Sony profits expected to fall short of expectations

Sony forecast annual profit that fell short of estimates, hurt by costs to repair a factory that was damaged in the Kyushu earthquake, lost sales and slowing demand for smartphone components.

Net income will probably decline 46 per cent to 80 billion yen ($732 million) in the 12 months ending March 2017, the Tokyo-based company said in a statement on Tuesday.

That compares with the 196 billion yen average of analysts' projections compiled by Bloomberg.

The shares fell 6.2 per cent in German trading. The earthquake erased Sony's previous prediction for its most profitable year in almost two decades, as chief executive Kazuo Hirai sought to shift away from consumer electronics.

The slowdown in demand for image sensors that power cameras in smartphones - including Apple’s iPhone - will test Sony’s ability to generate more of its earnings from PlayStation 4 gaming consoles, streaming services for its 65 million online users as well as movies and music.

"There was no telling how much the damage from the quake would be, so the profit was bound to fall below consensus," said Atul Goyal, an analyst at Jefferies Group.

“The company’s guidance is still conservative. Sony’s movie, music and games businesses will do great this year, while prospects for image sensors will improve longer term.”

Operating profit will probably rise to 300 billion yen this fiscal year, short of the 400 billion yen predicted by analysts.

That forecast reflects a negative impact of 115 billion yen from the earthquake, including the loss of potential sales, Sony said.

Revenue is on track to decline 3.8 per cent to 7.8 trillion yen, compared with the average estimate for 7.94 trillion yen.

Chief financial officer Kenichiro Yoshida said Sony's underlying business remains strong, despite the impact from the earthquake.

“The company’s earning power has strengthened considerably,” Yoshida told reporters at a news conference.

“We also seeing the impact of recurring businesses, such as the profit growth from PlayStation Network services.”

The smartphone business will report a profit of 5 billion yen in the year to March 2017, compared with a loss the previous year, Sony said.

The industry is facing its first slowdown since Apple introduced the iPhone in 2007. While much of the drop in demand is seen in mature markets and China, where Sony no longer markets phones, the broader slowdown has implications for the image-sensor business, which supplies camera components to other handset makers.

- Bloomberg