Sony profit up, cuts forecast

By Kiyoshi Takenaka and Nathan Layne

TOKYO (Reuters) - Sony Corp, maker of PlayStation game gear and Vaio PCs, posted a small rise in quarterly operating profit and cut its outlook as weaker markets eat into its investments and a firmer yen hurts overseas sales.

Arch rival Matsushita Electric Industrial Co Ltd, the world's largest plasma TV maker, fared better, posting a 22 percent gain in quarterly profit and indicated it could beat its own annual forecast, although a slowing U.S. economy poses a big risk for both firms.

Sony enjoyed robust holiday demand for its Cyber-shot digital cameras and Handycam camcorders and managed to return its game division to profit by cutting PlayStation 3 production costs and boosting sales of its portable game machine.

But it lowered its operating profit forecast for the year to March to 410 billion yen ($3.86 billion) from 450 billion yen, citing the rising yen and the falling stock market, which has cut into the value of investments held by its life insurance unit.

The new forecast falls well short of the market consensus of 446.9 billion yen in a poll of 22 analysts by Reuters Estimates.

"The game division turning into the black is a positive," said Takeshi Osawa, a senior fund manager at Norinchukin Zenkyoren Asset Management.

"But the U.S. economic outlook is a cause of concern for its consumer electronics business. And compared with Sony, Matsushita looks more solid and stable."

Sony, however, edged up its full-year net profit forecast by 3 percent to 340 billion yen on the strong performance of its mobile phone joint venture with Ericsson and one-off gains from the listing of Sony Financial Holdings Inc.

MARGIN TARGET

Sony now expects an operating profit margin of 4.6 percent this business year, missing its target of 5 percent. The margin target has been the most visible indicator of success for Sony's turnaround efforts led by Chief Executive Howard Stringer.

Sony, which vies with Samsung Electronics Co Ltd and Sharp Corp in flat TVs, has shed 10,000 jobs and a wide range of non-core assets over the past few years.

But tumbling prices of LCD TVs and other key products have cut into its earnings. Sony's core electronics division saw its operating income fall 7 percent in the October-December quarter.

Sony said it was worried that demand in the United States could be hit by the effects of the subprime mortgage loan crisis.

"We have seen no sign of demand weakening in the U.S. due to the subprime loan problems, but we expect there to be a gradual impact from here on," Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

Sony's operating profit for October-December came to 189.36 billion yen, up 5.9 percent from 178.91 billion yen in the same quarter a year earlier, though far below the average estimate of 245.5 billion yen from four analysts. Net profit rose 25 percent to 200.22 billion yen, its highest quarterly profit ever.