Sony's financials looking bleak
Losses of over £1bn in October-December last year, and company is now forecasting an even greater deficit for the current financial year

Just a day after announcing the appointment of Kazuo Hirai as its new President and CEO, Sony has demonstrated the task he faces with the release of its third-quarter financial statement and a revised forecast for end of year results.

In the last three months of 2011 the company made a net loss of Y159bn (£1.3bn), against Y72.3bn (£600m) profit for the same period in 2010, on sales down 17.4% year on year to Y1.822tn, or just over £15bn.

Poor Christmas present sales

Crucially, in the part of the year usually considered as the most lucrative for consumer electronics companies, covering as they do the Thanksgiving, Christmas and New Year celebrations, Sony's Consumer Products and Services division fared particularly badly.

Its sales were down 24.4% year on year, from Y1.3tn (£10bn) to Y996.5bn (£8.27bn), and the division's profitability slumped from Y63.5bn (£527m) in the last quarter of 2010 to a loss of Y85.7bn (£711m) in 2011.

The company says there are three factors behind this fall: it was 'primarily due to a decrease in LCD television sales reflecting price declines, mainly resulting from deterioration in market conditions in Japan, Europe and North America, the impact from the Floods [in Thailand], and unfavourable exchange rates.'

The cost of losing S-LCD

In addition, the operating loss was affected by Sony's costs in extricating itself from its S-LCD panel-production joint venture with Samsung, which will allow the company to source display panels more inexpensively on the highly competitive open market rather than being tied in to the costs of 'in-house' manufacturing.

Sony sold its share of S-LCD to the Korean company for KRW1.07tn £604m), incurring a loss of Y63.4bn, or around £526m.

It's all part of the plans by incoming Sony boss Hirai to break the TV division's seven-year loss-making streak, although it looks likely at least two more years of losses are on the cards before things improve.

Only three months ago Hirai said he expected the division to lose Y175bn (£1.45bn) this financial year, half that much next year, and become profitable in 2014.

In an effort to achieve that, the TV division has already had its plans – including projected sales – pruned back, and is rethinking the kind of models it makes while also trying to reduce the cost of the parts it buys for its sets.

Downgraded end of year forecast

As a result of factors such as this, the costs of buying itself out of its Sony Ericsson mobile phone deal, the ongoing strength of the Japanese yen and the general global economic situation – not to mention the impact on production of the flooding in Thailand – Sony has revised its forecast for its end of year figures.

In November it was suggesting it would make a net loss of Y90bn for the 2011-12 financial year, itself an downgrade from an earlier prediction of Y60bn profits, but still an improvement on the Y259.6bn loss it made last year.

Now it's saying its 2011-12 loss is expected to be Y220bn (£1.82bn).

Or as Sony's Chief Financial Officer Masaru Kato said earlier today, at a Tokyo news conference to announce the figures, 'The impact of all these things is a very severe earnings report.'

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