Company hit by currency changes
Hit hard by exchange rates losses, Sony reported a steep drop in profit for the fiscal second quarter ended Sept. 30.
Results for Sony’s film and games units were solid in the quarter, but the company is taking a huge hit to profits stemming from foreign exchange losses. The Japanese conglom relies on exports for 80% of its sales, and it struggles when the yen strengthens against the dollar and the euro.
Sony’s net profit fell 72% year-on-year to ¥20.8 billion ($214.1 million), while operating profit plunged 90% to $113 million in the same period. Sales shrank by 0.5% to $21.4 billion.
Sony has accordingly slashed its operating profit forecast for 2008 by 57% from its July estimate to $2.06 billion (Daily Variety, Oct. 24).
The film division reported a 13% second-quarter sales gain from the year-ago quarter to $2.02 billion.
The healthy worldwide B.O. of Will Smith’s “Hancock” was the biggest contributor. Comedy hits “Step Brothers” and “Pineapple Express” and the homevid releases for “21” and “Vantage Point” also helped.
Operating profit for the film division soared 200% year on year to $113.4 million, with the sale of a European cable channel by a Sony equity affiliate supplying a much-needed boost.
Game sales were also a bright spot for Sony in the quarter, climbing 10.3% year on year to $2.9 billion. Worldwide sales of PlayStation 3 consoles rose 1.12 million units to 2.43 million, while sales of PS3 software improved by 10.7 million units to 21.1 million in the same period.
The game division’s operating loss shrank to $407 million from $987 million in the second quarter of 2007, with PlayStation 3 cost cuts and stronger sales of PS3 software contributing to better results. In the first quarter, however, games reported an operating profit of $50.2 million.
The solid showing by the games and film divisions, however, were overwhelmed by bad ones elsewhere on the balance sheet.
The core electronics division recorded a jolting 41% loss in operating profit, even though sales of Bravia LCD TVs rose worldwide and sales of Vaio PCs climbed outside Japan. The loss came mostly from drops in the units’ selling prices and a decrease in equity in net income for the Sony Ericksson mobile communications subsid.
Meanwhile, sales at Sony BMG Music Entertainment slid 5.2% year on year to $931 million, while operating profit fell 66.7% to $36 million. Album sales slid as fans continued to migrate away from physical music.
Of the decrease in Sony’s 2008 profits, $1.34 billion is ascribed to expected foreign exchange hits to the profits of the electronics and game divisions.
In the second quarter, the yen rose to ¥107 against the dollar compared with ¥117 in the same quarter last year. The euro remained unchanged in this period at ¥160 but has since fallen to ¥120, while the dollar has dropped to ¥97.