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Sony's strong growth seen slowing in 1998/99
By Yuko Inoue
TOKYO, May 1 (Reuters) - Strong growth at Sony Corp will slow in the business year that started on April 1, but the group should manage to increase profits by around three to seven percent, analysts say.
Despite a series of warnings issued by Sony regarding its 1998/99 business year, analysts expect the company to post slow growth in operating profit after a spectacular surge estimated at about 40 percent last year.
Operating profit is pre-tax and excludes gains and losses from securities investments and other non-operating activities.
Analysts' forecasts of Sony's operating profit for 1998/99 ranged from around 530 billion yen to 570 billion yen, up from an estimated 510 billion yen to 540 billion yen in 1997/98. Sony's actual profit in 1996/97 was 370.3 billion yen.
''Sony's mainstay electronics products will continue to support its earnings this year, with overseas sales of minidisc and digital videocassette (DVC) players pushing up profits,'' Hitoshi Kuriyama, an analyst at Merrill Lynch Japan Inc, said.
''While Sony's rapid transformation into an electronics and entertainment giant makes it difficult to predict its earnings in the years ahead, downside risk will be limited so long as its main electronics business remains strong,'' Kuriyama said. Sony will unveil on May 7 its business results for the year ended March 31, as well as its earnings forecast for the 1998/99 business year.
Sony said in January it expected a 35 percent leap in group operating profit and a 51 percent jump in net profit for last business year, results that would break company records for the second consecutive year.
But Sony has since repeatedly warned of uncertainties for the current business year, citing a slowing of demand in Japan and Asia, intensifying price pressures and a peaking of demand for its game console PlayStation, which helped overall growth in 1997/98.
Some analysts expect Sony to take a cautious approach, and predict a profit decline for 1998/99 year.
Kuriyama said he expected operating profit from Sony's electronics products, such as minidisc players, DVCs, televisions and parts and components, to increase 10 percent to 370 billion yen in the current year, assuming a yen-dollar rate of 130 yen.
While the contribution from PlayStation will slow, the growth momentum will continue and PlayStation will yield operating profit of 125 billion yen, up eight percent, he said.
Profit from the movie and music business will decrease 8.5 percent to 75 billion yen, after Sony's Hollywood film-making unit enjoyed strong box-office sales in 1997/98 thanks to blockbusters such as ''Men in Black,'' he said.
Analysts were cautious on Sony's longer-term earnings prospects, saying the firm's aggressive drive into the non-electronics business, such as entertainment and broadcasting, increases uncertainties and risks.
''Sony has already stepped far into its strategy of transforming itself into an electronics and entertainment giant, an unknown area for Japanese manufacturers,'' said Jardine Fleming analyst Masami Fujino.
''Uncertainties will increase in the 1999/2000 year,'' said Fujino, who has put Sony's rating on ''hold.''
Sony's dependence on profits from new business sectors, such as PlayStation and entertainment, became significant in 1997/98, Fujino said, with more than 50 percent of the increase in operating profit coming from the two areas.
Meanwhile, Morgan Stanley Dean Witter analyst Takatoshi Yamamoto recommended a ''strong buy'' on Sony shares, citing its powerful management and growth potential from an expected consolidation of audio-visual equipment, broadcasting and entertainment businesses.
Analysts said uncertainties for Sony's mid-term growth potential were the major reasons for a sagging trend in Sony's share prices.
Sony shares closed down 10 yen at 11,010 on Thursday after hitting an all-time high of 12,700 on January 19.
Followings are group operating profit estimates by analysts in billions of yen, with growth percentages in brackets:
Merrill Lynch Morgan Stanley Jardine Fleming
97/98 estimate 530 (+43%) 510.0 (+38%) 538.3 (+45%)
98/99 forecast 568.0 (+7.2%) 528.3 (+3.5%) 566.3 (+5.2%)
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