Conglom sees profits plunge sans Spidey
Weak results across the board from its electronics, film and music units caused Sony’s operating income to plunge by 68% in the latest quarter, as restructuring costs, stiff competition and tough comparisons with last year’s blockbuster “Spider-Man” all took their toll on the bottom line.The Japanese media and electronics giant turned in a paltry $139 million in operating income for the first quarter of its 2003 fiscal year, down from almost $433 million in the same period a year ago. Revenues sank by 7% to $13.4 billion. The numbers offered little consolation for haggard Sony investors, who had only recently gotten over what Wall Streeters termed the “Sony Shock” — the year-end numbers and grim financial outlook reported this spring that sent Sony shares into a tailspin. Reaction was muted this time around (the numbers were, by and large, in line with expectations), but Sony still suffered a selloff of about 0.8% in the Japanese market. U.S. investors were a little more positive, bidding Sony 0.6% higher on Thursday amid relief that the company came out ahead of the more pessimistic estimates. Hardware headaches The biggest laggard was the company’s flagship electronics business, which saw operating income sink by nearly three-quarters from the previous year. The division has struggled to capitalize on white-hot demand for a new wave of high-tech gadgets such as flat-screen TVs and DVD-recorders, while profits from older product lines sagged. But the film studio wasn’t much help in the profit department. Without “Spider-Man” webbing in to save the day, Sony Pictures Entertainment’ revenues sank by 13% from last year’s fiscal first quarter, and the division swung to an operating loss of $20 million. On a conference call, Sony senior VP and group financial chief Takao Yuhara noted “Spider-Man’s” record-breaking 2002 box-office — nearly $400 million in theater receipts worldwide — made for very tough comparisons in the most recent quarter. Pix mixed But the absence of “Spider-Man” wasn’t the only thing hurting SPE. Company said the “disappointing” performance of Harrison Ford/Josh Hartnett cop pic “Hollywood Homicide” and the hefty marketing spend to back “Charlie’s Angels: Full Throttle” (which opened in the last three days of the quarter) also took their toll. Studio did have some success stories at the box office, notably the Jack Nicholson-Adam Sandler laffer “Anger Management,” which took in $172 million worldwide, and the Eddie Murphy family comedy “Daddy Day Care,” with a global gross of more than $114 million. Also causing problems was the home entertainment division, which suffered a revenue slide as fewer Sony Pictures titles left the retail shelves compared to last year, and many of Sony’s deals to distribute third-party DVD titles expired. Some lighter news for the film unit’s balance sheet came from, of all people, Jerry Seinfeld. Sony logged an uptick in television revenue after extending a deal for SPE to distribute the funnyman’s hit skein “Seinfeld” in syndication to an unnamed U.S. cable network. Tuned out Sony Music continued its slide in the latest interval, as revenues fell by just under 9% amid a continued downturn across the entire market. Division trimmed its losses a bit from last year, but still wound up more than $50 million in the red on an operating basis. Conglom blamed the music industry’s familiar bugaboos, including digital piracy and a lousy economy, but argued that an aggressive restructuring plan set into motion by recently installed topper Andrew Lack would set things straight. Sony said the scheme, which included more than 1,000 layoffs, would result in a one-time charge for the quarter of just under $11 million. Sony Music was conspicuously absent from the upper echelons of the album charts for most of the first quarter, but the company did log a few big sellers. Among the hits were “Dangerously in Love,” the solo debut from former Destiny’s Child member Beyonce, and Ricky Martin’s “Almas del Silencio.” Even the company’s electronic games unit, whose flagship PlayStation 2 vidgame console has been a major profit center for Sony in recent years, suffered a setback in the most recent quarter. Revenue slipped by 18% as sales volumes for both hardware and game titles tumbled. Yuhara noted, however, that console sales, which sank to about 2.65 million units from 4.59 million, were working against very tough comparisons to last year, when volume spiked when the company lowered its prices on PS2. Electronics on skids The rest of the hardware operation suffered mainly because of slowing sales in the television market, as the bottom fell out of the market for old-style CRT TVs and the company labored to capitalize on the explosive growth in flat-screen, or LCD, sets. Electronics also took a hit on the declining sales of its Vaio computer division, which has pared down the number of low-end models it offers in a bid to increase profit margins, as well as in its digital-camera and camcorder sales. Sony stood pat on the financial projections it made this spring for the current fiscal year, calling for a slight dip in revenue to $63 billion, and a 30% drop in operating income to just over $1.1 billion. The company reiterated its plans to spend $2.5 billion on its companywide restructuring efforts over the next three years, including almost $1.2 billion in fiscal 2003 alone. Yuhara declined to say precisely where the money would be allocated, promising more details would be disclosed in October.