Stiff price competition in the flat-screen TV market and the strong Japanese yen hurt profits at Sony in the last three months of 2010, the company said Thursday.
Net profits at the consumer electronics giant dropped 8.6 percent on the same period a year earlier to ¥72.3 billion (US$886 million) as sales fell 1.4 percent to ¥2.2 trillion.
The lower sales came primarily as a result of the strong yen, which has been hitting Sony and other Japanese exporters all year. In the last year, the yen has appreciated 9 percent against the US dollar and 18 percent against the Euro making the price of Sony goods more expensive outside of Japan, and reducing the profit made on each item sold.
Sony's consumer, professional and devices division, which includes its TV business, saw profits plunge 47 percent as the company was forced to cut the price of LCD televisions to match competitors. Ironically, the lower prices helped Sony increase sales of TVs from 5.4 million in the last three months of 2009 to 7.9 million in the same period of 2010.
Quarterly TV unit sales were strong in all regions except North America, but for the full year Sony expects to miss its original sales target of 25 million [m] by about 2 million [m] TVs. Sony blamed "general market conditions" and the expected late launch of some new models.
Sony isn't alone in feeling the effects of falling TV prices. Panasonic, its biggest domestic competitor, said Wednesday that its TV business recorded losses during the quarter on steep price declines. Samsung and LG Electronics, which together with Sony and Panasonic account for more than half of all flat-screen TV sales, were also impacted by lower prices for televisions.
The TV business is an important one for Sony and the company has been chasing profitability for several years. That will continue with the most recent results.
"TV is something that occupies the center of the living and connects with a lot of devices and services," said Masaru Kato , Sony's chief financial officer, at a Tokyo news conference. "It's a business we cannot do without, so just because we are not making money, we are not going to move out. We are going to work on making it profitable."
Strong sales of digital SLR (single lens reflex) cameras also helped Sony's consumer division.
The company has been ploughing more resources into its Alpha range of cameras as consumer interest shifts towards DSLR devices from simpler point-and-shoot models. For the full year, Sony raised its digital camera sales target from 23 million [m] to 24 million [m] units.
A slowdown in demand for its PlayStation 3 console and PlayStation Portable hit sales at its networked products and services division, which fell 6 percent. Sony shifted 6.3 million PS3s during the quarter, down from 6.5 million during the year-earlier period. PSP sales dropped from 4.2 million units to 3.6 million units.
But the lower sales didn't dent profits. Reductions in the cost of PS3 components meant Sony saw profits at the division surge 135 percent. It was the fifth consecutive quarter of profit for the games business.
Looking ahead, Sony cut its sales forecast for the full financial year, which ends on March 31. Lower-than-expected sales in its consumer division are expected to bring full year sales in at ¥7.2 trillion, which is down 3 percent from its previous forecast but broadly in line with actual sales the year before. Sony kept its profit forecasts unchanged.
It's been two years since the electronics industry was hit hard by the economic turmoil that followed the collapse of Lehman Bros.
Sony responded with structural reforms and a management shake-up that helped results last year, but its core electronics business had still not recovered, said Kato. That is now changing, he said.
"This year the electronics business is recovering considerably and helping overall performance," Kato said.