Reuters: US Dollar Report: Euro zone adds barrier to Sony's revival hopes

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Euro zone adds barrier to Sony's revival hopes Aug 1st 2012, 20:03 By Tim Kelly TOKYO | Wed Aug 1, 2012 4:03pm EDT TOKYO Aug 2 (Reuters) - The debt crunch roiling Europe adds to the obstacles Sony Corp and its new boss Kazuo Hirai are trying to overcome in tackling the losses that have dogged Japan's iconic maker of consumer electronic gadgets. Sony is expected on Thursday to report a 36 percent slide in first-quarter operating profit to 17.6 billion yen ($225 million), c o mpared with a year earlier, th e average estimate of 5 analysts surveyed by Thomson Reuters I/B/E/S shows. The company in the year ended March 31 posted an operating loss of 67 billion yen and a record net loss of 455 billion yen. The quarterly results are due to be released at 0600 GMT after stock trading in Tokyo has closed for the day. Taking the helm at Sony in April, Hirai vowed to revive the fortunes of the maker of the Walkman music player and PlayStation gaming console after years of attrition from foreign competitors overturned its dominance in consumer electronics. Hirai now faces the challenge of steering his limping corporation through a euro zone debt crisis that is denting global demand for consumer electronics and eroding the profitability of Sony products. "I don't think we have to worry too much about the U.S. dollar, but the real worry is the euro zone," said Yuuki Sakurai, CEO of Fukoku Capital Management, the asset management unit of Japan's Fukoku Mutual Life Insurance. "We'll have to fasten our seatbelts and get ready for the turbulence," Sakurai said. Hirai "is in a tough position, I don't envy him." The evaporating value of the euro hurts all Japanese companies that sell their goods and services in Europe, but Sony is more sensitive to yen swings against the common currency than its local peers. Sony's European sales account for a fifth of all revenue compared with a tenth at both Panasonic Corp and Sharp Corp. A one-yen gain in the exchange rate against the euro cuts 6 billion yen off of Sony's operating profit. For Panasonic, a similar change would cut only 2.5 billion yen, and for Sharp, no more than 500 million yen. Sony, which also makes TVs and smartphones, has based its earnings outlook on exchange rates of 80 yen per dollar and 105 yen per euro. The average against the dollar during the first quarter was 80.1 yen with the euro at 102.9 yen. The euro since has eroded in value to its lowest in more than a decade to around 95 yen. OVER AMBITIOUS For the full business year to next March, Sony has forecasting an operating profit of 180 billion yen. Hirai wants to expand group sales by a third to 8.5 trillion yen in two years and widen its operating margin to more than 5 percent. But many analysts see the operating profit target as ambitious. The consensus forecast of 18 analysts surveyed by Thomson Reuters suggests annual operating profit will be 139 billion yen. In addition to currency risks, Sony is struggling to appeal to consumers in the face of competition from the likes of Apple Inc, Samsung Electronics Co Ltd and Microsoft Corp. "Sales volume in the smartphone and game business seems to be making little progress toward guidance targets," Takashi Watanabe, an analyst at Goldman Sachs in Tokyo said in a report. Hirai in April outlined a revival plan that stakes Sony's future on mobile devices such as the Xperia smartphone, gaming and digital imaging, while developing new businesses, including a medical unit. He also promised to triple online gaming network sales by March 2015. So far, however, he has failed to convince investors a turnaround is imminent for the company behind the Bravia TV and Vaio laptop brands. Since he moved into the CEO office, Sony's shares have tanked by more than two fifths. Yasuo Nakane, an analyst at Deutsche Securities in Tokyo, said Sony will have to slash its full-year operating profit prediction eventually. Nakane estimates operating profit for the business year at only 86.8 billion yen, more than 50 percent below Sony's target. "Sony has yet to come up with a clear management strategy and concrete measures to improve earnings in an increasingly tough environment for consumer electronics," he said. Link this Share this Digg this Email Reprints

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