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Sony swings to profit on electronics

TOKYO (Reuters) - Sony Corp 6758.T swung to a quarterly operating profit as it booked strong sales of personal computers and digital cameras and benefited from a weaker yen, and it raised its full-year forecast by 2 percent.

The profit jump also reflected the absence of hefty costs booked in the same quarter last year to recall faulty PC batteries, as well as lower marketing expenses in the pictures division and a gain on the sale of land.

The results could support the view among some investors that Sony remains on a recovery track after cutting thousands of jobs and ditching unprofitable businesses to focus on core electronics products such as Cyber-shot digital cameras and Bravia LCD TVs.

Sony's game division continues to lose money, however, as it was forced to sell its PlayStation 3 game console at a loss in a bid to keep up with rival Nintendo Co. 7974.OS, which is reshaping the industry with its hot-selling Wii.

“It seems that it’s making good progress even though problems remain,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. “But we don’t really know what will happen with the U.S. market and currency rates. There are still some big uncertainties here.”

The Tokyo-based electronics and entertainment conglomerate said it expects turmoil in the U.S. subprime mortgage loan market and higher oil prices to have only a limited impact on retail demand.

“Consumer spending may cool down a little amid a slowdown in the housing market and a rise in crude oil prices,” Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

“But we don’t see any need at the moment to revise down our views on our U.S. business substantially.”

Sony, which competes with Canon Inc 7751.T in digital cameras and with Samsung Electronics Co Ltd 005930.KS in flat TVs, raised its forecast for operating profit to 450 billion yen ($3.9 billion) for the year to March 2008 from 440 billion.

The new forecast is above the market consensus of 431.5 billion yen in a poll of 21 analysts by Reuters Estimates and represents a more than six-fold jump from a year earlier.

For the July-September quarter, Sony said operating profit came to 90.47 billion yen, versus a year-earlier loss of 20.83 billion, when it was hit by hefty costs for recalling PC batteries.

Net profit soared to 73.72 billion yen from 1.68 billion on sales of 2.08 trillion yen, up 12.3 percent. Both net profit and sales are highest second-quarter figures ever.

Besides brisk camera, camcorder and PC sales, Sony’s quarterly results were boosted by a one-off gain from selling a portion of the site of its former headquarter in Tokyo. A softer yen against the dollar and euro also boosted profits, it said.

GAME TURNAROUND

Sony, which is battling Nintendo and Microsoft Corp MSFT.O in the global videogame industry, said that it would aim to lift its game division to the break-even level in the second half following a second quarter operating loss of 97 billion yen.

Sony loaded the PS3 with its cutting-edge technology such as a Blu-ray high-definition DVD recorder and the “Cell” high-performance microchip.

But the advanced components have driven up the price for buyers and made it difficult and time-consuming for game creators to develop PS3 software.

Nintendo said earlier its April-September operating profit nearly tripled, and it raised its full-year outlook. Microsoft reports quarterly earnings later on Thursday.

Sony recently announced PS3 price cuts and the launch of a low-price model to ignite demand and win back sales in the run-up to the crucial holiday season. But the cheaper PS3, which goes on sale in Japan on November 11 for 39,980 yen ($350), will still cost 60 percent more than Nintendo’s Wii.

On its flat television business, Sony said its liquid crystal display TV operations will likely become profitable in the fiscal second half to March 2008.

“I’m afraid our product line-up for the spring was rather weak. But we are launching value-added new models with full high-definition panels,” Sony’s Oneda said.

“We expect the LCD TV business as well as our TV business as a whole to turn profitable in the second half.”

Sony shares rose 1.6 percent in the year to Wednesday, outperforming Tokyo's electrical machinery index .IELEC.T, which lost 6.5 percent. Prior to the earnings announcement, Sony's stock fell 1.4 percent to 5,110 yen.

Additional reporting by Elaine Lies

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