Sony's Profit Plunges 94 Percent in 2Q

Sony Corp. Executive Vice President and Chief Financial Officer Nobuyuki Oneda reacts to questions after he announced the troubled company's earnings forecast revision at a press conference in Tokyo Thursday, Oct. 19, 2006. Sony's profit nose-dived 94 percent for the second fiscal quarter as a global battery recall and red ink in its video-game business battered the Japanese electronics and entertainment company, the Tokyo-based manufacturer said Thursday Oct. 26, 2006. (AP Photo/Shizuo Kambayashi) (Shizuo Kambayashi - AP)

TOKYO -- Sony's profit plunged 94 percent for the July-September quarter as a global battery recall and red ink in its video-game business hurt the Japanese electronics and entertainment company.

Sony Corp.'s group net profit for the fiscal second quarter totaled 1.7 billion yen ($14 million), dwindling from 28.5 billion yen the same period the previous year, the Tokyo-based manufacturer said Thursday.

An extra cost of 51 billion yen ($429 million) related to a global recall of 9.6 million Sony laptop batteries was a major factor behind the sharp drop in profit.

Almost every major laptop maker in the world, including Dell Inc., Apple Computer Inc. and Lenovo, has announced recalls of Sony lithium-ion batteries that could overheat and burst into flames.

The recall _ which has tarnished Sony's brand image as a longtime maker of icon products such as the Walkman portable player and PlayStation video game machine _ offset the lift Sony's books got from an 8 percent rise in July-September sales to 1.85 trillion yen ($15.6 billion) from 1.7 trillion yen a year earlier.

Sony reported a 43.5 billion yen ($366 million) operating loss in its gaming division because of charges related to the preparation for the next-generation PlayStation 3 console, set to go on sale in the U.S. and Japan next month.

Sony said last month the machine's launch in Europe will be delayed until March next year because of mass production problems in a video technology called Blu-ray disk that the machine supports.

The company has also reduced the price in Japan for the much hyped PS3 by about 20 percent in an effort to win buyers _ a move that's likely to reduce sales revenue because initial shipments are expected to be limited and sell out.

Sony kept unchanged Thursday its plan to ship 6 million PS3 machines in the fiscal year through March 2007. Research and development costs for the PS3 eroded profitability in the game unit, the company said in a statement.

Sony trimmed its fiscal 2006 shipment target for its lagging PlayStation Portable handheld machines to 9 million from the initial 12 million machines. Sony shipped 14 million PSP machines in fiscal 2005.

In contrast, Japanese rival Nintendo Co. is scoring success with its DS handheld machine. The maker of Pokemon and Super Mario games said Thursday that its group net profit for the first fiscal half soared nearly 50 percent.

In the core electronics segment, Sony's operating profit for the three months ended Sept. 30, shrank 71 percent to 8 billion yen ($67 million) from 28 billion yen a year earlier.

Sony has been trying to turn around its electronics business after getting beaten by rivals on key products such as Apple's iPod and liquid crystal display TVs from Sharp Corp. and Samsung Electronics Co.

The revival effort is being led by American Chief Executive Howard Stringer, the first foreigner to head Sony, but questions are already publicly being raised here about the management team of Stringer and Ryoji Chubachi, an electronics expert, following the battery troubles and production delays.

The charge for the battery recall hurt earnings in electronics, despite strong sales of Bravia flat-panel TVs and Cyber-shot digital cameras, Sony said. The absence of last year's gain from a pension fund reimbursement in Japan also contributed to the operating profit decline in that sector, it said.

Such stumbles forced Sony to revise last week its forecast for the fiscal year through March 2007, to 80 billion yen ($673 million), down 38 percent from its initial projection and down 35 percent from fiscal 2005.

It's expecting 8.23 trillion yen ($69 billion) in fiscal 2006 sales, up 10 percent from the previous year.

Chief Financial Officer Nobuyuki Oneda said Sony's liquid crystal display television business, which has been working to reduce losses, is expected to post a profit in the October-December quarter.

Sony's movie business also fared poorly, seeing its operating loss grow to 15.3 billion yen ($129 million) partly on flops such as "Zoom" and "All the King's Men," it said. Faring better were "Talladega Nights: The Ballad of Ricky Bobby," "Monster House" and "Click."

Sony has a music business, but it combined its recorded music business outside of Japan with Bertelsmann AG and the results are not part of Sony's group earnings, except when accounting for Sony's equity.

Best-selling albums included Justin Timberlake's "Future Sex/Love Sounds," Beyonce's "B'Day" and Christina Aguilera's "Back to Basics."

Sony's mobile phone operations are in a joint venture Sony Ericsson, where net income nearly tripled in the quarter, but the results are not part of the consolidated Sony statement.

For the first six months of the fiscal year, Sony posted a 34 billion yen ($286 million) profit, up 60 percent from the same period a year earlier, on 3.6 trillion yen ($30 billion) sales, up nearly 10 percent from the first half of fiscal 2005.

Sony shares, which have lost about 40 percent of their value over the last five years, stood unchanged in Tokyo trading at 4,820 yen ($40). The results were announced after the market closed.