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Sony will miss estimates due to quake, hacking

Roy Harris | May 23, 2011
Its $2.5b operating earnings forecast for the March 2012 fiscal year is much lower than what analysts predicted.

Citing problems that range from an earthquake's devastation of its factories, to the insidious damage of a gaming-operation hacker, Sony Corp. forecast operating income for the March 2012 fiscal year that would be similar to the just completed year's roughly $2.5 billion, and far below the average analysts were predicting.

The electronics maker is set to disclose financial details May 26 in Tokyo, it said, when it also may give more details about fiscal 2012's forecast. The $2.5-billion operating number equates to 200 billion yen. Nine analysts cited by Bloomberg News had been looking for an average of $254.7 billion yen for fiscal 2012 operating income.

Sony said in a press release that its forecast was for net income to turn positive in fiscal 2012, after a 360 billion yen non-cash tax charge led to the biggest annual loss in 16 years this past year. Other comments were contained in the text of a presentation also made public on its website.

Trading in Sony shares fell 0.5%, closing at 2,211 yen in Tokyo before the company's announcement. The stock has fallen 24% this year, more than triple the 7.5 percent decline by Japan's benchmark Nikkei 225 Stock Average.

"This may be a conservative forecast, but the operating profit level still looks much lower than expected even if you take the earthquake impact into account," said Kazuharu Miura, a senior analyst at SMBC Nikko Securities Inc., told Bloomberg. "Sony continues face a harsh business environment."

The Impact on Sales

The March 11 quake's negative impact on Sony sales is estimated to be about 22 billion yen in the just ended year, it said. But Sony also said that revenue likely would increase in this fiscal year, after a fiscal 2011 decline of 0.5%, to 7.18 trillion yen.

Sony said that for the just ended year it expects to record charges of about 12 billion yen, "consisting principally of idle facility costs at manufacturing sites and an incremental provision for life insurance policy reserves." An estimated net margin loss of about 5 billion yen, associated with "a decrease in sales resulting from the earthquake and an estimate of variable costs," is also expected.

The net loss was 260 billion yen in the March 31 year just ended, including the writedown on the value of deferred tax assets. That compares, Bloomberg reported, with the 76 billion yen profit average of analyst estimates the news service compiled in the past month, and with Sony's previous annual-profit forecast of 70 billion yen.

Some Hacking Damage Quantified

Sony also discussed the company's problems with trying to resume completely its PlayStation Network and Qriocity online services, after an attack between April 16 and April 19 by hackers compromised personal information from more than 100 million users who had game, music and film accounts.

The company said in today's announcement that the unauthorized intrusion may cost the company 14 billion yen this fiscal year.

Sony started resuming PlayStation Network and Qriocity entertainment services in the U.S. and other regions excluding Japan and Asia on May 15, more than three weeks after it suspended services following an attack on its network.

Sony had been expected to forecast net income of 116.6 billion yen for the year started April 1, according to the average estimate compiled by Bloomberg, which also showed sales totalling 7.18 trillion yen.

On May 20, Sony Financial Holdings Inc., the insurance and banking arm of Sony, reported a 13% decline in annual net income to 41.7 billion yen. The company forecast net income would fall 31%, to 29 billion yen, this fiscal year.

The company is offering U.S. customers of the PlayStation Network and Qriocity a year of free identity-theft monitoring along with $1 million insurance coverage per user.

Earlier this month, Sony Chairman Howard Stringer apologized for last month's incursion by hackers.

Nine Sony electronics factories in northeastern Japan that had been disrupted by the natural disaster in March have resumed operations, the company said on April 28. Other plants had to curtail production because of material and component shortages.

In the latest announcement, Sony also said it had insurance policies that cover certain damages to fixed assets and inventories, as well as associated restoration costs. That would offset almost all the losses and expenses in the year just ended, "as the recoveries from insurance claims are deemed probable."


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