Tale of two tech stocks
Sony falls on profit warning; NEC rises on earnings
By Allen Wan, CBS.MarketWatch.com
Last Update: 10:08 PM ET Oct. 23, 2003
TOKYO (CBS.MW) - - It was a tale of two tech stocks Friday as shares of Sony tumbled on an earnings warning and rival NEC jumped on bumper profits last quarter.
Late Thursday, Sony reported a smaller-than-expected decline in second-quarter profits as moribund electronics sales and a poor performance for its PlayStation2 game machine were more than offset by strength in the Japanese conglomerate's financial division.
Sony said net income fell 25 percent to 32.9 billion yen ($301 million) in the three months ended Sept. 30, down from a profit of 44.1 billion yen a year ago.
Operating profit, meanwhile, sank 34 percent to 33.21 billion yen in the quarter from the year-ago level of 50.5 billion yen. This exceeded analysts' consensus expectations. Read earnings release.
However, the consumer electronics giant (SNE: news, chart, profile) also said it would cut its full-year operating profit forecast by 23 percent though it would stand by its full-year net profit estimate of 50 billion yen.
On Friday, Sony's shares bucked the uptrend with a loss of 4.3 percent to 3,790 yen.
Goldman Sachs' analyst Yuji Fujimori said that Sony's earnings results were in line with the broker's estimate as well as consensus forecasts.
However, he said in a note to clients Sony's warning on operating profits for the full year was "somewhat negative" and that as a result, Goldman would lower its earnings targets for the consumer electronics giant in fiscal 2003 and 2004 as a result of the changed outlook for the game business and exchange rates.
While Sony's music and movie divisions were weak, it was poor sales of its PlayStation 2 game machine, especially in America, that took investors by surprise.
CEO Nobuyuki Idei said in statement that he was heartened by a recovery for Sony's core electronics business though the performance of its PlayStation2 was a downer.
Operating profits in the electronics segment jumped 36 percent, but sales fell 1.4 percent due to PlayStation2, said Idei.
A 97-percent profit jump at Sony's financial businesses, which are reportedly being integrated into a financial holding company, was partly the reason behind the better-than-expected showing.
Sony's quarterly sales edged higher to 1.797 trillion yen from the year-ago level of 1.789 trillion yen.
On a half-year basis, Sony profit plunged 66 percent to 34 billion yen, while operating income slid 51 percent to 49.89 billion yen and sales dropped 3.2 percent to 3.40 trillion yen.
NEC's a good story
The story was better for NEC (NIPNY: news, chart, profile), which swung to a profit in the second quarter due to strong cell-phone sales and contributions from its chip affiliate.
NEC earned 14.8 billion yen ($135.8 million) in the July-through-September quarter, compared with a net loss of 6.19 billion yen in the same period a year ago.
NEC also raised its forecast for full-year net profits by 33 percent to 40 billion yen and maintained its operating profit target of 180 billion yen.
Goldman analyst Ikuo Matsuhashi said in the note that NEC's results were "well above" the company's projections and thinks that the electronics giant will achieve its operating profit target this year "easily."
He said that NEC was ahead of its electronics rivals in terms of earnings improvement and that the broker would maintain an "outperform" rating on NEC stock.
NEC stock gained 4.8 percent to 922 yen on Friday.
Sales jumped 8.6 percent in the quarter to 1.25 trillion yen.
On a half-year basis, net profits rose to 15.4 billion yen from last year's 1 billion yen.
Operating profits jumped to 58 billion yen in the April to September period from last year's 26.7 billion yen.
Part of NEC's success could be attributed to revamping its business structure over the past few years.
Sony has been slower to change; hence the rush to reform now, including reports of job cuts, new ventures as well as plans for its financial units.
The Nikkei reported earlier this week that Sony will cut 15,000 to 20,000 jobs groupwide, or about 10 percent of its global workforce of 160,000 by the end of March 2006.
Sony has declined to comment on these reports, though it did say it would shed light on its restructuring program as well as new products at an Oct. 28 strategy meeting.
Sony, which has diverse businesses that range from making movies to producing specialty semiconductors, has had a tough year and its stock price is down 6 percent since the start of the Japanese fiscal year.
Toshiba (TOSBF: news, chart, profile) is reporting earnings later today, while Fujitsu (FJTSY: news, chart, profile) will unveil results next Wednesday.
Allen Wan is the Asia bureau chief for CBS MarketWatch, based in Tokyo.
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