarter.

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Panasonic reported a net profit of 61.5bn yen for the period, reversing a loss of 698bn yen during the same period a year ago.

The firm said that its steps to exit unprofitable businesses, improved efficiency, as well as the continued weakness of the yen had a positive impact on its sales and earnings.

"Yen depreciation also contributed to overall sales increase," the company said in a statement.

The Japanese currency has weakened nearly 25% over the past year, making Japanese goods more affordable to foreign buyers. A weak currency also boosts profits of exporters when they repatriate their foreign earnings back home.

Panasonic also raised its full-year profit forecast. It now expects to make an operating profit of 270bn yen in the current financial year, up from its earlier projection of 250bn yen.

Meanwhile, Sharp reported a net profit of 13.6bn yen for the quarter, reversing a loss of 17.9bn yen in the previous three months.

Sharp, which has struggled in recent times, said that it had benefited from its efforts to cut its costs and focus on high growth areas such as manufacture of solar cells.

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