Sony warns PlayStation 3 costs to hit profits

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Sony underscored its budding recovery with a 68 per cent rise in operating profit last year but said it expected a sharp fall in the current fiscal year, mostly because of costs associated with the launch of its PlayStation 3.

Nobuyuki Oneida, chief financial officer, said the Japanese electronics group expected a substantial improvement in its electronics and film divisions but lower contributions from games and financial services.

“We consider this to be a year of investment in the games business, so we expect a large loss,” Mr Oneida said.

The warning shows that while Howard Stringer, chief executive, has been able to make a difference to Sony’s bottom line after only one year in the job, some of the biggest challenges remain.

With its flat screen TV, mobile handset, music and other businesses performing more strongly, Sony now needs successful launches of its PS3 games console and Blu-ray next-generation DVD player technology to complete the picture.

But Microsoft, with the release of its new Xbox 360 games console last year, has already stolen a march on PS3, which is due to be launched in November.

Meanwhile, a rival consortium led by Toshiba launched its next-generation HD-DVD format last week, ahead of Sony’s Blu-ray, which is due out next month.

Sony yesterday forecast a
10 per cent rise in revenue this year to Y8,200bn ($71.9bn) but a sharp fall of 49 per cent in operating profit to Y100bn.

Net profit will, however, be
5 per cent higher thanks to increased contributions from Sony Ericsson, its mobile phones joint venture, and Sony BMG, its music joint venture.

The operating profit forecast is lower than many analysts expected and raises concerns about Sony’s ability to achieve its stated goal of a 5 per cent operating profit margin for the group and a 4 per cent margin in electronics in the year to March 2008. In the year just ended, Sony lifted revenue by 4 per cent to Y7,475.4bn, though net profit fell 25 per cent to Y123.6bn, owing to a change in tax treatment.

The higher operating profits of Y191.3bn last year, up from Y113.9bn, followed a solid performance by the financial services business and a one-time gain related to pensions.

Costs associated with the PS3 are already affecting the profitability of its games division, which Sony expects will lose more than Y100bn this year.

Sony is forecasting a better performance by its electronics division, helped by its flat-panel LCD TV brand, Bravia.

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