Sony shock again? Slump may mean operating loss

TOKYO (AP) -- Sony is sinking into its first yearly operating loss in 14 years as sales fizzle for digital cameras, flat-panel TVs and other gadgets taking a hammering from the global recession and a soaring yen, analysts said Tuesday.

Sony shares slid 8.9 percent to 2,000 yen ($22.40) on the Tokyo Stock Exchange on Tuesday after Japan's top business daily The Nikkei reported that Sony was expected to rack up a 100 billion yen ($1.1 billion) operating loss this fiscal year ending March, its first since 1995.

The news helped drag down the Japanese stock market, where the Nikkei index tumbled 4.8 percent.

Sony's downturn highlights the pain even Japan's premier brands are suffering amid the global slowdown. Barely a month ago, Toyota Motor Corp., the nation's top automaker, said it was expecting its first annual operating loss in 70 years.

Behind Sony's dismal forecast are faltering sales of liquid crystal display TVs and other gadgets, especially in the key U.S. and European markets, The Nikkei said, adding that operating losses could balloon to as much as 200 billion yen ($2.2 billion).

Tokyo-based Sony Corp. declined comment.

The U.S. financial meltdown has crushed spending on flat-panel TVs and other gadgets - Sony's mainstays. The credit crunch and consumer worries hit right ahead of the critical year-end holiday shopping season.

The strong yen hasn't helped. The yen, costing about 113 yen per dollar a year ago, has risen to about 90 yen lately. Sony is particularly vulnerable to the strong yen because about 80 percent of its sales are overseas.

The last time - and only time - Sony racked up an operating loss, for the fiscal year ending March 1995, the red ink came from one-time losses in its movie division, marred by box office flops and lax cost controls. At that time, its core electronics unit was still booming.

Kazuharu Miura, analyst with Daiwa Institute of Research, expects Sony to tumble into a 110 billion yen ($1.2 billion) operating loss - which reflects the company's core business operations - for the fiscal year through March 31.

Past troubles in Sony's electronics business had been offset by gains in other divisions, such as video games and also its once-thriving insurance and banking divisions in Japan. But now, it is seeing slumps across the board. Video games have struggled to boost profits, and the financial branches have been hit hard by the global credit crunch.

"In that sense, Sony is in an extremely tough situation this time," Miura told The Associated Press.

Drastic job cuts and reduction in research spending would be needed to wrest Sony out of its latest troubles, he said.

Other analysts echoed similar sentiments, noting the expected red ink from Sony's digital cameras and other products because of falls in both sales and prices.

Sony has already taken some dramatic steps. Last month, the company said it would implement major cost-cutting to ride out the slump, including slashing 8,000 jobs, or about 4 percent of its work force, lowering spending and shutting plants.

In its heyday of the 1980s and 1990s, Sony was seen as an innovator with its Walkman portable player and PlayStation video game machine. But Sony has seen its brand power gradually lose its luster in the face of rivals not only from Asia but also from the West, such as the iPod from Apple Inc.

Until the U.S. financial crisis, Sony had been on a recovery track following a cost-cutting overhaul under Chief Executive Howard Stringer, a Welsh-born American, who became the first non-Japanese to head Sony in 2005.

That restructuring phase included pulling the plug on Sony's robotics division, selling off assets, ending the Qualia line of fancy gadgets and withdrawing from plasma displays.

Stringer's appointment came after a series of faltering profit reports that culminated in the "Sony shock" of 2003, when the company's shares plunged.

Sony President Ryoji Chubachi has expressed dismay at the U.S. slowdown, but he also expressed hopes that the global economy would start to recover later this year.

"We need to rely more on other regions and not depend so much on the U.S.," he told reporters at a recent reception for executives.

Instead, the potential for growth in East Asia, with its appetite for Sony goods, could help reverse Sony's fate, Chubachi said.

In October, Sony lowered its operating forecast for the fiscal year ending March 31 to 200 billion yen ($2.2 billion) profit from an earlier 470 billion yen ($5.3 billion) it gave in July. It is expecting 150 billion yen ($1.7 billion) net profit, which includes taxes and extraordinary items.

Sony is expected to release its third fiscal quarter (Oct-Dec) earnings on Jan 29.


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