Published: July 29 2008 07:40 | Last updated: July 29 2008 20:24

Sony reported a near 50 per cent drop in quarterly net profit on Tuesday and cut its full-year forecast after a sharp slowdown at its Sony Ericsson mobile phone unit.

The decline is a fresh blow for Sir Howard Stringer, chairman, whose three-year effort to revitalise the Japanese electronics and entertainment group has been marred by several missed sales and profit targets.

Sony’s operating margin for the fiscal first quarter to June fell to just 3.7 per cent, below the “minimum acceptable” level of 5 per cent underlined by Sir Howard as recently as last month.

The Japanese group has been focused on turning round its struggling video game and television businesses, but progress in those areas was overshadowed by the deterioration in mobile handsets. Several other key products, notably digital cameras and personal computers, also showed weakness in the quarter.

Sony’s downturn looked starker against a 10 per cent rise in net profit reported by Japanese rival Matsushita, the Panasonic parent, which unlike Sony has shed its film and other content businesses to focus on consumer electronics.

Pelham Smithers, Asian equities manager at Pali International, said: “People will now start questioning Sony’s ability to remain a hardware-software firm. Sony should be where Matsushita is.”

Sony earned a group-wide net profit of Y35bn ($325m) in the quarter, down from Y66bn in the same period last year. It now projects earnings of Y240bn for the 12 months to next March, down 35 per cent from 2007 and Y50bn less than it previously forecast.

Sony’s consumer electronics division suffered a 57 per cent quarterly fall in operating profit as stiff competition forced it to cut prices of digital cameras, video recorders and Vaio PCs.

It was not the only Japanese electronics maker to suffer from price competition, however. On Tuesday, Toshiba reported a Y12bn net loss due to tumbling prices of memory chips.

Sony Ericsson, a joint venture with Ericsson of Sweden, said this month it would cut up to 17 per cent of its workforce after a 98 per cent fall in quarterly pre-tax profit. Its high-end phones have been outsold by cheaper models from rivals.

Like other export-focused Japanese companies, Sony also had to contend with a sharp rise in the yen, which hit a 12-year high against the dollar in March.

Sony generated Y5.4bn in operating profit from video game consoles and game software in the quarter, a turnround from a Y29bn loss a year ago but still a small sum given sales of Y230bn in the quarter. It loses money on each PlayStation 3 console it produces.

Group operating profit fell by 40 per cent to Y73bn after adjusting for a change in the way Sony accounts for revenue from affiliates. It expects full-year operating profit to be Y470bn, down from an accounting-adjusted initial forecast of Y520bn.

Source:ft.com