Sony Corp, hit by intense price competition and weighed down by restructuring costs, said on Friday it is unsure if its core electronics division will turn a profit or be in the red this business year for a second straight year. In an interview with Reuters, Sony Senior Vice President Takao Yuhara also said the electronics division could lose money on an operating basis in the year from April if more people opt for an early retirement scheme than originally expected.
"We are still unsure," if the division will be profitable for the full business year ending on March 31, Yuhara said. "It depends on the final tally for restructuring expenses ... We will do our best to make sure it doesn't end up in the red."
A week ago, Sony slashed its annual operating profit forecast by 31 percent, saying cost-cutting efforts could not keep pace with tumbling prices of DVD recorders, camcorders and flat TVs.
The electronics division chalked up an operating loss of 35.3 billion yen ($343.4 million) last business year.
Sony is more than halfway through a three-year, 335 billion yen restructuring plan designed to slash fixed costs and secure supplies of chips, display panels and other key components needed to add value to its products and boost profit margins.
The company estimates restructuring expenses will reach 100 billion yen in the current business year, 93 billion of which will be in the electronics division. The latter number could rise depending on the early retirement plan, Yuhara said.
Sony is a sprawling conglomerate with interests in music, financial services and games. But its electronics division accounts for roughly two-thirds of group revenues and its revival is seen as the key ingredient to Sony's recovery.
Yuhara said Sony's electronics division would be in the red for the three months to March 31, although the size of the loss would not be as large as in the same quarter last year thanks to lower restructuring costs and higher sales.
The division typically loses money in the fourth quarter following a large profit in the October-December third quarter, which includes the year-end shopping season. The division posted a loss of 129.3 billion yen in the fourth quarter of last year.
By improving its cost structure and introducing attractive products, Yuhara said, Sony would aim to post a profit in the division in the business year starting on April 1, leading to higher profits for the group overall in 2005/06.
Rivals Sharp Corp and Matsushita Electric Industrial Co are considered to be more cost efficient than Sony because they make more of the key parts for hot-selling items such as DVD recorders and flat televisions in-house.
Sony expects profitability to improve in the business year starting in April, when it can procure panels from S-LCD, a $2 billion liquid crystal display (LCD) joint venture with South Korea's Samsung Electronics Co S-LCD is due to start mass production in April or May.
Yuhara said Sony would aim to boost production of other key components for LCD televisions, such as optical film, LCD driver chips and backlights, raising its in-house production ratio of parts to 50 percent by 2006, from below 10 percent now.
"We will lift our in-house manufacturing of components and expect to see higher sales volumes. We believe our cost structure will become stronger than it was during the year-end shopping season last year," Yuhara said.
Shares in Sony were down 0.53 percent at 3,770 yen by late afternoon, roughly in line with the benchmark Nikkei average, which was down 0.89 percent.