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Sony's failure to quickly embrace the flat-panel TV market hit
the company again during the first quarter of its fiscal year, contributing
to lower sales and wiping out of profits. The company has slashed
its annual profit outlook by 80 per cent as falling prices for its
Wega flat-screen televisions and rising costs to develop the PlayStation
3 game console squeezed earnings. The company said in a statement
that net income will be 10 billion yen this fiscal compared with
an April forecast of 80 billion yen.
In response to the poor performance of its TV business, Sony has
announced a number of measures intended to return that group to
profitability by the second half of next year. They include investing
more money in LCD research and development and trying to expand
its rear-projection TV business. Such TVs are currently popular
in the US and Sony will attempt to increase sales in Europe and
Japan. Sony will also extend the sale of its "Happy Wega"
low-priced LCD TVs to markets outside of Japan, said Katsumi Ihara,
president of Sony's home electronics network division, at a Tokyo
news conference.
Sony shipped 12 million TVs altogether last year, and had been
expecting to ship 13.2 million this year. The company now believes
that its shipments this year will drop to 11.4 million units.
Media reports indicate that Sony has lost market share to Matsushita
in the flat-screen TV market and is investing in products such as
the PlayStation 3 to fend off Microsoft's new Xbox 360.
What this means is that there is a lot of pressure on the recently
appointed CEO Sir Howard Stringer, who is Sony's first foreign CEO.
His appointment in April was part of a management shake-up aimed
at re-establishing Sony as a market leader. He is expected to unveil
a business strategy in September and several businesses that are
not doing as well as expected could be on the chopping block.
Reports state that this is the first time in four years that Sony,
facing an onslaught of cheap, high-quality products from rivals
at home and abroad, has recorded losses in two consecutive quarters.
Sony's operating loss was 15.3bn yen, compared with a profit of
9.8 billion yen last year. Group sales were down 3.3 per cent to
1.56 trillion yen.
The losses have also been attributed to restructuring costs amounting
to almost 16bn yen, almost all of which was spent on reviving the
firm's struggling electronics division. Yet sales in the sector,
which Sony once dominated, continued to fall during the quarter,
by 1.4 per cent to 1.1trillion yen.
Once the market leader in portable music players with its Walkman
range, Sony's range of digital music players has also failed to
mount a significant challenge to Apple's iPod. The demand for cathode
ray tube televisions, an area where Sony has traditionally been
strong with its Trinitron tubes, fell sharply in the first quarter
as customers continued to switch their attention to flat-screen
liquid crystal display (LCD) and plasma display panel (PDP) models.
Sony was late to these markets and severe price competition is now
squeezing profits despite rising unit sales.
At Sony Pictures Entertainment, revenues fell by 2.6 per cent,
to 144.4 billion yen ($1.3 billion), but operating income rose 3.5
per cent to 4.2 billion yen ($39 million). The company has attributed
the revenue fall to reduced theatrical revenues on fewer films.
That, however, was offset by distribution fees recognised on sales
of MGM titles and an increase in television advertising revenues
generated from several of SPE's international channels.
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