Sony losing its charge
Profit drops 94% on battery recallThe true scale of the fiasco involving Sony's flammable computer batteries became clear Thursday when management said that the electronics giant's second-quarter profit shrank 94%.
The group's net profit for the July-September period was ¥1.7 billion ($14 million), a sharp contraction from the ¥28.5 billion recorded a year ago.
The recall of about 9.6 million lithium-ion batteries fitted to laptop computers made by Dell, Apple, Hitachi, Lenovo and Toshiba is costing the company ¥51 billion ($430 million), though observers worry that the damage to its reputation will be longer and arguably more serious.
"Had it not been for the costs associated with the recall, Sony would have been able to report a slight increase in the July- September operating profit from one year earlier," chief financial officer Nobuyuki Oneda said at a Tokyo news conference. "Sony will handle the recalls sincerely so that our customers can safely use our products once more."
The company's film division performed better in the quarter, with sales rising 12.1% to ¥178.2 billion ($1.5 billion) on the back of an increase in the number of releases.
Popular titles included "Talladega Nights: The Ballad of Ricky Bobby," "Click" and "Monster House," though high advertising costs meant that it still suffered an operating loss of ¥15.3 billion ($129 million).
Oneda expressed hope that next month's DVD release of "The Da Vinci Code" will have a positive impact on third-quarter statistics, saying, "The lifetime profits from this movie will be incomparably large."
Executives said that for the full fiscal year, they expect profit to grow compared with last year.
"The next quarter, when we have 'Talladega Nights' and 'Da Vinci Code' hitting video, you start to get that flowback of the real kind of thick margin cash flow that will get us to where we need to be," Sony Corp. of America chief financial officer Rob Wiesenthal said.
Asked about previous weakness in the DVD business, Wiesenthal said, "Over the past 18 months, library catalog has been challenged, but we have noticed some stabilization in the market."
He also expressed confidence in Blu-ray Disc DVD technology, predicting that it will "help library product and new release product and give us a real shot in the arm."
The games division also performed poorly during the quarter, with sales tumbling 20.5% to ¥170.3 billion ($1.4 billion). The PlayStation Portable was particularly disappointing, with the company revising the target for fiscal 2006 shipments to 9 million units, down from the initial 12 million. Last year, it shipped 14 million PSPs.
Delays to the release of the PlayStation 3 console — which now will not be available in all markets for the lucrative Christmas season — also has contributed to a ¥43.5 billion ($367 million) operating loss for the division. PS3 goes live next month in Japan and the U.S.
Sony's electronics sector saw a 71% reduction in operating profits, from ¥28 billion a year ago to ¥8 billion ($67 million), but management was keen to point to the success of its Sony Ericsson mobile phone joint venture, with net income close to tripling for the quarter.
Beyonce's "B'day" and Christina Aguilera's "Back to Basics" were hit albums for Sony in its alliance with Bertelsmann AG in the quarter, along with Justin Timberlake's "Future Sex/Love Sounds."
Despite anticipating a 10% increase in sales, Sony's problems forced it to revise its forecast for the fiscal year through March 2007 down 38% to ¥80 billion ($673 million), a drop of 35% from the previous year.
Sony's U.S.-traded shares shot 3.8% higher Thursday to $42.30.
Julian Ryall reported from Tokyo; Paul Bond reported from Los Angeles.