Sony's profits drop by 5 percent over huge costs for launching its PlayStation 3

Sony's quarterly profit dipped 5 percent as huge costs for launching its PlayStation 3 video game console offset a recovery in its electronics business.

Photo: Sony's profits drop by 5 percent over huge costs for launching its PlayStation 3

But in an optimistic sign, the Japanese manufacturer raised its full-year earnings forecast Tuesday, saying that booming Christmas sales in digital cameras and flat-panel TVs outpaced earlier targets.

Group net profit at Sony Corp. for the three months through December slipped to 159.9 billion yen (US$1.3 billion; EUR 1 billion) from 168.9 billion yen the same period a year earlier.

The electronics and entertainment company behind the Walkman portable player and "Spider-Man" movies said quarterly sales jumped 9.8 percent to 2.61 trillion yen (US$21.4 billion; EUR 16.6 billion).

Sony embarked on a turnaround effort under its first foreigner chief executive, Welsh-born American Howard Stringer, who took the helm in 2005. It has dropped unprofitable businesses, sold off assets, reduced jobs and closed plants.

For the last several years, Sony's biggest problem was long in its core electronics business, where it fell behind Apple Inc. and its iPod portable music player and Samsung Electronics Co.'s flat-panel TV business.

Sony was dealt another blow last year when it announced a massive global recall of about 10 million lithium-ion batteries used in not only its own laptops but also Apple, Dell Inc., Lenovo and others.

But its fortunes may be turning. Its electronics unit reported record sales for the quarter and an operating profit of 177 billion yen (US$1.5 million; EUr 1.2 million), double from a year ago.

It also raised its profit forecast for the full fiscal year through March to 110 billion yen (US$903 million; EUR 699 million), from the earlier 80 billion yen (US$657 million). It kept its fiscal 2006 sales target unchanged at 8.23 trillion yen (US$67.6 billion; EUR 52.3 billion).

This past quarter, it was Sony's game division that dragged on earnings the most. Sony Computer Entertainment, the gaming unit, posted a 54 billion yen (US$443 million; EUR 343 million) operating loss, largely on startup costs for the PlayStation 3, according to a company release.

Tokyo-based Sony said it shipped 1.84 million PS3 machines worldwide during the quarter. The machine has already gone on sale in the U.S., Japan and some other countries, but its sale has been delayed to later this year in Europe.

Sony stuck to its earlier target of shipping 6 million PS3 consoles by the end of the fiscal year.

Declining sales during the October-December period of the predecessor console, PlayStation 2, and of the handheld PlayStation Portable, including PSP game software, also pushed down profits at its gaming unit, the company said.

Sony blamed its own price-slashing strategy for the PS3 as cutting into profits. Game machines usually come down in price over time, but Sony made an unusual move in lowering the price on the machine in Japan by about 20 percent even before the PS3 went on sale.

David Gibson, analyst at Macquarie in Tokyo, said the future of Sony depends both on how well the flat-panel TVs do, and how its PS3 operations fare in the long run.

"It is the tail end where you make money with the PS3," he said.

Sony also got a 40 billion yen (US$328 million; EUR 254 million) boost toward profits from a weak yen, and 33.6 billion yen (US$276 million; EUR 214 million) from its investment in London-based Sony Ericsson, a mobile phone joint venture with Sweden's LM Ericsson, it said.

Sales were up 47 percent at Sony's movie division, where it returned into the black from losses the same period a year earlier, on healthy DVD sales for hit movies such as "The Da Vinci Code." Among the box office hits for the quarter was "Casino Royale," it said.

Sony also has an insurance sector, where both its sales and profits slipped during the quarter, the AP reports.

For the first nine months of the fiscal year, Sony recorded a 193.9 billion yen (US$1.6 billion; EUR 1.2 billion) profit, up 2 percent from 190 billion yen a year earlier, on 6.2 trillion yen (US$50.9 billion; EUR 39.3 billion) sales, up 9.7 percent from 5.7 trillion yen.

Sony shares, which have recovered in recent months to about the same level they were a year ago, slipped 1.8 percent to close at 5,630 yen (US$46; EUR 36).