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Thursday, May 17, 2007

Sony logs 68% slump in operating profit

PS3 price cuts, battery recall cast dark cloud over recovering TV sales


Staff writer

Sony Corp. announced Wednesday that its operating profit plunged 68.3 percent to 71.75 billion yen in the 2006 business year because of price cuts on the PlayStation 3 and the cost of recalling lithium-ion batteries.

But the company forecasted rosier results for the year to March 2008, thanks to vigorous sales of Bravia flat-screen TVs and semiconductors for video-game consoles.

Sony's group net profit rose slightly to 126.3 billion yen in 2006, up 2.2 percent from the previous year, while pretax profit dropped 64.4 percent to 102 billion yen. Sales hit a record 8.3 trillion yen, up 10.5 percent.

Chief Financial Officer Nobuyuki Oneda said Sony expects operating profit to increase six-fold to 440 billion yen this year and group net profit to hit a record 320 billion yen, 2 1/2 times the amount logged for 2006.

Brisk sales in the electronics division, Sony's core business, drove profits in 2006 despite a problem with faulty batteries that cost 51.2 billion yen to handle.

Thanks to strong demand for Bravia TVs and digital cameras, the electronics division raked in a 156.7 billion yen operating profit, up sharply from 6.9 billion yen in 2005.

Sony sold 6.3 million Bravia TVs in 2006 and said the figure is expected to jump to 10 million in the current year.

Sony's movie division posted an operating profit of 42.7 billion yen, up 55.7 percent on the previous year, on sales of 966.3 billion yen, up 29.5 percent, thanks to such big hits as "The Da Vinci Code" and "Casino Royale."

But the profits from the electronics and film divisions were not enough to offset the losses in Sony's struggling games division.

The games division posted an operating loss of 232.3 billion yen, against a 8.7 billion yen operating profit the previous year, due to price cuts to the PS3, which belatedly hit stores last November in Japan and the United States.

Sony reduced the new video-game console's market price from 62,790 yen to 49,980 yen after it was criticized for being more expensive than Nintendo Co.'s Wii and Microsoft Corp.'s Xbox 360.

"It will still be difficult for us to rake in an operating profit for the games division in this fiscal year," Oneda said.

When the PS3 was launched in November, Sony had only produced 100,000 of the consoles in Japan and 400,000 in the U.S. due to problems making the blue laser-diode component for its DVD.

Sony eventually sold 5.5 million PS3s between November and the March end of the business year. Oneda said the firm was dissatisfied with the figure as its goal had been 6 million units.

In a move that appears to be linked to the game divisions' weak performance, Sony announced last month that the "father of the PlayStation," Ken Kutaragi, would resign as chief executive officer at SCE and become honorary chairman of Sony Computer in June.

Kutaragi invented the hit game console in 1994.



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