Sony's results are a black eye for CEO

The quarterly performance was disappointing, especially amid signs of progress.

By MSN Money Partner Oct 31, 2013 2:12PM
File photo of Sony CEO Kazuo Hirai speaking on January 7, 2013 (© Justin Sullivan/Getty Images)By Juro Osawa and Kana Inagaki, The Wall Street Journal

Sony Corp.'s (SNE) turnaround strategy was thrown into doubt after the electronics maker reported weak quarterly results and cut its profit forecast for the year by 40%.

The poor numbers were a black eye for Kazuo Hirai (pictured), who became chief executive last year and vowed to pull Sony out of a prolonged slump that began when its vaunted television-set business began to falter.

The results for Sony's fiscal second quarter were particularly disappointing since signs of progress had been emerging; Sony's TV division turned profitable in the first quarter. Sony has been cutting costs since last year by slashing jobs and has focused on expanding its smartphone business.

Sony's poor results could lend support to hedge-fund investor Daniel Loeb, who has called for the company to take part of its entertainment division public, saying that the film and music businesses were poorly managed. Mr. Loeb also has said that Sony's electronics operations have been undermining the value of the company's entertainment business. Sony in August rejected Mr. Loeb's proposal.

Mr. Loeb's Third Point LLC declined to comment.

Sony on Thursday cut its profit forecast for the fiscal year through March by about $200 million and cut its sales forecasts for four of its electronics products: TVs, personal computers, digital cameras and video cameras.

Sony said its net loss widened to ¥19.3 billion ($196 million) for the quarter through September from ¥15.5 billion a year earlier. Analysts had forecast a modest profit. Operating profit fell 51% to ¥14.8 billion.

Revenue rose 11% to ¥1.78 trillion as smartphone sales increased.

Sony blamed the loss mainly on its movie business, which released such box-office flops as "White House Down" and "After Earth." Sony's mainstay electronics businesses also performed poorly, with the exception of the smartphone business.

"Conditions are harsher than what we had anticipated, due to the negative impact from the slowdown in emerging markets and a fall in emerging-economy currencies," Chief Financial Officer Masaru Kato said at a news conference. He said the company sees healthy signs in videogames and cameras, as well as smartphones.

Under Mr. Hirai, Sony has plotted a three-year road map for turning around its business. The company reached the first milestone by squeezing out a net profit in the year that ended in March. Sony is trying to turn a profit in its core electronics operations this fiscal year.

"In order for Sony to grow significantly over the medium term, we need revival in our core electronics business," said Senior Vice President Shiro Kambe. "We will turn the electronics division profitable for this year despite the downward revision."

Sony has high hopes for the Nov. 15 release of the PlayStation 4, the company's first reboot of its popular videogame console in seven years. Sony plans to sell 5 million PS4 units by the end of March. But it is unclear how much console sales can boost earnings as consumers migrate away from dedicated game devices in favor of mobile applications.

Five of Sony's eight business segments recorded losses in the latest quarter. Music, financial services and devices, which includes image sensors for smartphone cameras, were profitable.

Sony's TV-set business, which posted a first-quarter profit, recorded an operating loss of ¥9.3 billion in the latest quarter. The operation has posted annual losses for nearly a decade. Kato said the economic slowdown in Latin America and other emerging markets is affecting TV sales.

Smartphones were a bright spot. Sony's operating loss from the mobile products and communications segment, which includes smartphones and PCs, narrowed sharply, to ¥900 million from ¥23.1 billion. Revenue jumped 39% because of brisk handset sales.

Over the past year, Sony has poured resources into smartphones to turn the business into an engine for growth. In February, Sony introduced its flagship Xperia Z smartphone, which borrowed technological resources from the company's camera and TV businesses. A successor model was released in September.

Smartphone strength is far from guaranteed, however, given competition from industry leaders Apple (AAPL) and Samsung Electronics. Though Sony's smartphone sales are brisk in Japan and Europe, the company has little presence in the U.S. and China, the world's two biggest smartphone markets.

Sony cut its outlook for full-year net to ¥30 billion from the ¥50 billion the company forecast in July. Sony lowered its outlook for operating profit to ¥170 billion from ¥230 billion. The company cut its revenue projection to ¥7.7 trillion from ¥7.9 trillion, reflecting lower sales forecasts for most of its electronics products.

-- Juliet Chung contributed to this article.

More from The Wall Street Journal

Oct 31, 2013 2:45PM
November 25, 1994 --- The long sad decline of the reliable Sony began.

Morita would never have cut corners on quality and circuit redundancy.   Now the MBA rot has set in for good.
Oct 31, 2013 6:26PM
Cut corners, cut quality, go for the bucks, lose your faithful customers. END OF STORY
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