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Sony looks ahead to first profit in 3 years

Sony CFO Kenichiro Yoshida

TOKYO -- Sony's earnings appear poised to take a turn for the better as the company emerges from a slow, costly overhaul of its consumer electronics business.

     The Japanese manufacturer forecast Thursday a group net profit of 140 billion yen ($1.17 billion) for fiscal 2015, improving from the 125.9 billion yen loss for the year ended March 31. This would bring the bottom line into the black for the first time since fiscal 2012.

     "I think we've finished with large-scale restructuring, but we're still half in a convalescent state," Chief Financial Officer Kenichiro Yoshida told reporters.

     The incompleteness of the recovery is apparent in Sony's plans so far to pay only an interim dividend for fiscal 2015 after having skipped dividends for the first time ever last fiscal year.

     The progress it has made owes to dramatically improved profitability in electronics. Sony expects to book a modest 45 billion yen in costs stemming from exiting the personal computer market and other aspects of its structural overhaul, down from the year-earlier 333 billion yen. The devices segment, which boasts a type of image sensor in which Sony has become the global market leader, is seen scoring a profit gain of more than 30%. Profit in video games is expected to slip, but Sony will try to shore the segment up with extra promotional and development spending.

     All told, Sony's electronics business -- comprising the mobile, game, imaging, home entertainment and devices segments -- is expected to go from a 1.7 billion yen operating loss to a 194 billion yen profit. This would mark its best result since logging more than 300 billion yen in black ink for fiscal 2007.

     Stock market watchers are hoping for even better. Sony's forecasts are "conservative," reckons Naoki Fujiwara, a fund manager at Shinkin Asset Management. Sony shares have climbed 47% this year as investors have cheered progress on its previously slow-going restructuring.

     But what Sony expects to drive its next phase of growth remains unclear. Domestic rivals have reduced their presence in consumer electronics, a business prone to price warfare. Panasonic is focusing on automotive and housing equipment, Hitachi on infrastructure. In contrast, Sony will "not take even a step back" from consumer electronics, Chief Executive Officer Kazuo Hirai has declared. Yet it has no clear prospect of success in this field.

     Sony targets an operating profit of more than 500 billion yen in fiscal 2017 -- seven times last fiscal year's result. This would be quite a feat for a company admittedly on the mend.

Time to spend

"We made up our minds to invest in order to take on new challenges," Yoshida said. "This will be the year when we carry that out."

     Sony forecasts 510 billion yen in capital expenditures for fiscal 2015, twice as much as the previous year and its second-highest sum ever. About 60% will go into the devices segment, with 210 billion yen for image sensors. The company also plans to spend more on its game segment while curbing investment in smartphones and televisions.

     Sony will need to "have the earnings growth to show for its liberal investment in sensors and gaming," argues Eiichi Katayama of Merrill Lynch Japan Securities.

     Can Sony find new moneymakers like the Walkman or Trinitron TVs of old? Only when it can give birth to offerings that hold their own against those of Samsung Electronics and Chinese rivals will its recovery be complete.

(Nikkei)

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