Jul 29, 2008

Sony, the Japanese electronics and entertainment titan, may be poised to lose its 13-year title as the world’s biggest games console maker despite a surprise jump in profits at its Playstation division.

Though currently riding high on continuing strong sales of the Playstation Portable and the recent launch of Konami’s Metal Gear Solid 4, Sony seems likely to run a close second to Nintendo by the end of year if the two companies attain their respective shipment targets.

Efforts to lower the production costs of the hefty Playstation 3 appeared to have paid off, with operating profit Y5.4 billion in the quarter as opposed to the Y29 billion loss recorded this time last year.

But the return of black ink at the games division after so many quarters in the red was small consolation to investors, after the Japanese electronics giant yesterday unveiled group-wide results which one analyst at KBC said were “not pretty, however you slice and dice them.”

The downbeat numbers follow months of apparently brightening prospects under Sir Howard Stringer – the group’s first ever non-Japanese chief executive who has spent nearly three years attempting to re-craft the company.

But yesterday’s reckoning of quarterly net profits, which took a 47 per cent year-on-year nosedive, suggests there remains a mountain to climb.

Analysts said that the numbers, which were difficult to assess properly because of changes to the way they were calculated, demonstrated Sony’s continuing vulnerability to the overall economic picture and the US and European slump.

Fund managers wincing at the group’s sharpest drop in electronics profits for two years said that it was now difficult to become bullish on Sony’s prospects because of the “visibly tightening purse-strings of the American consumer”.

A stronger yen has also taken a heavy toll on the company’s margins and higher material and shipping costs have weighed heavily on the core electronics division. The impending Beijing Olympics, much to Sony’s dismay, have yet to kick-in as a spur for Chinese consumers to buy large, high-end televisions.

For the company’s movie division, the prospects of a massive summer blockbuster on the scale of last summer’s Spiderman 3 now rest in the hands of Will Smith’s Hancock, which was released after the April-June period reported yesterday.

Performance was weak at the company’s mobile phone joint venture, Sony Ericsson, as competition from the iPhone took its toll and increasingly cash-strapped consumers in Europe shunned the sort of higher-end models in which Sony Ericsson specialises.

Sony did not add any detail to mounting speculation that it is planning to spend Y100 billion buying Bertlesmann out of a 50-50 music joint venture, known as Sony BMG - that has strong market share in various parts of the world. where Sony's core music business has gaps.


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