Sony Corp. lost $2.2 billion in market value today after Chief Executive Officer Kazuo Hirai cut his earnings forecast and posted a loss because of stalling demand for Bravia TVs, Cyber-shot cameras and Hollywood movies.
The stock slumped 11 percent in Tokyo trading, the biggest drop in five years, after Hirai slashed his full-year net income projection by 40 percent to 30 billion yen ($305 million). Sony also unexpectedly posted a second-quarter loss, missing analyst estimates for a return to profit.
Hirai, who took over amid four straight annual losses, cut jobs and emphasized digital imaging, games and mobile devices in an effort to win back sales from Apple Inc. and Samsung Electronics Co. Instead, he lowered annual projections yesterday for TVs, cameras, personal computers and video recorders as Sony's film unit lost money.
"It's hard to picture earnings growth at Sony's electronics operation without a sight of conventional hardware businesses bottoming out," Takashi Watanabe, a Tokyo-based Goldman Sachs Group Inc. analyst, said in a report today. "Significant recovery hinges on whether the company can draft a drastic reform plan."
Watanabe cut his share price forecast 5.3 percent to 1,800 yen.
Even with Japan's weaker yen, five of Sony's nine divisions posted operating losses in the second quarter. The company, which rejected investor Daniel Loeb's push for a partial sale of its entertainment assets, is trying to recover from flops that prompted criticism from the billionaire.
Sony fell to 1,668 yen in Tokyo, narrowing this year's gain to 74 percent, after the stock was cut to hold from buy by Jefferies LLC analyst Atul Goyal. Competitor Panasonic Corp., which doubled its forecast yesterday after paring phone and TV operations, surged 6.2 percent.
"A year ago both of these companies needed radical change," said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. "Sony stuck with TVs and they probably need to get out that business. Panasonic had its back to the wall and they had no choice but to change."
Sony's film studio stumbled in the summer box-office season that runs from May to early September. Big-budget tentpoles "After Earth," with Will Smith, and "White House Down," with Channing Tatum and Jamie Foxx, failed to connect with audiences.
Recent releases "Captain Phillips" and "Cloudy With a Chance of Meatballs 2" have been well-received by audiences and critics. Last month, subscription-streaming service Netflix Inc. ordered a 13-episode series from Sony Pictures Television, by the creators of the drama "Damages."
Sony's net loss totaled 19.3 billion yen in the three months ended Sept. 30, compared with the 14.8 billion-yen average profit of five analyst estimates compiled by Bloomberg.
The company needs to cut costs and undertake "more aggressive reform" of its product portfolio and entertainment business, Fitch Ratings said in a statement today. Sony's BB- credit rating, which is three levels below investment grade, may be downgraded, it said.
"Management has a planning problem," said Junya Ayada, a Tokyo-based analyst at Daiwa Securities Group Inc. "There is a risk for a TV volume downswing even though the company has already reduced its forecast."
Sony is betting its Xperia Z1 handset, introduced in September, will propel it to third place in the global smartphone market, leaping from seventh and narrowing the gap with Samsung and Apple. The phone features a 20.7-megapixel camera and showcases Hirai's strategy to boost internal collaboration to make stronger products.
The company maintained its annual smartphone sales forecast at 42 million while raising its projection for game consoles at it prepares to release the flagship PlayStation 4 this month.
Sony is introducing the PS4 in the U.S. on Nov. 15, a week before Microsoft Corp. releases its Xbox One. The Japanese company expects sales of the PS4, priced for U.S. consumers at $399, to reach 5 million units by March 31, compared with 3.55 million units sold in a similar period for the PS3.
In TVs, Sony is promoting ultra-high-definition Bravia sets after regaining the No. 3 position in the market, according to DisplaySearch. The company expects to sell 14 million liquid- crystal-display TVs this year, down from an earlier prediction for 15 million.
"The TV market is mostly saturated while smartphones have eroded demand for digital cameras, camcorders and game players," said Koki Shiraishi, an analyst at SMBC Nikko Securities Inc. in Tokyo.