PlayStation 3 puts Sony in the red

Company posts $573 million loss

Sony lost more than half a billion dollars in the fourth quarter but predicted a substantial turnaround in the current fiscal year.

It was the pesky PlayStation 3 — not the entertainment division — that was responsible for the red ink.

Loss widened by about 1% to ¥67.6 billion ($573 million) in the January-March quarter vs. a year earlier, even as sales in the frame were up 13% to $16.8 billion.

Much of the loss was connected to the vidgame biz, which Sony continues to operate at a loss due to high production costs and intense competition from Nintendo’s Wii.

According to figures released by Sony on Wednesday, operating profit dropped 68% to $597.5 millionfor the fiscal year ended March 31 from $1.9 billion for the previous period.

Boosted by strong results in the electronics and film divisions, overall sales in fiscal 2006 rose 10.5% to $71.2 billion — a new company record. The games division scratched out a 6.1% increase in sales to $8.5 billion, but operating loss was $1.9 billion compared with a profit of $72.5 million the year before, as Sony priced the PS3 below its production costs during its startup period and production delays caused a slower-than-skedded rollout in key territories.

Conglom announced Wednesday that it missed its PS3 sales targets for the year; the company shipped about 5.5 million units, roughly 500,000 short of its previous projections.

Sony took another hit from falling software sales for the PlayStation 2, shipping 193 million units in fiscal 2006, 30 million less than in the previous year. Cost reductions in the production of PS2 consoles provided some bottom-line consolation, however.

On a happier note, Sony Pictures Entertainment was a fourth-quarter revenue driver for the group; homevid titles including “The Da Vinci Code” and “Casino Royale” helped send profit at the division up 56% and sales up more than 30%.

In a call with investors Wednesday, execs confirmed that revenue for Sony Pictures Entertainment would come in lower this year than last year, but attributed that drop to a smaller film slate.

“We’re really focused at SPE on profits, not revenues. I won’t call it a shift in strategy but it’s been more of an evolution where we are just much more efficient in terms of the greenlight process,” said Robert Wiesenthal, exec veepee and chief financial officer of Sony Corp. of America.

Division is expected to book solid revenue numbers in the current quarter thanks to the eye-popping success of “Spider Man 3,” with box office having a far more meaningful impact on the bottom line than individual movies traditionally have on a company of Sony’s size.

Through last weekend, sequel has earned $622 million worldwide, according to studio estimates.

At the electronics division, sales rose by the high single-digits in Europe and the U.S.

Despite the PS3 woes, Sony predicted that profit would more than double to $2.7 billion for fiscal 2008, which ends in March.

Wall Street took the projections as a sign that Sony CEO Howard Stringer was turning around the company’s fortunes, and the stock closed up 6% Wednesday. Stringer has embarked on a policy of aggressive cost-cutting to turn around the Japanese giant.

The games division plans to drain the sea of red ink by expanding its PS3 hardware and software business in Japan, Europe and North America — but still expects to record a loss for the year. Sony also looks to boost profits at the studio with assists from the previous year’s slate, led by “Spider-Man 3,” and higher homevid and TV sales from its pic library.

(Mark Schilling in Tokyo contributed to this report.)

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