Sony Q3 profit down on PS3, outlook raised

TOKYO, Jan 30 (Reuters) Sony Corp posted a 15 percent fall in quarterly operating profit on Tuesday after massive losses at its game unit offset robust sales of flat TVs, but it raised its annual outlook closer to market expectations.

Sony, which vies with Samsung Electronics Co. Ltd. and Sharp Corp. in the billion liquid crystal display (LCD) TV market, enjoyed brisk demand for its Bravia flat panel televisions as well as for Cyber-shot digital cameras.

But gains in its mainstay electronics division were cancelled out by hefty losses at its game unit, which was weighed down by heavy start-up costs for its new PlayStation 3 (PS3) game console and sluggish demand for PlayStation Portable (PSP) handheld gear.

''It's a positive development that the company increased profits on electronics even as their prices fell during the holiday sales period,'' said Mizuho Investors Securities analyst Mitsuhiro Osawa.

''Of course we cannot ignore the game machines.... It's too early to say Sony has been reborn.'' Sony raised its operating profit forecast by 20 percent to 60 billion yen (0 million) for the full year to March, still short of a consensus of a 69.2 billion yen profit in a poll of 21 analysts by Reuters Estimates.

The latest forecast compares with a 226.42 billion yen profit last business year.

Its annual net profit forecast, however, was raised by a larger 38 percent to 110 billion yen after a strong quarterly performance by its mobile phone joint venture with Ericsson, beating a consensus of 104 billion yen.

''I think the stock price has largely factored in a forecast revision,'' said Shigemi Nonaka, special adviser at Polestar Investment Management.

''The stock had seen a lot of buying up until today.... I don't think the stock will be too much influenced by this.'' Sony shares have gained 10.4 percent so far in January as investors anticipated solid third-quarter results, far outperforming the Tokyo stock market's electrical machinery index IELEC, which edged 0.4 percent higher.

For October-December, operating profit came to 178.91 billion yen, down from 210.35 billion yen a year earlier. Net profit fell 5.3 percent to 159.92 billion yen, but sales rose 9.8 percent to a record 2.61 trillion yen.

The profit slide in the just-ended quarter was expected as the Tokyo-based company had said losses at its game unit would balloon to about 200 billion yen for the year to March.

The Blu-ray high-definition optical disc drive and other cutting-edge technology used in the PS3 drove up production costs of the game machine, leading some analysts to think it could hurt Sony's bottom line for years to come.

Sony now makes a loss on each PS3 it sells.

Nobuyuki Oneda, Sony's chief financial officer, said the company aims to bring the negative PS3 margin to break even towards the second half of the next business year by such steps as boosting production yields of microchips driving the PS3.

''I think we will see substantial improvement when it comes to our game operations in the next business year,'' Oneda told reporters.

Sony, which has dominated the global game console market over the past decade, launched the PS3 in November, competing head on with Microsoft Corp.'s Xbox 360 and Nintendo Co. Ltd.'s Wii in the billion video game industry.

Shares of Sony closed down 1.8 percent at 5,630 yen prior to the announcement, underperforming the electrical machinery index, which fell 0.7 percent. The stock gained 7 percent in October-December, while the sub-index rose 4 percent.

REUTERS PV HS1725