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Sony and Matsushita report higher quarter profits

Japan's two largest consumer electronics companies recorded increases in their net profit for the second quarter but only one managed to increase sales, and both warned that increasing price competition could mean difficult times ahead.

Sony said net income during the period from July to September was ¥53.2bn (£274m) compared with ¥32.9bn for the same period a year earlier.

Matsushita Electric Industrial, the company behind the Panasonic brand name, said its net income was ¥23.4bn for the period, compared with ¥20.4bn last year.

“The highlight was our increased income after some hiatus,” said Katsumi Ihara, group chief financial officer for Sony.

"I looked at our results for the past few financial years and I noticed that after seven quarters, we could finally announce some increased income," he said.

The success of the Spiderman 2 movie and a 45% boost in net income at Sony Ericsson Mobile Communications compared with the same period last year were the main contributions to this quarter's net profit, Ihara said.

The companies' sales were almost equal in the second quarter of 2003. This year, however, the gap widened and Matsushita solidified its claim of being the world's largest consumer electronics company.

Net sales at the company rose to ¥2.2 trillion, from ¥1.9 trillion a year ago. At Sony, net sales and operating revenue declined to ¥1.7 trillion, from ¥1.8 trillion in the second quarter of 2003.

Second-quarter sales at Matsushita's AVC networks division alone, which sells products such as PCs, consumer electronics and mobile phones, were slightly greater than Sony's entire group sales, which include its electronics business and its games, music, movies and financial services operations.

Revenue from Sony's electronics business, which made up just over two-thirds of total revenue during the period, was hit by lower sales of portable audio products and CRT (cathode-ray tube) televisions and the outsourcing of production of Sony Computer Entertainment's PlayStation 2 to a Chinese company.

PS2 production was previously counted as an internal sale. On the bright side, sales of flat-panel and rear-projection TVs and digital still cameras increased. But still, total electronics sales fell 2.5% and operating profit 83.4%.

"Our sales of digital still cameras and semiconductors for LCDs [liquid crystal displays] rose, but our research and development costs for next-generation semiconductors and a price war on products such as DVD recorders and flat-panel TVs affected our income," said Ihara.

The company's PC and notebook computer business also disappointed, according to Ihara.

"When we launched the new Vaio PCs this spring, we had great expectations, but it didn't go so well," he said. "PC sales were much lower in Japan than we thought, whereas sales in the US and Europe went very well."

In the second half, Ihara said he expects Vaio PCs to generate a profit and demand for notebooks in Japan to grow strongly. "We have great expectations for the second half," he said.

Sony's games business saw sales drop 25.8% on the back of lower sales of consoles, and the unit recorded a small operating loss.

Matsushita reported similar trends in its electronics business: better sales of flat-panel TVs and digital still cameras and a decline in sales of audio equipment.

The Olympic Games, of which the company was a global sponsor, also gave a boost to sales in its AVC networks division, which rose 1% from the same period a year earlier.

A warm summer in Japan helped sales of air conditioners during the quarter and Matsushita also saw higher sales in its electronic components division.

Sales at JVC, in which Matsushita holds a major stake, fell 12% in part because of a decline in sales of audio equipment in the Americas.

Looking ahead, both companies were cautious on the coming six months.

Matsushita warned that it expects to encounter severe conditions brought on by an economic slowdown in Japan and the US, intensifying price competition and increasing oil prices.

But it did not revise its full-year earnings estimates, which currently predict sales to jump 18% on the year to ¥8.8 trillion and net profit to reach ¥63bn, up 49% from the previous year. The company will review these figures in three months when it announces its third quarter earnings.

Sony cut it sales and operating revenue forecast to ¥7.35 trillion for the year. It had been predicting a slight increase for this year to ¥7.55 trillion, from its actual revenue of ¥7.5 trillion in the 2003 financial year. However, it increased its net profit estimate to ¥110 billion from ¥100bn. In the last year it reported net profit of ¥88.5bn.

Martyn Williams and Paul Kallender write for IDG News Service


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