Sony’s much expected recovery was seriously set back on Thursday as the electronics group unveiled a huge revision to its operating profits forecast for the full year as a result of the cost of replacing faulty batteries and unexpected setbacks in its games business.
Sony said operating profits would be 62 per cent below its previous forecast, at Y50bn (£224m) rather than Y130bn, despite an unchanged revenue forecast of Y8,230bn. Net profits are expected to be Y80bn, 38 per cent lower than its earlier estimate of Y130bn.
The projected profits fall comes as Sony struggles to turn round its electronics business – under the leadership of Ryoji Chubachi, chief operating officer – through a group-wide restructuring programme spearheaded by Sir Howard Stringer, chief executive.
However, the sharp fall in operating profits – Sony made operating profits of Y226.4bn last year – raises questions as to whether the group is on track to meet that goal.
The market, which had earlier expected higher operating profits of up to Y180bn, had been braced for a profits decline following the battery recalls, though not to the extent Sony announced on Thursday.
The decline stems largely from recent problems with its lithium ion batteries and in its games division.
Sony said it would take a Y51bn provision this year in connection with the battery replacement programme, which has affected most of the world’s leading notebook PC manufacturers.
Furthermore, a delay to the launch of the PlayStation 3 – Sony’s most important product launch in years – a lower price for it and a reduction in initial shipments, coupled with lower-than-expected sales of the PlayStation Portable, will reduce group operating profits by Y60bn.
Of that figure, Y30bn relates to the PS3 while Y30bn stems from lower sales of the PSP.
The setback to the games division – positioned as a key driver of future growth – raises the question as to how long it will take Sony to see the fruits of its massive investment in the PS3.
Sony has been forced to delay the launch of the PS3 in Europe and reduce initial shipments when it is launched in the US and Japan on November 11 owing to difficulties manufacturing the blue laser diodes used for the Blu-ray Disc player incorporated in the games console.
Additionally, it reduced the price of the lower end console in Japan in a move to compete more effectively with rivals Microsoft and Nintendo whose consoles are significantly cheaper.
Sony’s lower profits come despite a Y54bn gain from a favourable exchange rate and higher contributions from key products, including digital cameras and flat panel LCD TVs.