Sony suffers TV relapse as Japan peers change channel

Reuters

* Sony cuts full-year profit forecast after Q2 net loss

* Battery, eco-friendly technology lift Panasonic

* Weak numbers stir doubts over Sony CEO Hirai's strategy

By Sophie Knight

TOKYO, Oct 31 (Reuters) - Sony Corp CEO KazuoHirai's determination to stick to the consumer electronics thatmade the company's fame will be put to the test in the monthsahead as domestic rivals step up a shift to more profitableindustrial technology.

On Thursday the home of gadgets from the Walkman musicplayer to the Cybershot camera warned it won't meet previousfull-year profit targets after sliding to a net loss of 19.3billion yen ($197 million) for July to September. Its TVoperation relapsed into the red on weak sales.

Meanwhile Panasonic Corp raised its earningsforecast on strong sales of products like batteries to industryclients, and Sharp Corp bounced to its first quarterlynet profit in two years, helped by sales of solar panels.

The big three in Japan's electronics have been forced toreview their strategy choices after racking up combinedaggregate net losses of about $38 billion in the five years upto March this year. While they struggled to rein in fixed costsin Japanese manufacturing that eat away at revenue, nimblerforeign companies like Apple Inc, Samsung ElectronicsCo and Asian rivals grew richer and stronger.

Since Chief Executive Kazuo Hirai took the helm last year,Sony has promised a rebound in hardware with a three-prongedstrategy focused on mobile devices, imaging technology andgaming. But the below-expectations performance in the secondquarter stirred doubts about how Sony can anchor a turnaround byreviving fervour among consumers who now covet goods likeApple's iPad and Samsung's Galaxy smartphone.

"I still cannot see any fundamental and believable strategyfor the rebirth of Sony's electronics business," said MakotoKikuchi, CEO of Myojo Asset Management based in Tokyo, speakingafter Sony announced its earnings.

"On the other hand Panasonic, which is shifting its businessaway from consumer electronics, is reportingbetter-than-expected results. The contrast is like night andday."

Just two of Sony's units, music and financial services,boosted operating earnings compared with a year ago while itsmovie business also lost money. The Tokyo-based company has comeunder pressure from major shareholder and hedge fund managerDaniel Loeb to generate more value from its entertainmentdivision - pressure that could intensify after the weakearnings.

STRATEGIC CHOICES

In contrast, Osaka-based Panasonic raised its forecast foroperating profit in the year through March by 8 percent to 270billion yen, more than had been expected, on strong sales of itsautomotive systems and eco-friendly technology.

At Sharp, a supplier of panels for the iPhone, a surprisenet profit of 13.6 billion yen in its fiscal second quarter washelped by strong demand for solar cells and a weaker yen. Whileit is still struggling to shore up its finances, recentlyissuing $1.7 billion in new shares, it's a significantturnaround from a 545 billion yen net loss a year earlier.

Panasonic's earnings statement came amid an appraisal of itsstrategic choices. A day after saying it would ramp up supply oflithium ion batteries to U.S. carmaker Tesla Motors Inc to nearly 2 billion cells in the four years to 2017, Panasonicformally confirmed it will exit plasma TV manufacturing.

Its TV and panel division lost 25.6 billion yen in thesecond quarter, a wider loss than at Sony. Mopping up the redink comes at a cost, however: Panasonic raised its restructuringbudget for this year to 170 billion yen from a previous figureof 120 billion yen.

At Sony, the commitment to build a healthy TV business liveson. On Thursday, it said its TV operation flipped from a 5.2billion yen operating profit in April-June - its first quarterlyprofit in three years - to a 9.3 billion yen operating loss.

The smartphone business at Sony was one of few to show signsof holding up in the latest quarter. Sony said it still expectsto sell 42 million smartphones this fiscal year, unchanged fromprevious guidance, after selling 10 million in the three monthsbetween July to September.

But with weak sales of video cameras and cameras, as well asa slump in personal computers that has it racing to restructureits Vaio division, the pillars of Hirai's future developmentstrategy look weak right now.

"We plan to revise our product, sales and manufacturingstrategy for our Vaio unit. We realise that we don't have muchtime so we plan to implement our decisions in the next fiscalyear," Shiro Kambe, Sony's senior vice president, toldreporters.

Sony is still aiming to get its electronics division in theblack this year, although Chief Financial Officer Masaru Katosaid it would likely miss a previous target of 100 billion yenin operating profit.

One business for which Sony does retain high hopes is itsvideo games divisions.

There have been signs of a strong debut next month in theU.S. and other key markets for Sony's new PlayStation 4 gameconsole, based on preorders. As with previous consoles,development and rollout costs have been steep, although Sony haspledged to turn a profit much faster than the four years it tookfor the previous iteration of the console to make money.

"I think we're at a stage where they really should bereconsidering their (three-pronged) strategy but the company isnot going there yet," said Myojo Asset's Kikuchi.

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