Sony shines in earnings spotlight


Sony is set to surpass Matsushita for world consumer electronics dominance, but now faces a strong Korean challenge

CNN's Kristie Lu Stout in Hong Kong

TOKYO, Japan (CNN) -- As Japan's tech giants enter the earnings zone after a sorry year, one company is giving investors something to cheer.

Sony expects its group operating profit to surge 108 percent to $2.16 billion for the current business year, through March 2003.

That's a major lift it sees coming on the back of strong game sales and a major revamp in its electronics unit.

The cheery forecast was delivered after Sony announced more sobering numbers for the year just ended.

A new industry leader looms

The consumer-electronics giant on Thursday reported a 40 percent drop in profit for the year through March, to 134.63 billion yen (full story).

Sony was hit hard by the global tech slump and restructuring charges, including the cost of absorbing its loss-making Aiwa electronics subsidiary.

Nevertheless, Sony's earnings show it will almost surely gain the title of the world's biggest consumer electronics maker, taking the top spot from Matsushita Electric Industrial, the manufacturer behind the National, Panasonic and JVC brands.

Matsushita is expected to report on Friday its worst annual loss in its 84-year history. Analysts say that, unlike Sony, the company lacks premium products that could guarantee future growth.

Sony is winning big with the Vaio, one of the few personal computer brands to actually gain market share over the last year.

Games strong in recession

The company is also scoring points with sales of the PlayStation 2.

"PlayStation 2 games is Sony's highest margin business," said WestLB's Tokyo-based analyst Kun Soo Lee.

"Games are historically very strong even during recession," he added. "Since the main users are children, and children don't care about the recession."

But as Nintendo's GameCube and the Microsoft Xbox gain traction in the market, Sony's gaming supremacy may soon fade.

"The feeling is the Xbox has trumped them in terms of quality of experience," said Sean Debow, who coordinates UBS Warburg's Asia-Pacific technology research. "The life cycle of the PlayStation 2 may be reduced from five years to three to four years."

"However, the broadband strategy announced in October does seem to have the eye of the market. People think it is impressive and if they can do it, they can extend the life of the PlayStation 2."

A new arch rival

But outside the game wars, Sony has another rival to contend with.

"The newest competitor to the overall business strategy is Samsung," Debow said. "Samsung has blown the socks off everyone the last couple weeks in terms of handset outlook, earnings, and new products."

The South Korean company "has a large quantity of cash and the wherewithal to do it," he added.

In the next year, Sony watchers will be looking closely for new product launches from Sony's handset joint venture with Ericsson, as well as any successful attempts to converge its wide array of media and high-tech assets.

"I know it's a dot.com bubble term, but it's relevant here," said Debow. "You got a company that has a gaming platform, a software platform and a digital platform, and they have content to put on all of that."

"What we'll be looking for them to do in the next two years is to get those things clicking together."