Sony's EVP and CFO Nobuyuki Oneda
Sony's EVP and CFO Nobuyuki Oneda
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Sony Corp announced its financial results (based on the US accounting standards) for the second quarter (July to September) of fiscal 2008 on Oct 29, 2008.

In the group's consolidated results, sales edged down 0.5% year-on-year (YoY) to ¥2.0723 trillion (approx US$21.02 billion), operating income plunged 90.1% YoY to ¥11 billion and net income dropped 71.8% YoY to ¥20.8 billion.

However, "Sales would have been up 5% YoY if the exchange rate had been the same as a year ago," said Nobuyuki Oneda, executive vice president and CFO of Sony. He explained that the results were expected, saying, "Excluding the impact from the decline in the Japanese stock market (¥41 billion) and part (¥60.7 billion) of the gain on the sale of a portion of Sony's former headquarters recorded a year ago, operating income would have also been equivalent to that posted last year."

The Electronics segment saw a 0.6% YoY sales decline to ¥1.6533 trillion and a 40.5% YoY operating income drop to ¥75.6 billion. Just like the consolidated results, the segment would have seen sales increase 5% YoY if the exchange rates were the same as last year's, according to Sony. LCD TVs, PCs and digital SLR cameras enjoyed favorable sales.

As factors behind the smaller operating income than its projection, Sony cited the impact from the currency (¥16.3 billion), deteriorated earnings at Sony Ericsson Mobile Communications AB (¥19.5 billion) and lower unit prices of digital cameras and a larger cost rate in PCs (¥32.7 billion).

Sony also cited SoCs, camcorders, image sensors, professional broadcasting equipment and compact digital cameras as the product fields where income declined more significantly than in other fields. Although Sony was aiming to make the TV business return to profitability in this second quarter, "Unfortunately, I had to report a loss at the business," Oneda said.

The Game segment posted sales of ¥268.5 billion (a 10.3% YoY rise) and an operating loss of ¥39.5 billion (¥96.7 billion loss in the Q2 last year). The segment's loss shrank by about 59% YoY, thanks to increased sales of the "PlayStation 3 (PS3)" and "PlayStation Portable (PSP)," as well as improved earnings from the PS3 business resulting from the improved cost ratio of the PS3 console and increased software sales.

"The Game business is significantly affected by exchange rates, as many business transactions are done on a euro basis in this segment," Oneda said. "If the impact from the exchange rates had been excluded, the segment would have posted even better results than our projections."

Other than these segments, the Motion Pictures segment reported sales of ¥196.1 billion (a 3.4% YoY growth) and ¥1.1 billion in operating income (a 199.9% YoY surge), while the Financial Services segment marked ¥100.7 billion sales (a 36.1% YoY decline) and a ¥25.3 billion operating loss (¥23.1 billion income in Q2 last year).

In summary, Sony's group income was severely impacted by the decreased revenues in the Electronics and Financial Services segments.

In the first half (April to September) of fiscal 2008, consolidated sales slightly rose 0.2% YoY to ¥4.0513 trillion, operating income dropped 63.7% YoY to ¥84.5 billion and net income fell 60.2% YoY to ¥55.8 billion.

Sony lowered its earnings forecasts for fiscal 2008 full-term Oct 23, 2008 (See related article). Although Sony did not made this announcement at that time, its capital investment and R&D costs remained unchanged from its projections announced in July 2008.

Sony assumed a foreign exchange rate of approximately ¥100 to the US dollar and ¥140 to the euro for the second half of fiscal 2008.

"Our sensitivity to yen fluctuations in exchange rates is ¥4 billion on a US dollar basis and ¥7.5 billion on a euro basis," Oneda said. "We've made considerable efforts to ease our sensitivity to the US dollar exchange rate. Although it temporarily rose to approximately ¥6 to 6.5 billion at one point, we lowered it to ¥4 billion through various measures including purchasing LCD panels on a US dollar basis."

"The problem is the euro," he continued. "As it's difficult to procure components locally in Europe, we often take components there from Asia. As such, it is likely that it will take longer to formulate measures to deal with the yen's stronger appreciation against the euro."