Sony's full-year profits nearly double

TOKYO--Today, Sony Corp. announced fourth-quarter earnings that were bad--but not bad enough to drag down the full fiscal-year numbers. The consumer electronics giant Sony Corp. suffered a group net loss of 56.5 billion yen ($533 million), almost 20 billion yen more than losses reported for the same quarter a year ago.

That said, the company behind the PlayStation Portable announced that its group net profit for the fiscal year that ended March 31, 2005, rose by 85.1 percent compared to the previous year. Its FY2004 net profit totaled 163.84 billion yen ($1.54 billion), compared to 88.51 billion yen ($833 million) in FY2003.

Sony's operating profits for the full year were up 15 percent to 113.92 billion yen ($1.07 billion), as successes in its movie and music operations covered up for losses in its electronics division. Operating profits in Sony's movie division increased by 81.4 percent to 63.9 billion yen ($603 million) due to a rise in worldwide sales of its DVD and VHS offerings. Strong box-office receipts from Spider-Man 2 and Hitch were also a major factor for the division's solid performance.

Sony's music sector saw an operating profit of 8.8 billion yen ($82.9 million), compared to 6 billion yen ($56.6 million) the previous year.

Sony's electronics division, which accounts for approximately two-thirds of the Sony group's revenues, was in the red for its second straight year. The division posted a loss of 34.3 billion yen ($323 million) due to sliding prices of DVD recorders, televisions, and video cameras.

Sony's executive deputy president, Katsumi Ihara, commented that the prices of LCD televisions fell between 20 and 30 percent in FY2004, while prices of DVD recorders fell 40 percent. He added that the electronics division is expected to suffer a loss, albeit a smaller one, in the current fiscal year that began April 1.

Sony's game division underperformed for FY2004, despite the launch of its new portable gaming machine and redesigned, slimmer PlayStation 2 unit. However, the division did hit a new record in sales: 252 million software units shipped worldwide, an increase of 30 million units over the previous year.

Both hardware and software for the PlayStation Portable experienced solid sales as well. The company shipped 2.97 million PSP handheld units in the last months of the fiscal year and 5.7 million pieces of PSP software--roughly two games for each device.

While software shipment was on the rise for Sony's game division, the shrinking demand for (and supply of) its PlayStation 2 hardware and price markdowns on the machine affected the division's overall revenues, bringing it down by 6.5 percent to 729.8 billion yen ($6.87 billion).

PlayStation 2 hardware shipments fell by 3.93 million to 16.17 million units for the full year, while PSOne units were down 540,000 to 2.77 million units. Operating profits in the game division were also hit by costs related to the PlayStation Portable launch--plunging 36.1 percent to 43.2 billion yen ($407 million).

Sony forecasts that it will ship 12 million units each of the PSP and PlayStation 2 hardware during the current fiscal year. Sony did not disclose an estimate for PSOne hardware shipments since demand for the machine is so low, but the company commented that it will continue to market the product as long as it continues to sell.

Sony expects that the bottom-line financial performance of its game division will remain nearly unchanged for the current fiscal year 2005, due to research and development costs associated with the PS3.

For the current fiscal year, 2005, Sony forecasts a group net income of 80 billion yen ($753 million) and an operation profit of 160 billion yen ($1.51 billion). Sony's new CEO, Howard Stringer, commented that he will follow through with the three-year, 330 billion yen ($3.1 billion) cost-cutting plan introduced by former CEO Nobuyuki Idei and former president Kunitake Ando. However, Sony is not currently expected to reach its planned operating profit margin of 10 percent by FY2006 (April 1, 2006, to March 31, 2007), and the company's new management team will be reexamining this target after a shareholders meeting in June.

Financial analysts are already gobbling up the FY2004 statistics and digging into Sony's FY2005 predictions--with added comments on how those projections might benefit some US publishers.

"We think that the FY05 PSP estimates are realistic, and that the PS2 shipment estimates may be somewhat conservative," said Wedbush Morgan securities analyst Michael Pachter, this morning.

"We believe that Sony's estimate for PSP shipments reflects its intention to ship 5 to 6 million PSPs in the US, 3 to 4 million PSPs in Europe, and 2 to 3 million PSPs in Japan. We note that over 13 million PS2s were sold worldwide last year and that there was a production constraint late in calendar 2004 that led to insufficient supply to meet demand. We expect sales of 15.2 million PS2s in the current calendar year.

"Most of the US publishers are leveraged to the PS2 console, but the driver of PS2 software sales is the installed base of over 80 million units (approximately 55 million in the US and Europe)," continued Pachter. "It is unlikely that a swing of 2 to 3 million PS2s shipped during FY05 will impact sales for any publisher dramatically. To date, Activision and Electronic Arts are the US publishers most leveraged to the PSP. We note, however, that Take-Two will soon release a version of Grand Theft Auto for the PSP, and we expect this SKU to be the top-selling game on that platform for the year. A more rapid rollout of PSPs or a greater-than-expected sell-through of hardware should benefit Take-Two."