Sony cuts profit forecast because of strong yen

Sony fuelled fears of a global recession yesterday as it issued a profits warning and warned it had been badly hit by the strength of the yen and plunging demand for flat-screen televisions and digital cameras.

The Japanese electronics giant said the "significant" appreciation of the yen against the euro and the dollar would lead to its full-year profit coming in at Y150bn (£962m) – 38 per cent lower than its July forecast of Y240bn (£1.54bn). Full-year operating income would be Y200bn (£1.3bn), 57 per cent lower than its July prediction. The news sent Sony's shares tumbling by 6 per cent and shattered any lingering illusions that consumer goods might be immune to the fallout from the global financial crisis. Sony generates three-quarters of its revenues overseas.

The profits warning is a major setback for its chief executive Howard Stringer, appointed in 2005, who has launched a series of initiatives in an effort to restore the company to its former glory. Sony singled out Bravia LCD TVs, Cyber-Shot digital cameras and hand-held video cameras as being vulnerable to a downturn and fierce price competition. In a statement, it said: "We expect the results of certain businesses in the electronics segment, such as the LCD television, compact digital camera and video camera businesses, to be lower than the previous forecast due to deterioration in the market environment brought on by the slowing global economy and an intensification of price competition."

Sony cut its forecast for annual LCD TV sales by 1 million to 16 million and said its TV and video games operations would be hard-pressed to turn a profit in the current financial year. Sales of flat-screen TVs are already falling in Europe, according to DSGi, the owner of Currys and PC World in the UK.

In the three months to 30 September, Sony's operating income slumped by 90 per cent to Y111.6bn (£716m), on sales and operating revenue 1 per cent lower at Y2,083bn (£13.3bn). However, the consumer electronics giant said the plunge in operating income reflects a more than Y40bn (£256m) hit on its financial services division from the decline in the Japanese stock market.

However, Sony said it expected the results of its video game and pictures operations to be "basically in line" with its July forecasts, excluding the fluctuations in exchange rates it cited. The company declined to give details about the popularity of its new games console. Sales of Sony's PlayStation Portable have been powering ahead and are reportedly outstripping those of its hand-held rival, the Nintendo DS, by five to one since it was launchedin north America, Japan and Europe this month.