Games division weighs on Sony

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Sony suffered a 15 per cent fall in third-quarter profits after heavy losses at its games division offset strong pre-Christmas sales at its core electronics business. But the group raised its earnings forecasts for the full year.

The strong showing in electronics persuaded some analysts that the group may have finally begun its long-awaited turnround. However, it gave no solace to video game fans hoping for price cuts to the PlayStation3 console, which Nobuyuki Oneda, the company’s chief financial officer, said would remain at its current price of Y59,900 ($492) for “two or three years”.

Sony reported quarterly operating income of Y178.9bn, a year-on-year drop of 14.9 per cent.

Electronics sales in the October to December quarter were driven by particularly strong performance for Bravia televisions, which have established a strong foothold in the $63bn global market for LCD TVs.

A large contribution also came from sales of digital cameras and video cameras, both of which achieved profit margins of more than 20 per cent. Sony raised its full-year operating income forecast by Y10bn to Y60bn.

A Macquarie analyst described the forecast as “ridiculously conservative” in light of the favourable currency environment and Sony’s own announcement of lower restructuring costs.

The forecast included a Y51.2bn provision for expenses arising from its massive recall of laptop PC batteries last autumn.

However, larger-than-expected losses at Sony Computer Entertainment, the division that produces the PS3 console, left other analysts sceptical.

Quarterly operating losses of Y54bn at the games division reflect the high development cost of the machine, which is already being discounted by some Japanese retailers because of sluggish sales. In light of PS3 sales “that appear to fall wide of the company’s shipment targets”, according to a Nomura analyst, Sony may be forced to revise its global shipment forecast of 6m units by the end of March.

The picture at the games division was also not helped by a collapse in year-on-year shipments of Sony’s handheld PSP machine which, in the October to December quarter, were 72 per cent lower than in 2005.

Comments by the company’s senior management also raised concerns that the lossmaking problems generated by the PS3 may continue for some time.

Although the group claimed it was making progress in efforts to reduce the size of the PS3’s cell chip, the corresponding cost savings would probably not be passed on to customers until at least 2009. The PS3 is competing with lower-priced game consoles from Nintendo and Microsoft.

Meanwhile, the US Federal Trade Commission on Tuesday said Sony BMG agreed to settle charges that it secretly embedded potentially damaging anti-piracy software in some of its CDs. The settlement requires the joint venture of Sony and Germany’s Bertelsmann to reimburse consumers for up to $150 to repair any damage to their computers.

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