Sony sees Q1 profit, denies reported loss

Eriko Amaha

TOKYO: Sony Corp, the world's biggest audio visual manufacturer, said on

Monday it expected to post a group operating profit in the three months to June

30, reversing its earlier forecast that it would be in the red and denying a

newspaper report it could lose five billion yen ($42 million).

"For the first quarter, we see a group operating profit from a recovery

in our electronics division and a strong performance from our movies division at

this time," Sony said. The statement followed a weekend report in the Nihon

Keizai Shimbun financial daily that Sony would post a group operating loss of

five billion yen for the quarter as a result of depressed sales of electronics

goods around the world.

The reported loss would have been smaller than that recorded in the previous

quarter but would have reversed a profit of three billion yen made a year

earlier. Sony issued its statement denying the newspaper report after the close

of trading on the Tokyo Stock Exchange.

Its shares had reacted to the report by falling 2.21 per cent to 6,190 yen.

The Nikkei average slid 0.25 per cent. Sony is expected to announce

first-quarter results on July 25. Hitoshi Kuriyama, an analyst at Merrill Lynch,

said the statement was a positive surprise.

"The most favourable factor was probably the movie ‘Spider-Man’,"

said Kuriyama, who had projected an operating loss of 10 billion yen for the

first quarter. "Sales in the United States have been strong and the soccer

World Cup had a positive impact on Sony's game business."

Analysts had forecast a marginal operating loss of five to 10 billion yen

after Sony in April projected a loss because of restructuring costs at

loss-making subsidiary Aiwa Co Ltd. But most have said that Sony was on track to

record a profit for the full year, as cost-cutting efforts begin to bear fruit

and strong sales of games and movies support the bottom line.

Sony said in April it expected group operating profit to rise 108 per cent to

280 billion yen in the current year after a 40 per cent fall to 134.6 billion in

the year ended March 31. Kuriyama said the focus was now on how the

strengthening of the yen and slowing US economy affected the full-year forecast.

Sony, which like other major exporters benefits from a weaker yen, is working

on a dollar/yen rate of 130 yen. The Japanese currency was trading around 119.5

to the dollar on Monday. Kuriyama said that for every one yen rise against the

dollar, eight billion yen is wiped from Sony's operating profit.

"I don't think even 'Spider-Man' can recoup that," he said. But

Masahiro Ono, an analyst at Credit Suisse First Boston Japan Ltd., said if the

dollar/yen rate remains at around 120 yen, Sony would still achieve its

full-year targets. "If the rate goes to around 115 yen, it's likely that

Sony will have to revise down its forecast," he added.

Riding high on games, Hollywood



Sony relied on its blockbuster game console PlayStation 2 for the bulk of
its operating profits in the business year to March 31, and this is expected to

continue this year as well.

Game-making unit Sony Computer Entertainment said on Monday that domestic

shipments of PlayStation 2 would hit 10 million by the end of July, five months

ahead of its predecessor. The original PlayStation, launched in December 1994,

has sold 19 million. It took three years to reach 10 million.

Sales of PlayStation 2 are soaring thanks to recent price cuts to counter

Microsoft Corp's Xbox and Nintendo Co Ltd's GameCube machine. Sony aims to sell

20 million PlayStation 2 consoles globally in the year to next March, after

shipping 18.07 million in 2001/02.

In May, Sony slashed the US price of the PlayStation 2 by one-third to

$199.In Japan it made a smaller cut of 6.5 per cent, while giving retailers a

free hand to discount. Sony says more cuts are in the pipeline.

Credit Suisse's Ono said that in addition to the game business, he expected

blockbuster movies such as "Spider-Man" and "Men in Black

II" to boost sales at Sony's entertainment business by 30 per cent

year-on-year. "The key is how low they can keep costs. This kind of

business does require a lot of expenses," he said.

Last month, Sony rival Matsushita Electric Industrial Co confirmed that

domestic sales of Panasonic audiovideo goods surged in recent months thanks

partly to new products such as DVD recorders. Sony has said it expects a group

net profit of 150 billion yen on eight trillion yen in group revenues for the

year to next March.