Sony, Sharp post Q1 losses, Nintendo loses steam

TOKYO, JAPAN: A third straight quarter of losses by Sony and Sharp underscore the challenges they face in the flat-panel TV market as they struggle to compete with Samsung Electronics and other South Korean rivals benefiting from a weaker won.

Nintendo Co Ltd reported a sharp fall in quarterly profit as sales of its Wii game console lost some steam and the stronger yen took a toll.

It reiterated its forecast for profit to fall for the first time in four years.

Sony, which vies with Panasonic Corp for the position as the world's largest consumer electronics maker, is struggling to keep up with Samsung in LCD TVs and has been outmatched by Nintendo in video games.

In the portable music player market, which Sony created 30 years ago with the Walkman, it trails Apple's iPod, while its cellphone venture with Ericsson has been mired in the red. Sony said it may have to extend some form of financial support to the struggling joint venture.

More broadly, though, the company said it hopes to break even for the year on an operating level, which would be far better than its official forecast. That helped push up Sony's U.S.-listed shares by 9.9 per cent to $27.28.

"Sony is making changes to adapt to the environment but it still seems to be having trouble keeping up and perhaps should have been a bit more aggressive about cost-cutting," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

The maker of Bravia LCD TVs and Cyber-shot digital cameras is restructuring its empire, which includes a movie studio and an insurance arm. It has announced plans to close eight manufacturing sites, halve its suppliers and cut 16,000 jobs.

To help bolster its loss-making TV operations, Sony said on Thursday it would spend about 68 billion yen ($715 million) by April 2011 to take a one-third stake in a joint venture with Sharp to jointly produce and sell cost-competitive LCD panels.

"Sony's Bravia has been struggling since last year. Korean rivals caught up in terms of product quality and are now eating away at the market with price competitiveness," said Park Hyun, analyst at Prudential Investment & Securities in Seoul.

"Even taking into account the impact of the stronger yen, it appears Sony is lagging Korean peers in overall competitiveness."

TV Improvement

Sony earns three-quarters of its revenues overseas, making it vulnerable to the yen's appreciation, which makes Japanese exports less price competitive overseas at a time when South Korean peers are benefiting from a softer won.

Sony's operating loss came in at 25.7 billion yen in April-June, down from a profit of 73.44 billion a year earlier, and smaller than the average 103.1 billion yen loss forecast by five analysts.

For a graphic on Sony's historical quarterly operating profit and share price performance, click

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In contrast, LG Electronics last week posted a record quarterly profit on strong TV and mobile phone sales, while Samsung beat market expectations and posted a 5 per cent gain in quarterly net profit.

Sony kept its operating loss forecast of 110 billion yen for the year to March 31, 2010. The forecast is about half the loss it racked up a year ago, and compares with the consensus of 117.7 billion yen loss in a Reuters poll of 19 analysts.

But losses on flat-panel TVs narrowed in the latest quarter, bringing the business closer to being profitable, and it was confident enough to set an internal target to break even as a company on an operating basis.

"We managed to sell TVs, digital cameras and camcorders without big price cuts in the first quarter. But we see fierce price battle looming up ahead," Sony Chief Financial Officer Nobuyuki Oneda told a news conference. "It would be too optimistic to raise full-year guidance at this point."

Nintendo profit falls

Nintendo, locked in a three-way battle with Microsoft Corp and Sony in the game industry, earned 40.4 billion yen in operating profit in April-June, down from 119.2 billion yen a year earlier.

The creator of such iconic game characters as Mario and Donkey Kong has weathered the economic downturn relatively well as its strategy to expand the video game population towards women and the elderly with casual games proved a success.

But its profitability has come under pressure in recent months due to fizzling demand for the Wii and a stronger yen.

Sharp, the world's fourth-largest LCD TV maker behind Samsung, Sony and LG, posted a quarterly operating loss of 26.1 billion yen, against a 36.4 billion yen profit a year earlier.

Prior to the earnings announcements, shares in Sony closed up 6.8 per cent at 2,505 yen, Nintendo gained 2.6 per cent to 26,810 yen and Sharp added 3.9 per cent to 1,029 yen. The Nikkei average rose 0.5 per cent.