Sony Corp. has worked for years to protect itself against a fluctuating dollar. But it's the weaker euro that has dealt an unexpected blow to the Japanese electronics company.Net profit for the July-September quarter slumped 72% to 20.8 billion yen ($213 million) from a year earlier, hurt by the strong yen and a slowing world economy, the company said.
If the yen stays at current high levels, Sony may book less than half of its operating profit forecast of 150 billion yen for the year ending March 2009, Chief Financial Officer Nobuyuki Oneda said.
"Year-end sales will be extremely tough for us," Mr. Oneda said, adding he expected tough conditions to continue into next fiscal year.
A strong yen hurts exporters like Sony because it undermines overseas earnings. In the past three months, the yen has risen 26% against the euro and 10% against the dollar. As of 4 p.m. Wednesday in New York, the dollar was trading at 97.18 yen. The euro was trading at 125.76 yen.
Sony's troubles come just as the Welsh-born American Chief Executive Howard Stringer appeared to be turning around the company's core electronics business. Under Mr. Stringer, the first non-Japanese to head the Tokyo-based company, Sony climbed back to a record profit for the fiscal year ended March 31.
Sony has been successful in reducing its sensitivity to fluctuations in the yen-dollar exchange rate by moves such as sourcing liquid-crystal display panels in dollars from Taiwanese manufacturers. But similar efforts are just beginning against the euro.
"For the past several years, we have been working to neutralize our exposure to the yen-dollar exchange rate," Mr. Oneda said. "The problem is the euro. That will be a long-term challenge."
Mr. Oneda said that procuring parts in Europe remained particularly difficult. Although Sony plants in Slovakia, Spain, Hungary and Wales already supply the European market, many of the parts they use come from outside the region, leaving production costs exposed to exchange-rate swings.
Europe has become critical to Sony because its growth on the continent outpaces that in the U.S. and Japan. In the three months ending Sept. 30, the company's sales in Europe rose 5.6% to 519 billion yen, compared with declines of 19.2% in Japan and 2.7% in the U.S.
Sony loses 7.5 billion yen in operating profit for each 1 yen gain against the euro, Mr. Oneda said. It loses 4 billion yen for each 1 yen gain against the dollar.
Meanwhile, Sony's Bravia LCD-TV business is meeting stiff competition from South Korean rival Samsung Electronics Co., which stood to benefit from a weaker won to lower prices and grow market share.
By product segment, Sony said operating profit from its core electronics business, including TVs and Cybershot cameras, fell 41% to 75.6 billion yen in the latest quarter. The games business, which made a small operating profit in the fiscal first quarter of the year, dove back into the red because of the weak euro.
