Annus Horribilis for Sony as they warn of profit fall

4 replies [Last post]
DVdoctor
Offline
Joined: Apr 1 1999

There is an old saying, that things get worse before the get worse

For Sony there really has not been a lot of encouraging news recently

http://www.forbes.com/home/feeds/afx/2006/10/16/afx3095665.html

Hexus mentions 90 thousand of Sony's own Laptop batteries recalled, but Forbes is showing 300,000 which we think is more accurate. Toshiba is talking about legal action, and of course from the US perspective you don't have to guess how long it will take before the lawyers file class action suites for billions of dollars based on the battery disaster.

One interesting side benefit for us curious folks, is that the numbers of batteries recalled during the period is probably a good reflection of how many notebooks each company shipped. I seriously doubt even SONY would decide to temper the recall today based on their speculation as to during that time period how many batteries were good or bad, at this stage, common sense dictates you recall all of them from the period. Later analysis in the lab might show the actual numbers but by that time the damage is done.

In addition, under our theme of believe what companies do vs what they say, Sony is in our opinion getting very concerned aboutg PS3 sales, to the point where they have cut prices in Japan to the tune of 20 percent.... Marketing 101 usually teaches that if demand is hign, supply low you don't cut prices, and we know that supply is low.

Since Sony shares trade on US markets they are required to provide financial information in a timely fashion. Is this Annus Horribilis for Sony? It certainly looks that way

Sharyn

tom hardwick
Offline
Joined: Apr 8 1999

Radio 4 today gave a horrible sneering interview to Samsung who will unveil their BluRay DVD player tomorrow, suggesting that because of the two conflicting systems the public will surely stay away in droves. Sony will not like this.

tom.

DVdoctor
Offline
Joined: Apr 1 1999

The Samsung units here in the UK have had a very poor reputation, with all sorts of quality of image problems. Supposedly Sony blames Samsung for poor design, and currently sales of HD DVD's have been selling 11 to 1 over BD here, mainly Sony claimes based on the poor image on the Samsung. What I cannot believe is that they expect you to pay pound for dollar for it. The real issue is what Alan has pointed out, in the US HD with wide screen and higher resolution is far far more dramatic than HD vs PAL with wide screen and its higher resolution to start with. So I agree the conflicting systems is an issue, but the real lack of benefit to the typical punter is more a factor. Obviously Sony did not think the Pal market was high priority or they would have had some offering of PS3 this year

Sharyn

DVdoctor
Offline
Joined: Apr 1 1999

Hexus has picked up on the news.

I think what people need to be aware of is that this is BEFORE any possible legal action, which of course would take a long time to get thru the courts, but as we said, bad news tends to follow bad news, We belive the likelyhood of sony being able to deliver a system as complex as the PS3 with new software, new processor new graphics, new HDMI 1.3 chips now for ALL the systems, Games being only delivered on BD, new BD drives, BD laser problems all without major problems is quite unrealistic. Sony seem obsessed not only with BD but also that the PS3 will be a computing platform. Both are high risk but also imply a massive support organization. We believe that attempting to do this at the volumes that Sony is claiming they will reach (1 million units per month) is without precedent. If you look at Apple, they altered the software first THEN altered the Underlying Hardware did not attempt to do both at the same time. Microsoft has been IMO very clever, they have been able to partition the new technology to an add on, non "life Threatening" to the xbox 360, and at the same time are focusing most of MS resources on codec improvement, realizing that downloading online approaches are definitely in the future.

Sharyn

DVdoctor
Offline
Joined: Apr 1 1999

Sony's press release:

SONY ANNOUNCES REVISION OF CONSOLIDATED FORECAST
FOR THE FISCAL YEAR ENDING MARCH 31, 2007

Tokyo, October 19, 2006 -- Sony Corporation announced a revision of its consolidated results forecast for the fiscal year ending March 31, 2007 from that announced on July 27, 2006.

Sony consolitated_results_forecast_ye_mar07

1. Sony plans to record a provision of approximately ¥51 billion within the Electronics segment during the second quarter of the fiscal year ending March 31, 2007. This relates to charges expected to be incurred as a result of the recall by Dell Inc., Apple Computer Inc. and Lenovo Inc. of notebook computer battery packs that use lithium-ion battery cells manufactured by Sony and the subsequent global replacement program initiated by Sony for certain notebook computer battery packs used by Sony and other notebook computer manufacturers that use lithium-ion battery cells manufactured by Sony.

2. A decrease in sales and an increase in operating loss are expected within the Game segment as a result of the reduction of the retail price of PLAYSTATION®3 (“PS3”) hardware in Japan andthe fact that sales and profitability from the PSP® (PlayStation®Portable) business are expectedto be lower than originally forecast.

3. Decreased operating income is anticipated within the Electronics segment due to a production adjustment of devices for use in PS3 including semiconductors.

4. During the second quarter of the fiscal year ending March 31, 2007, foreign exchange rates trended favorably compared to our previous forecast as a result of the depreciation of the yen. We have also changed our assumption for foreign currency rates, as noted above, to reflect a depreciation of the yen during the second half of the fiscal year below the rates assumed in the July 27, 2006 forecast (assumed foreign currency exchange rates in the July forecast were
approximately ¥113 to the U.S. dollar and approximately ¥136 to the Euro).

5. Restructuring charges, recorded as operating expenses, are now forecasted to be ¥40 billion, compared to an anticipated ¥50 billion of restructuring charges included in the July forecast. Due to the successful redeployment of personnel to growth business areas, early retirement expenses are expected to be lower than originally anticipated.

Although Sony’s consolidated results during the current fiscal year will be negatively impacted principally by the provision relating to the aforementioned battery pack recall and global replacement program, as well as the revision to the PS3 launch schedule, we have continued to produce hit products in our LCD TV and digital imaging product categories, including digital cameras, which are both driving factors behind future business growth, and operating results for our overall Electronics business continue to recover favorably.

With regard to PS3, although we expect to record a loss for the business during its initial launch phase within the current fiscal year, we look forward to the successful worldwide deployment and expansion of the platform, beginning with the Japanese and North American launch in November 2006, followed by the European launch in March 2007. As a result, we expect that we can realize a significant improvement in profitability during the fiscal year ending March 31, 2008.

Consolidated Results for the Second Quarter of the Fiscal Year ending March 31, 2007
Consolidated results for the quarter ended September 30, 2006 are projected to include sales and operating revenue of approximately ¥1,850 billion, an operating loss of approximately ¥21 billion, a loss before income taxes of approximately ¥26 billion, equity in net income of affiliated companies of approximately ¥20 billion and net income of approximately ¥2 billion. Restructuring charges of approximately ¥5 billion are included in operating expenses. The preceding operating loss and loss before income taxes numbers include the recording of a provision of approximately ¥51 billion relating to charges resulting from the notebook computer battery recall and global replacement program discussed in note 1 above. The impact to net income as a result of this provision is approximately ¥30 billion. However, please note that the above totals are subject to confirmation and that Sony’s consolidated operating results for the second quarter are scheduled to be announced on October 26, 2006.

Cautionary Statement
Statements made in this release with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “may” or “might” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates, as well as the economic conditions in Sony's markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, the Euro and other currencies in which Sony makes significant sales or in which Sony's assets and liabilities are denominated; (iii) Sony's ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology and subjective and changing consumer preferences (particularly in the Electronics, Game and Pictures segments, and music business); (iv) Sony’s ability to recoup large-scale investment required for technology development, increasing production capacity and by the Game segment for the development and introduction of a new platform; (v) Sony's ability to implement successfully personnel reduction and other business reorganization activities in its Electronics segment; (vi) Sony's ability to implement successfully its network strategy for its Electronics, Game and Pictures segments and All Other, including the music business, and to develop and implement successful sales and distribution strategies in its Pictures segment and music business in light of the Internet and other technological developments; (vii) Sony's continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics segment); (viii) shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful Asset Liability Management in the Financial Services segment; and (ix) the success of Sony's joint ventures and alliances. Risks and uncertainties also include the impact of any future events with material unforeseen impacts.