Last updated: February 2, 2012 10:39 am

Sony warns of ballooning full-year loss

Sony warned its net loss would balloon to Y220bn ($2.9bn) this year, two and a half times its previous forecast, owing to a surging yen, supply-disrupting floods in Thailand and the cost of restructuring its unprofitable television business.

Kazuo Hirai, who on Wednesday was named Sony’s next chief executive, on Thursday promised to make “unavoidable, painful choices” to fix or dispose of loss-making operations and turn the Japanese company round after what will be its fourth straight year in the red.

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“I have an acute sense of crisis … We don’t have the luxury of moving slowly,” he said at a joint appearance with Sir Howard Stringer, the Wales-born American who has been Sony’s chief executive since 2005 and will stay on as the company’s chairman.

The electronics and entertainment group’s new guidance for the financial year ending in March was more pessimistic than experts had expected, and compared with its earlier loss estimate of Y90bn. Industry analysts tracked by Bloomberg had been projecting a loss of Y147bn on average.

About half the downgrade stemmed from Sony’s decision in December to dissolve its flat-screen panel-making joint venture with Samsung of South Korea, a move that Sony said would force it to book a non-cash impairment charge of Y63.4bn. Sony is also writing off TV production facilities in Japan and scaling back its sales targets.

The Samsung venture was costing Sony hundreds of millions of dollars a year in operating fees and penalties because falling TV sales meant it was buying fewer liquid crystal screens than it had initially counted on. “In the long run [exiting the venture] will be positive for us,” said Masaru Kato, Sony’s chief financial officer.

Sony will also take a Y33bn tax-accounting charge related to its purchase of full control of its Sony Ericsson mobile phone venture, agreed with its partner Ericsson of Sweden in October.

Like other Japanese manufacturers, Sony has been hurt by a steep rise in the yen’s exchange rate, which has made its exports more expensive and reduced the value of profits it brings home from overseas. The currency’s unexpectedly persistent strength contributed to a further Y20bn erosion in its forecast operating profits compared with its previous guidance, issued in November.

Severe flooding late last year in Thailand also took a larger than anticipated toll. The south-east Asian country has become an important production base for many Japanese manufacturers and parts suppliers, and Sony said disruptions caused by the disaster would cost it Y70bn, Y25bn more than an earlier estimate. Sony said the difference arose because it took time to fully assess the damage and because it will not receive some insurance pay-outs until next financial year.

For the third quarter to December, Sony booked a net loss of Y159bn.

Sony’s share price fell 54 per cent last year and Moody’s cut its credit rating in January. The stock fell 2.6 per cent on Thursday after trading resumed following a technical glitch that prevented trading in a number of stocks on the TSE, closing ahead of the results at Y1,328.

Sir Howard defended his six-year effort to revive the company, saying he had twice returned it to profitability or close to it before external shocks set it back again: the financial crisis in 2008 and Japan’s earthquake and tsunami last March.

“We have bounded back twice, and don’t bet against us bouncing back again,” he said.

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