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Sony Earnings Slide

Sony warned of financial trouble last week.  Now it’s official.  Hit with the triple whammy of a unexpected currency fluctuation, weakening consumer spending and mounting losses at the music division, the company reported a 72% drop (y/y) in net income for the fiscal second quarter ended September 30th.

By the numbers, for the 2nd quarter, total revenue was ¥2,072b.  At Sept. 30th exchange rates of ¥104 to $1 that translated to about $19.93b.  (At Wednesday’s intraday rate of about 97 Yen to the dollar it’s equivalent to near $21.4b).  Net income was ¥20.8b or ¥19.83 per diluted share. 

sne-game-q2.pngDivisionally, measured by revenue growth year over year, the strongest performer for the quarter was Sony’s gaming division.  Sales increased 10.3% to ¥268.5b.  PS3 sales were up 1.12m units to 2.42m and software sales for the platform were up 10.7m units to 21.1m.  

In operating income, the gaming division lost ¥39.5b, a sizable improvement over last year’s loss of ¥96.7b.

In the music segment, which remained a joint venture for the quarter but will be wholly owned moving forward, losses ballooned significantly.   On revenues of $762m, an 11% decline, Sony BMG lost $57m on the quarter, down from an $8m loss in 2007 and $42m in red ink last quarter.

Rebounding from a weak summer quarter,the film division reported sales growth of 3.4% and operating income up significantly.

q2-sne-electronics.pngIn the electronics division, revenue growth was flat with a .6% decrease compared to the same period last year. On a local currency basis sales were up 5%.  Total revenue for Sony’s largest division was ¥1,653B.  In the sub categories of the group, Television sales were up 17.8% in revenue but their contribution to operating income was diminished due to price cuts and especially, as partly the case in the prior quarter too, currency issues.

currency.pngThe currency exposure stems from the fact that more than three quarters of Sony’s revenue is generated outside of Japan.    

"If today’s for-ex conditions — 97-98 yen to the dollar — continue, full-year earnings would have to be revised downward by another 70 billion yen ($720 million)," Sony CFO Nobuyuki Oneda said.

sne-fy-forecast.pngLooking to the remainder of the year, Sony is sticking to its October 23rd forecasts for the Fiscal Year ending in March.   Revenue is forecast at ¥9,000B,a 1% y/y increase. Op Income is forecast at ¥200B, a 58% decline.  Net income is projected at ¥150b, a 59% drop.

Driven by investor expectation that the economy will stifle electronics sales in the near future, Sony’s stock has dropped more than 65% on the year.   Shares are trading at lows not seen since before 1995.

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