Sony Profit Forecast Slashed on Battery, PS3 Woes

A large recall of Sony-made batteries by PC makers and problems that have hit the launch of the PlayStation 3 console caused Sony to cut its full-year profit forecast by more than a third on Thursday.

The company now expects to earn a profit of 80 billion yen (US$674 million) this year, down 38 percent from its previous forecast and below its fiscal 2005 profit of 124 billion yen. It expects its operating profit to be 50 billion yen, which is 62 percent below its previous forecast and much lower than the 226 billion yen it recorded last year. Operating profit is the amount of money made from operations and excluding exceptional items like gains recorded on stock sales.

The battery problems, which have seen approximately 8 million battery packs recalled or offered for exchange in recent weeks, will cost Sony about 51 billion yen, it said. That’s about double the company’s previous estimate made in late August.

Even with Thursday’s update, that figure could change, said Sony Chief Financial Officer Nobuyuki Oneda at a Tokyo news conference.

“This is our best estimate right now. It could go up; it could go down,” he said. Sony is still in discussions with PC makers regarding how much of the cost of the recall it will bear, he said. “We cannot say who will bear the cost, but a large part will be borne by Sony.”

Larger losses are expected from the games division.

Problems with starting up mass production of the blue lasers required for the PlayStation 3 console and the subsequent adjustments Sony will make to production of other components will cost about 33 billion yen. Sony will also be hit by a price cut for the console in Japan and the addition of higher-specification components to the machine. Together these will mean a loss of about 30 billion yen, based on the originally anticipated profits.

Sony’s PlayStation Portable, the handheld gaming device launched a little less than two years ago, is also facing problems. Sales this year—already forecast to be below last year’s level—are worse than expected, and Sony lowered its shipment forecast from 12 million units to 9 million. The lackluster sales will further hit revenues and profits in the gaming business, said Oneda.

The revision doesn’t come as a surprise. The widening recall of batteries in recent weeks and the PlayStation 3 price cut both gave investors and analysts cause to anticipate such a move by the company. Earlier this week, the company said it was considering such a revision.

In the midst of the bad news, there were a few indications that, despite the battery and game problems, Sony is making some progress in turning around its electronics business. Product sales targets are being met for flat-panel liquid crystal display (LCD) televisions and digital cameras, and Sony said it now expects restructuring costs to be 40 billion yen, which is a reduction from the previously forecast 50 billion yen.

Sony is due to announce its first-half business results next week.

Despite the negative publicity that has come from the battery problems, there has been no decision made on whether any senior executives will lose their jobs.

“Top management regards the situation as quite grave and serious indeed,” said Naofumi Hara, a senior vice president of Sony at the news conference. “For the time being they are going to see through voluntary recall and replacement. That’s what the management is focusing on. Nothing beyond that has been decided.”

-Martyn Williams, IDG News Service (Tokyo Bureau)

CIO.com is on the Sony battery recall story, and we’ll do our part to post all the latest developments.

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