January 28, 2004 12:11 PM PST

Restructuring costs hurt Sony profit

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Despite an increase in revenue, Sony's profit was down in the third quarter as expected restructuring costs ate into its bottom line, the company reported Wednesday.

The Tokyo-based electronics and media company said revenue for the fiscal third quarter 2003, ended Dec. 31, came in at $21.7 billion, up 0.7 percent from the same period a year ago. However, restructuring costs from job cuts and other operational changes hurt its profit, which was down about 26 percent year over year and amounted to $866 million, or 94 cents per share.

Restructuring charges in the quarter were up from about $130 million last year to about $501 million. The electronics division, which is the largest contributor to revenue for Sony, accounted for the majority of the restructuring charges, recording about $433 million.

After falling behind in many of emerging product categories in consumer electronics, including liquid-crystal display (LCD) televisions and DVD recorders, the electronics unit has been streamlining operations and making some fundamental business changes, which are already paying off.

Sony Electronics has released several new models of flat-panel televisions, DVD recorders and camcorders that have quickly gained share in their respective markets. It has also expanded its share in the digital camera market and has improved its Vaio PC business.

The electronics business saw revenue increase 0.4 percent, to $13.8 billion, as the LCD and DVD product categories grew significantly, taking over for older categories, such as cathode-ray tube (CRT) televisions, which shrank.

For its part, the U.S. electronics division saw a double-digit growth rate in nearly every product category leading up to the third quarter, according to Sony. The unit is the largest contributor to Sony's overall electronics business.

Sony Electronics is expected to become more aggressive in protecting and expanding its turf in the consumer electronics market amid the latest attacks from PC makers. Sony CEO Nobuyuki Idei said the company will spare no effort to expand sales and improve profitability in the unit.

Idei said restructuring was progressing smoothly as Sony looks to build a management structure that produces a high profit margin. Still, it increased its forecast of restructuring expenses for the fiscal year 2003 from about $1.3 billion to about $1.4 billion.

The creation of a new profit model and the acceleration of the transformation of Sony into a "knowledge and capital-intensive company" are its goals as it draws closer to its 60th anniversary in 2006, according to Idei.

To reach those goals, Sony plans to strengthen its semiconductor business with investments of about $5 billion over the next couple years. It has already entered into a joint venture with Samsung on LCD production.

In the third quarter, Sony's gaming business, which covers consoles and software, continued to be the largest contributor to profits among all its units. Nevertheless, the division saw revenue shrink year over year by 4.5 percent, to $3.4 billion, as hardware sales fell. However, its software sales increased.

Sony's movie and music businesses also saw a fall in quarterly revenue.

During the quarter, Sony and Bertelsmann AG announced their intention to merge their recorded music businesses to form a 50-50 joint venture company to be called Sony BMG. The deal is subject to regulatory approval in the United States and the European Union.

 

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