Sony Shares Plunge on Ballooning Loss Forecast

Sony shares plunged 12 percent at the open in Tokyo on Thursday after the electronics giant warned it would lose $2.14 billion this fiscal year, more than four times its earlier forecast.

The shares fell to 1,865.5 yen ($17) in the first few minutes of frenzied trading, erasing most of the gains made since the start of the year, in response to Sony’s announcement, which came after Japanese markets had closed Wednesday.

The company, whose dual-listed shares slid nearly 7.0 percent in New York, blamed the ballooning loss estimate on struggles at its mobile phone business, where it said it would cut staff by 15 percent, or about 1,000 jobs.

Demand for Sony’s smartphones has come under increasing pressure from rivals including Samsung and Apple, which is releasing its newest iPhone in several key markets, including Japan, this week.

Sony also said it would not pay dividends for the first time since its shares started trading in Tokyo in 1958.

The company, whose credit rating has been slashed to junk, has issued a string of downward earnings revisions over the past two years as it undergoes a sweeping overhaul led by chief executive Kazuo Hirai.

The restructuring has included thousands of layoffs, exiting the personal computer business and liquidating assets that saw the $1.0 billion sale of its Manhattan headquarters.

News that the company was heading for a 230 billion yen ($2.14 billion) net loss in the fiscal year to March 2015 comes only months after it tipped a shortfall of just 50 billion yen, citing a turnaround in its television unit.

The announcement was likely to resurrect fears that what used to be the world’s leading electronics company has a lot more work ahead to cast off years of losses.

Hirokazu Kabeya, senior strategist at Daiwa Securities in Tokyo, said the share plunge was inevitable after the firm’s latest worrying forecast.

“Market players are getting used to (Sony’s downward revisions) but a temporary fall was still unavoidable,” he said.

Rapid turnaround ‘unlikely’

Sony has been cutting expectations for sales in the money-losing smartphone business amid weaker-than-expected results in emerging markets and the soaring presence of rivals in its home market.

“Other firms are also offering new products with innovative technology — this business experiences dramatic changes in products and services,” Hirai told reporters in Tokyo when asked about struggles in the mobile phone unit.

“The environment is changing and becoming more severe,” he added.

Hirai, who took over in 2012, said Wednesday that the firm would continue to focus on more profitable areas of its vast business, which ranges from televisions and portable music to a movie division and little-known insurance business.

Despite his bid to slim down the firm, Hirai has repeatedly shrugged off pleas to abandon a money-losing television division, which he insists remains central to Sony’s core business.

Japanese manufacturers have suffered badly in their TV divisions as razor-thin margins and fierce overseas competition hammered profits.

Kabeya at Daiwa Securities said Sony cannot afford to get into a price war with lower-cost rivals, including Chinese smartphone makers, or beat Samsung and Apple in global market share.

“It is difficult to cut into the dominance of the big two: Samsung and Apple,” Kabeya said.

“(Sony) would be wise to shift its business resources to where it is strong such as movies and music.”

Following Thursday’s share price drop, investors may take a step back and see Hirai’s efforts to slim down the company as a positive, Kabeya said.

“But it’s unlikely we’ll see a rapid turnaround and the company will likely continue to go through a difficult time for a while,” he added.

Source-NDTV