Sony seems to be back on track

TOKYO - Sony swung to a better-than-expected quarterly operating profit, propelled by robust sales of its Bravia brand LCD televisions and Cybershot digital cameras, in a sign that its recovery is on track.

A weaker yen also helped the electronics and entertainment conglomerate overcome valuation losses at its life insurance unit and start-up costs for its PlayStation 3 game console.

The company's American Depositary Receipts rose over 6 per cent in New York trade.

"It (the first-quarter result) was not a huge surprise, but was a relief, particularly because the result shows a substantial improvement in the electronics division's profitability," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

The TV-led turnaround at its electronics unit is symbolic as its President Ryoji Chubachi has said that there would be no Sony revival without a TV revival. Sony saw its liquid crystal display (LCD) TV sales soar fivefold in the first quarter from a year earlier.

Sony earned an operating profit of 27.05 billion yen ($377.06 million) in April-June, topping a consensus forecast of 18 billion yen in a poll of seven analysts by Reuters Estimates and swinging from a 6.58 billion yen loss a year earlier.

Net profit totalled 32.29 billion yen, in a turnaround from a 7.26 billion yen loss a year earlier, helped by gains from its mobile phone joint venture with Ericsson.

Struggling electronics maker Sanyo Electric Co. Ltd. swung to a first-quarter operating profit of 2.6 billion yen from a loss of 13.0 billion yen a year earlier, thanks to cost reduction. But slumping sales of digital cameras and mobile phones for overseas markets sent its quarterly sales down 11 per cent.

Sony's mainstay electronics division, which accounts for about 70 per cent of its total revenues and makes Walkman music players and Vaio computers, posted a 47.4 billion yen profit, its first profit for the April-June quarter in two years.

"The biggest contributing factor was television. It was still in the red, but we made substantial progress. We also saw brisk sales of digital cameras, and cost-cutting measures progressed smoothly," said Chief Financial Officer Nobuyuki Oneda.

The box-office hit "The Da Vinci Code" boosted Sony's movie division sales by 42 per cent in the quarter, but marketing expenses linked to the release of new pictures such as "Monster House" pushed the business into the red.

Sony will launch PS3, the latest version of its blockbuster game machine, in November. It will compete for holiday buyers' attention with Nintendo Co. Ltd.'s upcoming Wii and Microsoft Corp.'s Xbox 360 in the nearly US$30 billion ($48.65 billion) video game market.

For the full year to next March, Sony revised up its operating profit forecast by 30 per cent to 130 billion yen as it started booking patent-related income as recurring revenue rather than miscellaneous income. It kept unchanged its net profit forecast of 130 billion yen.

The new operating profit forecast compared with a consensus of 159.8 billion yen from 18 brokerages polled by Reuters Estimates. It would still be down from a 191.26 billion yen profit last business year as PS3-related start-up costs weigh.

For more earnings details, see the company's website at: http://www.sony.net/SonyInfo/IR/financial/fr/06q1-sony.pdf

Sony's announcement comes a day after bigger rival Matsushita Electric Industrial Co. Ltd., a maker of Panasonic brand products, reported a 41.5 per cent jump in quarterly profit on strong demand for its plasma TVs.

Sony has a long way to go when it comes to profit margin. Its operating margin in the latest quarter came to 1.6 per cent, about half that of Matsushita.

In the LCD TV market, Sony had lagged far behind Sharp Corp.. But a multimillion dollar marketing campaign and joint panel production with Samsung Electronics Co. Ltd. turned the Tokyo-based company into a contender for the top spot in the fast-growing market last year.

"Sony's competitiveness in the market is improving and their cost competitiveness also should not be a problem thanks to the tie-up with Samsung. But the question is whether they could sustain the growth," said Masaki Iso, head of Japanese equities at Yasuda Asset Management.

Sony reported a loss of 1.2 billion yen from its pictures division against a 4.2 billion profit a year earlier on hefty marketing costs for films to be released in the third quarter of the calendar year.

Shares of Sony closed up 2.2 per cent at 5,020 yen ahead of the result, outperforming the Tokyo stock market's electrical machinery index, which rose 1.8 per cent.

The company's American Depositary Receipts rose US$2.77, or 6.45 per cent, to US$45.72 on the New York Stock Exchange.

Sony lost more than 7 per cent in the financial first quarter, roughly in line with the Tokyo stock market's electrical machinery index.

- REUTERS