By Sophie Knight
TOKYO (Reuters) - Sony Corp <6758.T> posted a smaller than expected second-quarter operating loss on Friday, hailed by its finance chief as proof that the Japanese group's restructuring program is paying off.
The company said the reduced operating loss was due in part to rising sales of image sensors to smartphone manufacturers, though the poor showing from its own Xperia phones weighed heavily on results.
Sales of the image sensors, used in Apple's (AAPL.O) iPhones and increasingly in Chinese-made handsets, made the devices unit the biggest earner within Sony's flagship electronics division and offset some of a 176 billion yen ($1.58 billion) impairment charge on its mobile division.
That left an overall operating loss for the three months to Sept. 30 of 85.6 billion yen, beating analyst expectations of nearly double that.
"We are on our way to achieving 400 billion yen in operating profit next year," CFO Kenichiro Yoshida declared at a media briefing on Friday, referring to a target set in May when he announced plans to set aside 135 billion yen to restructure the bloated electronics division.
"Restructuring is progressing well and right now we think we will be able to cut 20 percent of staff at our distribution companies and 30 percent at headquarters."
However, poor sales of the Xperia smartphone have dashed Sony's ambitions of becoming the world's third-biggest smartphone maker behind Apple (AAPL.O) and Samsung Electronics <005930.KS>.
Yoshida said on Friday that Sony would shrink its exposure to the Chinese smartphone market, where more nimble, fast-growing rivals have dented his company's hopes of making any significant progress in the world's biggest smartphone market.
Sony will quit the development and sale of China-only handsets, Yoshida said, with an accompanying cut in its smartphone sales forecast to 41 million from 43 million, against sales of 39 million last year.
It also wound back its operating loss forecast by 28 billion yen. In addition to the impairment charge, that leaves the mobile operation heading for a 204 billion yen loss this financial year.
Incoming mobile division chief Hiroki Totoki, picked by Chief Executive Kazuo Hirai to turn around the ailing unit after earning his stripes at a Sony Internet subsidiary and Sony Bank, said he would focus on improving the speed of management response to changes in the market after assuming his new post on Nov. 16.
"Sony's got the will to continue with its smartphone business and it's hoping income from the business improves. Todoki has reformed businesses before, so he's probably thinking of rebuilding it," said Hideyuki Fukunaga, the chief executive of fund manager Investrust.
Sony's shrinking slice of the smartphone market is in stark contrast to its dominance in game consoles, where its PlayStation 4 has trounced the Xbox One made by closest rival Microsoft Corp (MSFT.O) and has broken even within only a year of its release, a feat its predecessor achieved in four years.
Sony increased its annual operating profit forecast for the gaming unit by 40 percent to 35 billion yen after selling 3.3 million PlayStation 4 consoles in its second quarter. By Oct. 18 it had sold 12.3 million consoles, against 6.1 million Xbox One sales, according to market research website VG Chartz.
The operating profit outlook for Sony's imaging, music and device units was also increased. Strong sales of image sensors and batteries, as well as a weaker yen, propelled the devices business to a quarterly operating profit of 29.6 billion yen, up 149 percent year on year.
However, a weaker yen is negative for Sony as a whole, Yoshida said, with the company losing 3 billion yen for every yen the Japanese currency falls against the dollar.
Shares of Sony closed 0.8 percent higher before the earnings announcement, compared with a 4.8 percent rise for the Nikkei benchmark index (.N225) after the Bank of Japan announced further monetary easing that weakened the yen by as much as 2.5 percent to beyond 111 against the dollar.
Sony posted a net loss of 136 billion yen for the quarter and held its full-year net loss forecast at 230 billion yen.
($1 = 111.1200 yen)
(This version removes extraneous word from lead)
(Editing by David Goodman)