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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Jason W who wrote (13316)	7/25/2000 9:50:18 PM
From: Jason W	Respond to of 60323

RPT-Sony seen having tumbled into red in April-June qtr By Miki Shimogori TOKYO, July 26 (Reuters) - Sony Corp likely tumbled deep into the red in the April-June quarter, although analysts said the loss would be exaggerated by one-off charges due to a change in U.S. accounting rules. Despite solid sales in its mainstay electronics business, the Japanese consumer electronics giant, which will announce first-quarter earnings at 3 p.m. (0600 GMT) on Wednesday, is expected to post a group net loss of up to 100 billion yen ($930.1 million), against an 18.43 billion yen profit a year ago. The loss, resulting from a planned $900-950 million in one-off charges due to changes in U.S. accounting rules covering movie marketing expenses, has already been factored into the price of Sony shares, and analysts expect no major surprises from the earnings announcement. Cloudy prospects for Sony's earnings, due to the strong yen and the company's shaky game-sector performance, have triggered a fall of some 37 percent in its shares from a record high in March. ``A high yen and a switch to a new PlayStation game console should have worsened Sony's first-quarter earnings,'' Takatoshi Yamamoto, managing director at Morgan Stanley Dean Witter, said. ``Still, I believe profits will slowly recover in the upcoming digital age,'' said Yamamoto, who has a buy recommendation on Sony. Yamamoto said Sony -- the bluest of Japan's blue-chip firms -- still has the potential to rise towards 15,000 yen over the next 12 to 18 months. By mid-morning on Wednesday in Tokyo, Sony shares were up 1.82 percent at 10,640 yen. Many analysts appear to be betting that Sony, armed with rich entertainment content and popular products such as its Vaio notebook computer and digital camcorders, will take a leading position in the upcoming digital networking era. ACCOUNTING CHANGES PROVE COSTLY Sony's planned $900-950 million one-off charges in the first quarter are due to changes in U.S. accounting rules which are forcing movie firms to book all film marketing expenses three months after a film's release. Previously they could charge the expenses over 10 years. Sony, which entered the movie business in 1989 with its purchase of Columbia Pictures Entertainment, said it would also book an operating charge of 25 billion yen in promotional expenses in the full year to next March under the new U.S. rules. Both Sony and analysts have downplayed the significance of the one-off charges, saying they will have no impact on the firm's cash flow. The yen's strength should also eat into the yen-based value of its overseas revenues, which comprise 70 percent of total sales. Sony assumed a dollar rate of 105 yen for this year against an average rate of 110 yen the previous year. Each fall of one yen in the dollar cuts its annual profits by 7.5 billion yen. GAMES TAKE SPOTLIGHT Analysts said the fate of Sony's earnings hangs on how fast it can see a recovery in the battered game sector, which last year generated more than 30 percent of total operating profit. ``The focus should be on the game sector, which is now struggling with poor profits, but it holds the key to future profits,'' said Hiroyuki Yamamoto, an analyst at Kokusai Securities. UBS Warburg analyst Masahiro Ono expected Sony may post a loss of some 20-30 billion yen in the game sector for the first quarter. The sector is burdened with heavy costs, slow initial returns from the March launch in Japan of its cutting-edge PlayStation2 video game console and unexpectedly weak game software sales. Only two games are now being sold per console, down from expected sales of around four to five. The sector may turn profitable in the third quarter when Sony launches PlayStation2 in North America and Europe with expanded game applications and software line-ups. Sony has said PlayStation2 shipments will top 2.5 million units in July. It aims to ship four million units in Japan and three million each in Europe and the United States in 2000/01. Analysts are also closely watching Sony's chip business. It last month unveiled a plan to spend 125 billion yen to boost output of chips used in PlayStation2 -- one for graphic chips and the other for advanced CPU or ``core'' chips. Sony plans to sell those chips to other makers, which some analysts said could be a potential core source of revenues. Sony's loss report will likely be in contrast to a first-quarter report on Thursday by its arch rival Matsushita Electric Industrial Co , which is expected to show a steady profit recovery due to solid sales of components. But some prefer to bet on Sony than Matsushita, the world's top consumer electronics maker known for its Panasonic and Technics brands. For investors, Sony looks a better bet than Matsushita, said Kokusai's Yamamoto, noting that Sony's price-to-cash-flow ratio (PCFR) -- a key valuation yardstick -- is estimated at around 20, compared with Matsushita's 14. ** No mention of Memory Stick, but we all know better!:-)