Digital World Tokyo | Batterygate and PS3 fiasco force Sony to slash billions from profit forecast

Batterygate and PS3 fiasco force Sony to slash billions from profit forecast

October 19th, 2006

A large recall of Sony-made batteries by PC makers and problems that have hit the launch of the PlayStation 3 console have caused Sony to cut its full year profit forecast by more than a third on Thursday.

The company now expects to earn a profit of ¥80 billion (US$674 million) this year, down 38 percent from its previous forecast and below its fiscal year 2005 profit of ¥124 billion. It expects its operating profit to be ¥50 billion, which is 62 percent below its previous forecast and much lower than the ¥226 billion it recorded last year. Operating profit is the amount of money made from operations and excluding exceptional items like gains recorded on stock sales.

The battery problems, which have seen around 8 million battery packs recalled or offered for exchange in recent weeks, will cost Sony around ¥51 billion, it said. That’s about double the company’s previous estimate made in late August.

Larger losses are expected from the games division.

Problems with starting up mass production of the blue lasers required for the PlayStation 3 console and the subsequent adjustments Sony will make to production of other components will cost about ¥33 billion. Sony will also be hit by a price cut for the console in Japan and the addition of higher-specification components to the machine. Together these will mean a loss of about ¥30 billion, based on the originally anticipated profits.

The revision doesn’t come as a surprise. The widening recall of batteries in recent weeks and the PlayStation 3 price cut both gave investors and analysts cause to anticipate such a move by the company. Earlier this week the company said it was considering such a revision.

In the midst of the bad news there were a few indications that, despite the battery and game problems, Sony is making some progress in turning around its electronics business. Product sales targets are being met for LCD televisions and digital cameras and Sony said it now expects restructuring costs to be ¥40 billion, which is a reduction from the previously forecast ¥50 billion.

— Martyn Williams