tokyo August 2, 2012, 12:49 IST
tokyo 08 02, 2012, 13:00 IST
The debt crunch roiling Europe is adding to the obstacles Sony Corp <6758.T> and its new boss Kazuo Hirai are trying to overcome in tackling the losses that have dogged Japan's iconic maker of consumer electronic gadgets.
Sony on Thursday reported an 77 percent slide in first-quarter operating profit to 6.28 billion yenfrom a year earlier, much deeper than the 36 percent slide analysts had expected.
The company in the year ended March 31 had posted an operating loss of 67 billion yen and a record net loss of 455 billion yen.
Citing exchange rate moves and a weak global economy, Sony cut its forecast for operating profit in the full year to 130 billion from a previous forecast of 180 billion yen.
The consensus forecast of 18 analysts surveyed by Thomson Reuters is for annual operating profit of 139 billion yen.
Taking the helm at Sony in April, Hirai vowed to revive the fortunes of the maker of the Walkman music player and PlayStation gaming console after years of competition from foreign rivals overturned its dominance in consumer electronics.
Hirai now faces the challenge of steering his limping corporation through a euro zone debt crisis that is denting global demand for consumer electronics and eroding the profitability of Sony products.
"I don't think we have to worry too much about the U.S. dollar, but the real worry is the euro zone," said Yuuki Sakurai, CEO of Fukoku Capital Management, the asset management unit of Japan's Fukoku Mutual Life Insurance.
"We'll have to fasten our seatbelts and get ready for the turbulence," Sakurai said. Hirai "is in a tough position, I don't envy him."
He spoke before the release of Sony's results.
The evaporating value of the euro hurts all Japanese companies that sell their goods and services in Europe, but Sony is more sensitive to yen swings against the common currency than its local peers.
Sony's European sales account for a fifth of all revenue compared with a tenth at both Panasonic Corp <6752.T> and Sharp Corp <6753.T>.
A one-yen gain in the exchange rate against the euro cuts 6 billion yen off of Sony's operating profit. For Panasonic, a similar change would cut only 2.5 billion yen, and for Sharp, no more than 500 million yen.
The average against the dollar during the first quarter was 80.1 yen with the euro at 102.9 yen. The euro since has eroded in value to its lowest in more than a decade to around 95 yen.
Sony had planned for a euro/yen rate of 105 yen, but said on Thursday it would now adjust that to 100 yen. It kept its dollar/yen assumption at 80 yen.
In addition to currency risks, Sony is struggling to appeal to consumers in the face of competition from the likes of Apple Inc , Samsung Electronics Co Ltd <005930.KS> and Microsoft Corp .
"Sales volume in the smartphone and game business seems to be making little progress toward guidance targets," Takashi Watanabe, an analyst at Goldman Sachs in Tokyo said in a report before the results.
Hirai in April outlined a revival plan that stakes Sony's future on mobile devices such as the Xperia smartphone, gaming and digital imaging, while developing new businesses, including a medical unit.
So far, however, he has failed to convince investors a turnaround is imminent for the company behind the Bravia TV and Vaio laptop brands. Since he moved into the CEO office, Sony's shares have tanked by more than two-fifths.
Sharp Corp <6753.T>, Japan's last big maker of liquid crystal displays for TVs, posted an operating loss of 94.13 billion yen for the quarter, worse than a consensus forecast of 44.4 billion.
The firm said it would cut about 5,000 people -- about one-tenth of its workforce -- as it struggles, like Sony, with weakening global demand for TVs and competition from rivals led by Samsung Electronics <005930.KS>.