A surging yen sent profit at Sony Corp. tumbling for the first half of the fiscal year, though sales in its core electronics business would have shown an 11% rise in the second quarter had the yen had stayed steady.
For the first half, Sony's group profit plunged 24.5% to $622 million, compared with $825 million for the same period last year. Sales for the half-year fell 7.6%, to $29.7 billion from $32.6 billion.
Operating profit for the fiscal second quarter fell 12% as sales of its 5-year-old PlayStation video-game machine, its most profitable product, stalled and the company cut prices for mobile phones.
Net income for the second quarter showed an overall rise of 3.1% on a one-time tax rate gain, but operating profit fell to $887 million from $998 million, the Tokyo-based consumer electronics and entertainment giant reported on Wednesday. Revenue fell 6.8%, to $15.3 billion for the three months ended Sept. 30, down from $16.3 billion a year ago.
With the slump in PlayStation sales, pressure increases on Sony's less-profitable electronics business. It will be a challenge for the company to retain investors' confidence during the next several quarters until the successor to the best-selling PlayStation video-game platform, due to be introduced March 4 in Japan, is in place to boost earnings.
Sales for Sony's movie business decreased 19% for the quarter. The quarter got a boost from the box office success of "Big Daddy' and "Blue Streak," but not enough to make up for the lagging performance of "Muppets From Space" and "Jakob the Liar."
Income from Sony's TV business fell in part because of the loss of the syndication sales of "Seinfeld" from last year. Sales for Sony Pictures, which includes the movie and TV businesses, would have been flat had the yen not risen.
Its music business reported a sales drop of 12.8%, but sales results would have been flat had the yen's value not risen.
Sony's best sellers in the quarter included Ricky Martin's eponymous English-language album and two albums from Japanese rock group L'Arc-en-Ciel.
A strengthening yen hurts the financial results of a Japanese company like Sony because it the value of overseas earnings when translated into yen.
In the July-September quarter, the yen averaged 112.7 to the U.S. dollar--23.3% higher than for the same quarter a year earlier.
U.S. shares of Sony fell 38 cents to close at $151.38 on the New York Stock Exchange.
Analysts said Sony's business remained healthy, especially considering the slowdown in the Japanese economy that has crimped consumer spending.
"The results show that Sony's electronic business has truly recovered," said Hitoshi Kuriyama, an analyst for Merrill Lynch Japan in Tokyo. "Sony outdid expectations."
Sony said in March that it would reduce its work force of 170,000 by 17,000 and cut manufacturing plants from 70 to 55 during the next four years. Sony also is trying to make computers and video games a bigger part of its business.
Electronics sales, especially of personal computers and video cameras, remained strong, both in Japan and the United States, and would have been up by 11% but for the stronger yen, Sony said.
The strong yen took its toll on all of Sony's main product lines except insurance, where revenue climbed by 11.7% on an increase in life insurance policies.
For the quarter ending in September, electronics sales fell 5% on the rising yen.
Lower prices on game machines helped send sales in Sony's video-game business down by 4% for the quarter, even when keeping the currency constant.
"We acknowledge some areas of our business had problems other than the strong yen," Sony spokesman Tomohiko Maeda said, "but we believe that electronics sales have turned around."
Sony forecast net income for the fiscal year ending in March will fall 38% and that sales will slide 4.3%. The sales and operating profit forecasts are calculated on the assumption the dollar will trade at an average of 115 yen for the rest of the fiscal year, Senior Executive Vice President Masayoshi Morimoto said.
Sony, second behind Matsushita Electric Industrial Co. in worldwide consumer electronics sales, relies heavily on PlayStation, which is the company's most profitable product and drove earnings for 18 months through a peak in game sales reached in March.
Sony forecasts PlayStation shipments will fall 21% to 17 million units for the year through March from 21.6 million, reflecting sated demand for the machine and reluctance of consumers to buy the present model because of their high expectations for its more sophisticated successor.
That marks a reverse in the a growth trend the company enjoyed for four years through the 12 months ended March 31, when PlayStation shipments rose 11%. Sony earned more from electronics than games in the second quarter for the first time in three quarters.
First-half PlayStation shipments fell 16% in Japan and 29% in the U.S., though they rose 47% in Europe, where the game was released a year after its debut in Japanese stores in December 1994.
Losses on mobile phones in the United States and Europe, where Sony was a late entrant into markets dominated by Nokia Oyj of Finland, also crimped profits.
"Mobile phones performed badly again in the first half," Sony's Morimoto said.
Revenue at Sony's electronics business, where Morimoto estimates Sony is forced to cut average product prices by 10% and 20% a year, fell 5%. The business accounts for 72% of overall sales.
At its music business, sales fell 13%, and operating income fell 38%, as some new album releases were delayed and promotion and marketing costs rose outside Japan.