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Sony sees Q3 sales drop, but reports a small profit

Gain from foreign exchange helped company keep its head above water

Sony’s sales during the last three months of 2008 dropped by 25 per cent due to the slowing world economy and strengthening Japanese yen, but the company still managed to keep its head above water thanks to an exceptional gain from foreign exchange.

The company recorded a fiscal third-quarter net profit of ¥10.4 billion (US$115 million), down 95 per cent compared to the last three months of 2007 and its worst third quarter profit in at least 10 years. Sales were ¥2.2 trillion, which is comparable to the level of sales reported by Sony in the same period during 2004.

The stronger yen hurt Sony’s business and contributed to an ¥18 billion operating loss. However, the company managed to turn an overall profit thanks largely to ¥80 billion it earned from hedging against the currency swing.

Sony’s core electronics business lost money during the quarter on the back of a 29 per cent drop in sales in the sector. Some of Sony’s best-known products including its CyberShot digital cameras, Handycam video cameras and Vaio PCs saw a “significant” drop in sales.

Sharply lower profits were recorded for CyberShot cameras, Vaio PCs and Bravia televisions.

The one bright point was Blu-ray Disc players, which sold more during the quarter, although sales were low during the previous year because of the format battle raging in the sector. Sony also said Bravia TV sales were up in Europe.

In its games business, Sony saw sales sink 32 per cent and profits were all-but-eliminated to ¥400 million.

During the quarter, which is a key sales period because of the Christmas selling period in western countries, unit sales of the flagship PlayStation 3 dropped nine per cent to 4.5 million and PlayStation Portable sales were down 12 percent at 5.1 million units. PlayStation 3 software sales jumped 57 per cent to 40.8 million units while PSP software sales were off 15 per cent at 15.5 million.

Sony and other Japanese electronics companies have been dealt a double whammy in recent months. Not only are sales falling in major economies as a result of the poor economic conditions but the Japanese yen has jumped in value against most currencies by a considerable amount.

The rising value of the yen exacerbates other problems faced by the company. Goods produced in Japan become more expensive when priced in foreign currencies. Sony would typically raise prices overseas when this happens, but given the weak economic environment that is difficult to do.

On top of these challenges, the revenue earned overseas is worth less when brought back to Japan. For example, when measured on a local currency basis, Sony’s electronics sector sales dropped 14 per cent while those of in the games business fell 18 per cent, but when converted into yen, the drops became 29 per cent and 32 per cent, respectively, because the currency has strengthened.