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Sony sees second straight loss, eyes frail recovery

Sony Corp forecast a second straight year of losses as the global recession batters demand for consumer electronics but the Japanese company stopped short of taking any new aggressive steps to cut costs further.

The back-to-back annual losses will be Sony's first since its listing in 1958, underscoring deepening troubles for a company that has fallen behind Apple Inc's iPod in portable music, Nintendo Co in videogames, and is losing money on flat TVs.

Japanese companies such as Sony, Panasonic Corp and Sharp Corp have suffered an additional blow as the yen's strength made their products less price competitive overseas.

Sony said on Thursday it would close 14% of its 57 manufacturing sites this year - slightly more than it previously announced - but it stood by its plan to slash more than ¥300 billion ($3.2 billion) in costs this financial year.

The cost-cut measures include a reduction of 16,000 jobs.

Some analysts said Sony, which is feeling the pain in every corner of its operations ranging from semiconductors to movies to insurance, desperately needed a killer product to get back on track and position itself for any recovery.

“Their outlook gave me the impression that their business is heading for a gradual recovery. But it would all depend on whether they will be able to start making popular products because right now they have no 'No. 1' product,” said Fujio Ando, senior managing director at Chibagin Asset Management.

“I see Sony's branding power weakening.”

Sony, which competes with Samsung Electronics Co in LCD TVs and Canon Inc in digital cameras, said it aims to sell 15 million LCD TVs this financial year, down slightly from 15.2 million last year.

The maker of Bravia LCD TVs and PlayStation game consoles forecast its operating loss for the year ending March 2010 would halve to ¥110 billion from the ¥227.8 billion loss a year ago and less than a consensus forecast of a ¥132.9 billion loss in a poll of 20 analysts by Thomson Reuters.

Sony Chief Financial Officer Nobuyuki Oneda said the company expects losses at its electronics operations to widen and its games division to stay unprofitable this financial year.

He said its TV operations would likely lose money for a sixth straight year but it aims to bring it to the break-even level in the second half.

Nobuo Kurahashi, analyst at Mizuho Investors Securities, said Sony would need more than an improvement in the TV business.

“Cost-cutting and wringing profits out of the TV division are important, but that will only take you so far,” he said.

"What I really want to know is how Sony is going to compete after the economy recovers.”

Kurahashi said Sony's focus on portable devices with network capability wasn't yielding results, while rivals such as Sanyo Electric Co appear to be securing a brighter future by latching on to solar panels and organic displays.

Signs of a recovery are underway for some companies.

Sanyo, the world's top maker of rechargeable batteries set to be acquired by bigger rival Panasonic, on Thursday predicted its operating profit to triple to ¥25 billion this financial year after it tumbled 89% a year earlier.

It will invest up to ¥30 billion to build a lithium-ion battery plant in Japan and increase its production capacity for those batteries six-fold, the Nikkei business daily reported earlier.

Sony's operating loss came in at ¥294.3 billion in January-March, a huge reversal from its profit of ¥6.2 billion a year ago. Sales fell 22% to ¥1.52 trillion.

Sales at Sony's cellphone joint venture with Ericsson tumbled, while costs to shed jobs and close plants also hit the company, which vies with Panasonic for the title of the world's largest consumer electronics maker.

Oneda said Sony Ericsson, which reported a €370 million pretax loss in the first quarter, would need to raise funds in some ways this financial year, whether it be bank loans or an injection from parent companies.

The global digital camera and mobile phone market is set to contract this year as the recession dampens replacement demand, capping Sony's earnings recovery despite aggressive cost cuts.

Oneda predicted business conditions to remain gloomy in the first half this year, but saw some improvement ahead.

“We will still see a tough year for the full year, but we expect to start seeing some bright light in the second half.”

Sony said it will shut three more domestic and two overseas factories this year, including a flat-screen TV factory in Mexico. That brings the total of its planned plant closure to eight as it had already announced plans to stop production at three factories.

A Sony spokesman said the number of workers affected by the decision was included in the 16,000 job cuts.

Sony aims to boost sales of its PlayStation 3 game console by nearly 30% to 13 million units.

Sony's shares fell 7% ahead of the results announcement, underperforming a 4% drop in the Tokyo stock market's electrical machinery index. (Reuters)