Sony sees profit drop on increased expenses

Sony sees profit drop on increased expenses

Sony has achieved record quarterly sales in the last three months of 2003, although its restructuring program, higher spending on semiconductor research, and the strengthening Japanese yen led to a decrease in profit. Sales and operating revenue for the quarter increased 0.7 per cent to $28.3 billion as of December 31, the last day of the period being reported, group chief financial officer, Takao Yuhara, said. Operating profit dropped 20.4 per cent to $1.94 billion and net profit for the quarter fell 26.2 per cent to $1.13 billion.

In the company's key electronics business, which accounts for more than half of all revenue, results were mixed. Sales in the company's four geographic regions, Japan, US, Europe and others, all achieved double-digit growth on a local currency basis. However, the difference in the value of the Japanese yen compared to a year ago and much lower intra-company sales resulted in overall sales in the business unit increasing 0.4 per cent to $18.3 billion for the quarter.

Operating profit in the electronics business was down 39.7 per cent to $605 million for the quarter, affected by increased restructuring expenses. During the quarter the restructuring costs, largely related to factory closures and an early-retirement program, totalled $566 million or around five times that of the same period a year earlier, Yuhara said.

The higher expenses were the result of a wide-ranging reorganisation plan announced by Sony in October last year. About 20,000 employees will leave the company by 2006.

Part of the plan involved a stronger focus on key product areas.

The company said dividends of this strategy could be seen during the quarter.

Sales of the products, which include flat panel television sets, DVD video recorders, personal computers and digital still cameras increased to make up about 48 per cent of electronics sales during the quarter.

A year earlier, sales of such products represented around 37 per cent of total electronics sales.

"In our focus product areas in many cases we have the number one market share," Yuhara said. "It's better than we anticipated. It is important to maintain the share. The goal of the fourth quarter and quarters one and two of next year is to continue to market products this way. As for the start (of the strategy) we have a sense of satisfaction."

Despite the stronger focus the company couldn't stop operating profit falling in at least one of these business areas, that of digital still cameras, falling as a result of lower prices brought on by competition. The company's Clié personal digital assistant (PDA) business, which is not one of its key product areas, also saw a decline in operating profits for the same reason, Yuhara said.

In the company's games business, the value of sales fell despite an increase in the number of PlayStation 2 consoles sold in the quarter. Competition between Sony and Microsoft's Xbox console pushed each company to reduce prices and this meant total revenue fell 4.5 per cent to $4.5 billion, the company said.

Profitability at the games unit was hit by an increase in semiconductor research and development. The company is currently developing two new hardware platforms: the handheld PSP due in the fourth quarter of this year and the successor to the PlayStation console, which is expected sometime in 2005 or 2006.

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