Sony Posts Loss, Curbing Stock's Rally

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• Updated February 7, 2013, 3:44 p.m. ET

Sony Posts Loss, Curbing Stock's Rally

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By DAISUKE WAKABAYASHI

TOKYO—Sony Corp. 6758.TO -8.10% posted an unexpected quarterly loss on Thursday, demonstrating the depth of the problems facing its electronics business and deflating a sense of optimism that was reflected in a recent share-price rally.

While Sony said restructuring measures undertaken by Chief Executive Kazuo Hiraiare starting to pay off, the company's eighth-straight quarter in the red highlights the shifting landscape of consumer electronics, as smartphones encroach on traditional gadgets. The latest results also heighten the importance of Sony's efforts to crack the smartphone duopoly of Samsung Electronics Co. 005930.SE +2.75% and Apple Inc.AAPL +2.97%

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In a sign of the smartphone's creep into consumer electronics, Sony cut its annual sales targets for camcorders, digital cameras, personal computers and portable videogame machines. Other consumer-electronics products didn't fare much better. Sony also cut its sales forecasts for liquid-crystal-display television sets and Blu-ray disc players.

The electronics business remained unprofitable, with Sony's entertainment and finance arms generating most of the group profit.

"If you look at the operating environment for the electronics business, it's hard to be optimistic," Sony Chief Financial Officer Masaru Kato said at a news conference. "While our entertainment and finance businesses are in good shape, there are still lingering issues at electronics."

For the three months ended in December, Sony posted a net loss of ¥10.8 billion yen ($115 million), well below an average expectation for a profit of ¥21.33 billion from analysts polled by Thomson Reuters. In the year-earlier quarter, Sony incurred losses stemming from unwinding a series of joint ventures for mobile phones and LCDs. In that quarter, Sony's loss totaled ¥159 billion.

For the fiscal year ending in March, Sony kept its outlook unchanged. The company expects a net profit of ¥20 billion, an operating profit of ¥130 billion and revenue of ¥6.6 trillion.

Reuters

Sony's return to operating profit comes on the heels of better-than-expected earnings last week from Panasonic and Sharp, offerng hope for Japan's electronics giants.

Sony said its disappointing consumer-electronics sales offset the benefits of a weaker yen and gains from unloading assets, including the January sale of its U.S. headquarters, which generated a gain of $685 million.

The company's surprise loss and unchanged outlook came as a disappointment after the optimism that spurred a near-doubling of Sony's stock price from a mid-November low. Sony's American depositary shares were down 4.4%, or 69 cents, at $15.14 on the New York Stock Exchange on Thursday afternoon.

The quarterly results also follow last week's reports of better-than-expected earnings from Panasonic Corp. 6752.TO -4.36% and Sharp Corp. 6753.TO -1.49% While the sector remains in a challenging state, the improving performance at Panasonic and Sharp offered hope that Japan's electronics giants will avoid facing the worst-case scenarios that seemed possible even last year.

With less than a year on the job, Mr. Hirai has spent the bulk of his tenure focused on streamlining and reorganizing Sony. Another major test of his leadership will come when a wave of new products hit the market over the next year, challenging the former head of Sony's videogame business to spur growth and cut costs.

Sony's newest flagship smartphone, the Xperia Z, will go on sale in Japan on Saturday, testing whether the company can offer consumers an appealing alternative to Samsung's Galaxy and Apple's iPhone. Also, Sony is planning to release a successor to its PlayStation 3 videogame console later this year, people familiar with the matter said.

Sony's turnaround hinges on its ability to become a global competitor in the smartphone segment. It posted a fiscal third-quarter loss for its mobile-products segment, which also includes personal and tablet computers. Mr. Kato said he expects that division to turn a profit in the next fiscal year with "significant upside" if exchange rates stay at current levels.

"We see the coming fiscal year will be the year when we can bear the fruits of all the steps we've taken to bolster our competitiveness, invest for the future, realign our portfolio and restructure ourselves," Mr. Kato said. "You can judge our success once the results become clear."

One thing working in Sony's favor is the weak yen. While the company hasn't capitalized much on the yen's depreciation since mid-November because of locked-in exchange-rate hedges, the Japanese currency's slide might provide a lift in the coming fiscal year. Each one-yen slide against the euro helps to boost Sony's annual operating profit by ¥6 billion.

A bright spot for the electronics segment is the continued progress in curbing losses at its television unit. Sony said it is on track to halve TV-related losses to ¥80 billion in the current fiscal year. The company also reiterated its plans to bring the business back to profit in the coming fiscal year starting in April.

One facet of Mr. Hirai's plan to halt the losses from selling television sets is to buy its LCD panels, which account for the bulk of TV-production costs, from the open market where supply is ample and prices fall steadily. With that strategy in place, the company dissolved capital-intensive LCD-panel joint ventures with competitors Samsung and Sharp.