Weak electronics sales keep Sony earnings down

Sony has reported slightly better than expected revenue and profits for fiscal 1999, but growth was still constrained by sluggish sales in its electronics and music business and increasing price competition in the US and Europe. Sales remained basically unchanged, up 0.6 percent from last year to reach 6.79 trillion yen ($US56.6 billion).

Sony has reported slightly better than expected revenue and profits for fiscal 1999, but growth was still constrained by sluggish sales in its electronics and music business and increasing price competition in the US and Europe.

In the year ending March 31, 1999, sales remained basically unchanged for the Tokyo-based consumer electronics giant, up 0.6 percent from last year to reach 6.79 trillion yen ($US56.6 billion), the company said in a statement. The increase was slightly higher than the 1 percent drop the company predicted in January of this year. Pretax profits fell 19 percent from fiscal 1998 to 368 million yen, according to the company.

Net income was off 19.4% year on year, falling to 179 million yen, but slightly higher than the 160 billion yen forecast the company made in January.

Masayoshi Morimoto, corporate senior vice president at Sony, pointed at plunging sales and operating profits in its electronics and music divisions during the fourth quarter. Economic recession in Asia, Latin America, Eastern Europe and Russia hit consumer audio and video sales especially hard, according to Morimoto.

In the U.S. and Europe, where sales of most electronics goods remained strong, price competition ate into margins, sending worldwide operating profits in its electronics business down 58.7% for the year to 130 billion yen. Sales in that sector declined 3 percent on a constant currency basis to 4.67 trillion yen from fiscal 1998, the report said.

Even though the recession in Asia seems to have bottomed out, Sony expects sales of electronic goods to remain lethargic for the remainder of fiscal 1999, according to Morimoto.

The popularity of Sony's Vaio series of personal computers was one of the few bright spots in the electronics report. Driven by strong demand in Japan, the Vaio led the sales of Sony information and communications products up 2.2%, the report said.

Exchange rate fluctuations were a major topic in today's report. Sony earns a large chunk of its revenues from overseas, where they can be degraded or enhanced by volatile currencies. Sony's poor numbers are to some extent the result of the yen's appreciation from an average of 137 yen to the dollar in the first half of the year, to an average of 127 yen to the dollar in the second half of the year, the report said.

Perhaps the biggest news, however, was Sony's games business. In fiscal 1999, Sony's operating profits from games were higher than any other business segment for the first time, according to Morimoto. Sales in the sector bounded up 7 percent on a constant currency basis to 784 billion yen. Sales of the PlayStation game console hit 21.6 million units for the year and have sold a total of 54.4 million units in the product's life time.

Morimoto said that operating profits were actually somewhat restrained by the capital investments Sony is making to bring out the PlayStation 2 next year. The PlayStation 2 will reportedly use a 128-bit processor that is three times faster than Intel Corp.'s top-of-the-line Pentium III chip.

Sony, which recently announced a corporate reorganisation, is focusing on networking technologies to drive its business in the future. The new ultra high tech PlayStation 2 is key to the new strategy, according to Morimoto.

"We have started to focus on the value chain, meaning networks and the equipment which will facilitate them," Morimoto said. "The chips that are used in the PlayStation 2 will not only be used for games, but will have other applications as well. PlayStation 2 will accelerate the growth of Sony."

However, Morimoto reiterated Sony's plans to trim before it expands. He said that Sony is currently facing overcapacity and under its reorganization plans it will need to cut the number of its factories from 70 currently to around 50. Labor cutbacks would be made through attrition, but Morimoto would not say in which countries the cuts would be made.

Sony can be reached at +81-3-5448-2200 or at http://www.sony.com/.

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