Changing channels; Sony, Sharp in turnaround battle

Wed Oct 31, 2012 5:28pm EDT
 
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By Tim Kelly

TOKYO (Reuters) - Sony Corp is likely to say it returned to an operating profit for July-September after it sold a chemicals business, but investors still aren't sure a consumer electronics revamp will deliver the profit growth the group seeks.

Sony shares, valued at less than $12 billion, have dropped 16 percent since end-June and its 5-year credit default swaps - the cost of insuring against debt default - have jumped by almost 60 percent. The benchmark Nikkei average is down by less than 1 percent.

The maker of Bravia TVs, Vaio laptops and PlayStation game consoles, battling weak demand and tough competition, is expected to say it earned operating profit of 33.8 billion yen ($424.7 million) in its second-quarter, after losing 1.6 billion yen a year ago, according to an average estimate from five analysts on Thomson Reuters I/B/E/S.

Sony has sold a chemicals unit to state-backed Development Bank of Japan for 58 billion yen, and other asset sales may further inflate operating profit this business year. The Japanese group, which blazed a trail in the early 1980s with its Walkman portable music players, is closing the Shinagawa Technology Center, a 31-storey Tokyo office built in 1998 and may even sell the 37-storey Sony Tower, the New York headquarters of its U.S. business, according to media reports.

Sony has said it expects to reduce its global workforce by 10,000 people by end-March, around 6 percent of its total, as it seeks to lop 30 billion yen off its costs.

HIGH-RISK

Kazuo Hirai, who took over as CEO in April, has pledged to rebuild Sony around gaming, digital imaging and mobile devices, and nurture new businesses such as medical devices, as the TV business shrinks - Sony has lost close to $9 billion in TVs over the past 8 years. In late-September, Sony agreed to pay 50 billion yen to become the biggest shareholder in Olympus Corp, a world leader in medical endoscopes.

"The areas in which Sony is continuing to focus are of course high-risk, high-return markets," said JP Morgan analyst Yoshiharu Izumi in a recent report. "Although we expect (full-year) margin improvement in the electronics segment, we think it's too early to appraise a sustained recovery."   Continued...

 
Sony Corp's speakers are displayed at an electronics store in Tokyo October 23, 2012. REUTERS/Yuriko Nakao