Sony adds caution to festive cheer

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Sony on Thursday reported a surprisingly strong performance over the Christmas period, although it added a note of caution about the outlook for future earnings.

The announcement came after the close of Tokyo trading, but Sony’s American Depositary Receipts rose 12.2 per cent to $48.57.

The struggling consumer electronics-to-entertainment group reported a firm increase in profits in the third quarter, helped by solid TV, games and financial services sales and a favourable currency.

As a result, Sony raised its full-year forecasts. Group sales are now expected to reach Y7,400bn ($63bn) rather than Y7,250bn, and Sony expects operating profits of Y100bn, rather than losses of Y20bn as forecast in September. Net profits will be Y70bn as opposed to losses of Y10bn.

However, the Japanese group, headed by Sir Howard Stringer, warned that the outlook remained difficult.

Nobuyuki Oneda, chief financial officer, said: “I don’t think the [firm] trend in the third quarter will continue. We are a little bit cautious about sales volume and [price trends]. We don’t see any big swing from now on.”

Sales in the third quarter rose 10 per cent to Y2,367bn, while operating profits gained 47 per cent to Y202.8bn. Net profits increased 17 per cent to Y168.9bn.

Sony’s ailing consumer electronics division made a recovery, with sales rising 4.7 per cent and operating income jumping 56 per cent. The business benefited from buoyant demand for flat-panel LCD TVs, which helped it emerge as global leader for sales on a value basis.

Games also performed strongly, with sales of PlayStation 2 and PSP, its hand-held console, doing particularly well. The games division enjoyed a 48 per cent rise in sales in the quarter and a 59 per cent increase in operating profits.

Sony’s financial services business – which it plans to take public in the near future – lifted sales by
31 per cent and operating profits more than 200 per cent.

However, the group struggled to make a mark in the portable audio market, where it trailed Apple Computer. Although sales were flat, operating profits in this segment improved due to cost cutting.

Movies were also a disappointment.

Sir Howard set out a plan this month to integrate the company’s video and music content more deeply into its technology, as he outlined four entertainment “pillars” on which the group would focus.

Mr Oneda on Thursday said Sony was on track to reduce costs by Y200bn by March 2007 and cuts its head count by 10,000. Job cuts were forecast to hit 4,500 by the end of this fiscal year.

Meanwhile, nine out of a targeted 15 categories were on track for restructuring, giving Y50bn in additional profit this year.

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