Sony Profits Fall on Strong Yen, PS2 Costs

TOKYO (05/01/2000) - Japanese consumer electronics giant Sony Corp. on Friday announced its financial results for the full year to March 31 and, for the second year in a row, took a hit on profits because of the strong yen. The company also said heavy start-up costs associated with its PlayStation 2 games console hit results.

For the full year Sony reported group revenues of 6.68 trillion yen (US$63.1 billion), down 1.7 percent on the previous year. Operating income slipped 30.9 percent to 240.6 billion yen while pretax income fell 30.0 percent to 264.3 billion yen and net income was off 31.9 percent at 121.8 billion yen.

At the root of the falling income and profits was the strong yen. Sony said the average value of the Japanese currency climbed to 111 yen to the US dollar from 127 yen and against the euro climbed to 114 yen per euro from 142 yen. Had it not been for the currency fluctuations, said Sony, revenues would have climbed around 9 percent and operating income would have shot up 39 percent.

Nevertheless, the results were slightly better than the company's forecast a year ago when it predicted an average exchange rate of 115 yen to the dollar and 127 yen to the euro.

Sony feels the effects of the exchange rate greatly because it does so much business overseas. In the year just ended 68.3 percent of all sales were in overseas markets. The U.S. was Sony's biggest overseas market representing 30.3 percent of total revenues -- only slightly less than Japan where Sony saw 31.7 percent of all sales. Europe was in third place responsible for 22 percent of sales.

By business segment, the electronics sector continued to eclipse all of Sony's other divisions with sales of 4.72 trillion yen, up 1.1 percent on the year, to represent 70.6 percent of all sales and operating revenue at the company. On a local currency basis, which excludes exchange rate fluctuations, Sony reported double digit percentage jumps in sales in all regions. Operating income at the unit fell 9.5 percent to 118.6 billion yen on the strength of the yen, said Sony.

Driving sales in the electronics sector are its Vaio personal computer range, cellular telephones, semiconductors and digital camcorders. Vaio shipments in the year were 1.4 million of which 1 million were notebook computers. For the current financial year Sony said it plans to double Vaio shipments.

In its games business, which is responsible for the popular PlayStation console, the company said sales slipped 16.5 percent to 654.7 billion yen while operating profits fell 43.3 percent to 77.4 billion yen. The big slide in profits came as a result of start-up costs for the PlayStation 2 which was launched in Japan a month before the end of the financial year while the lower sales were a result of sluggish demand in Japan, where consumers were waiting for the PlayStation 2 (PS2) launch, and in the U.S., where price reductions were made to stimulate demand.

Shipments of PlayStation hardware were 18.5 million units for the year, down from 21.6 million in the previous year, which brings cumulative shipments to 72.9 million units worldwide. An additional 1.41 million units of the new PS2 were shipped in Japan. With the global launch of the PS2 planned for later this year, Sony said it expects to see 10 million of the new consoles shipped in the current year with an additional 8 million of the original console also leave factories. Japan is expected to account for 4 million of the PS2 shipments with Europe and the U.S. each accounting for 3 million units.

In its other business segments, Sony saw sales and profits slide at its Sony Music and Sony Pictures units and improvements in its growing insurance business.

For the current year, the company forecast sales and operating revenue will climb 5 percent to 7.0 trillion yen, operating income will grow 6 percent to 255 billion yen, pretax income will decline 9 percent to 240 billion yen and net income will be almost unchanged at 120 billion yen.

Sony Corp., in Tokyo, can be found online at http://www.sony.co.jp/.

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