Sony Reports Large Loss on Restructuring, Games Division

Restructuring costs sank Sony deeper into red ink for the latest quarter amid a turnaround effort under Chief Executive Howard Stringer, the first foreigner to head the Japanese manufacturer.

Sony Corp (SNE)., which brought the world the Walkman portable player and PlayStation 2 video-game machine, reported a 66.5 billion yen ($578 million) loss Thursday for the January-March quarter, worse than the 56.5 billion yen it lost the same period the previous year.

It was the fifth consecutive year that Sony racked up a loss in the final fiscal quarter — a testament to the serious restructuring the electronics and entertainment company has been undergoing for years.

Quarterly sales, however, rose 8.7 percent to 1.85 trillion yen ($16 billion) from 1.7 trillion yen the previous year, reflecting the emerging signs of a recovery led by better sales in TVs and other gadgets. But some of those gains came from a weak yen.

Restructuring expenses weighed heavily on the company, costing 75.3 billion yen ($655 million), mostly in the electronics sector, during the quarter, up from 48.6 billion yen for restructuring the previous year. Development costs for the PlayStation 3, the planned upgrade video-game console, also added to the losses, Sony said.

In recent years, Sony has fallen behind in portable music players such as Apple Computer Inc.'s (AAPL) iPod and in flat panel TVs, dominated by Japanese rivals like Matsushita Electric Industrial Co. (MC), which makes Panasonic brand products, and Sharp Corp., as well as by Samsung Electronics Co. of South Korea.

Under the leadership of Welsh-born Stringer, the company has embarked on drastic cost cuts, dropping parts of its business such as the Qualia luxury electronics lineup and Aibo entertainment robots, in an effort to turn profitable in the face of intense competition from cheaper Asian rivals.

Samsung, by contrast, has been booming, earning 1.88 trillion won ($1.95 billion) in the same quarter.

Sony boosted TV sales last year, especially in the U.S., after it began making flat-panel TVs in a partnership with Samsung, a smart business move for the company but an admission it couldn't catch up alone in a critical technology called liquid crystal displays.

For the fiscal year ended March 31, Sony marked a 123.6 billion yen profit ($1 billion), down 24.5 percent from 163.8 billion yen in fiscal 2004. Fiscal 2005 sales climbed 4.4 percent to 7.48 trillion yen ($65 billion) from 7.2 trillion yen in fiscal 2004.

Both were better than Sony's forecasts. The company had initially forecast a 10 billion yen ($87 million) loss for the fiscal year but later raised that to a 70 billion yen ($609 million) profit on 7.4 trillion yen ($64 billion) sales.

Sony, which also has powerful film, video-game and music businesses, said it was optimistic about the future, as the growing sales of liquid-crystal display TVs start to be reflected in earnings.

The release of potential movie blockbusters like "The Da Vinci Code," set to open in May, is also likely to help boost profits, it said.

The video-game business suffered somewhat in the past year because of a decline in interest in the PlayStation 2 home console as gamers await the upgrade, PlayStation 3, expected to go on sale in November.

Sony is forecasting a 130 billion yen ($1.1 billion) profit for the fiscal year ending March 31, 2007, up 5 percent from the fiscal year just ended, on 8.2 trillion yen ($71.3 billion) sales, up 10 percent.

Sony said fiscal 2005 sales in the movie segment rose mainly because of a weak yen in the absence of hits like "Spider-Man 2" the previous year.

In the game unit, fiscal year sales rose because of the popularity of the PlayStation Portable handheld game, of which 14 million were shipped during the year, although PlayStation 2 shipments stayed flat at 16.2 million.

But profitability was down in the unit because of high research and development costs for PlayStation 3, the long awaited successor machine. In March, Sony put off introducing PlayStation 3 until November from the initially planned spring launch.

PlayStation 3 is a key product in Sony's upcoming push to dominate living rooms around the world with the next-generation video format that it's promoting called Blu-ray disc. Japanese rivals Toshiba Corp. and NEC Corp. (NIPNY) back HD DVD, a competing format.

Sony no longer breaks out results in its music division after it set up a joint venture with Bertelsmann AG of Germany in 2004.

Sony shares, which have gained 50 percent in the past year, closed up 0.67 percent at 6,030 yen ($52) in Tokyo. Earnings were announced after the market closed.