Earthquakes. PlayStation hacks. Call it a double whammy -- and it's wreaking havoc on Sony's expected earnings. In a year when Sony thought it would perform strong, the Japanese consumer electronics maker is suddenly facing losses.
Sony on Monday revised its consolidated results forecast for the fiscal year ended March 31. The good news is that Sony expects sales, operating revenue, and operating income to be in line with its February forecast despite the impact of the earthquake in Japan. The bad news is that Sony will bleed $3.2 billion of operating profit and miss its annual earnings forecast in the wake of the earthquake.
"The earnings drop preannouncement seems oversized and really highlights the exposure that cloud services have to hacker proclivities," said Al Hilwa, a program manager at IDC. "We have seen that viruses in the past have seriously impacted licensed software, but the impact on revenues is typically long-term and much less acute compared to these network outages."
Supply-Chain Interruptions
Sony also expects to take a hit on incremental expenses related to the earthquake, including restoration costs for sites damaged by the disaster. Sony figures it will spend 11 billion yen, or $134 million, to fix buildings, machinery and equipment as well as inventories. However, insurance should cover most of those costs.
"Our supply chain was significantly damaged by the earthquake and tsunami. In addition to direct damages, component-procurement conditions and power outages are also affecting our operation," said Masaru Kato, executive vice president and CFO of Sony.
"We have spent the time until last week investigating the conditions of recovery from this damage and reviewing our business plan whilst taking our new forecast into account, which has resulted in today's announcement. It has taken some time to reevaluate our business plan to include the impact of the earthquake, and this is one of the reasons that has caused a two-week delay in the normal timing of our year-end earnings announcement."
Remembering 1995
On April 19, Sony fell prey to another type of earthquake -- the largest data theft ever -- when hackers broken into Sony servers and stole the personal information of more than 100 million consumers. When the dust settled, the Internet activist group Anonymous disclosed logs that showed security holes in Sony's servers.
Sony's losses are the largest the company has seen in 16 years. Not ironically, it was also a combination of unfortunate factors that led to those losses. In 1995, a devastating earthquake in Kobe and challenges to Sony's movie business negatively impacted earnings. The news also means that Sony, which was expected to rebound under the leadership of CEO Howard Stringer, could post three straight years of losses.
Despite the disruption, Sony moved ahead with the news of its Sony Tablet with Android 3.0, which differentiates itself in the market with dual touchscreens. The device is supposed to launch this fall, perhaps too little and too late to make up for the losses related to the PlayStation Network hacking.
Sony on Monday revised its consolidated results forecast for the fiscal year ended March 31. The good news is that Sony expects sales, operating revenue, and operating income to be in line with its February forecast despite the impact of the earthquake in Japan. The bad news is that Sony will bleed $3.2 billion of operating profit and miss its annual earnings forecast in the wake of the earthquake.
"The earnings drop preannouncement seems oversized and really highlights the exposure that cloud services have to hacker proclivities," said Al Hilwa, a program manager at IDC. "We have seen that viruses in the past have seriously impacted licensed software, but the impact on revenues is typically long-term and much less acute compared to these network outages."
Supply-Chain Interruptions
Sony also expects to take a hit on incremental expenses related to the earthquake, including restoration costs for sites damaged by the disaster. Sony figures it will spend 11 billion yen, or $134 million, to fix buildings, machinery and equipment as well as inventories. However, insurance should cover most of those costs.
"Our supply chain was significantly damaged by the earthquake and tsunami. In addition to direct damages, component-procurement conditions and power outages are also affecting our operation," said Masaru Kato, executive vice president and CFO of Sony.
"We have spent the time until last week investigating the conditions of recovery from this damage and reviewing our business plan whilst taking our new forecast into account, which has resulted in today's announcement. It has taken some time to reevaluate our business plan to include the impact of the earthquake, and this is one of the reasons that has caused a two-week delay in the normal timing of our year-end earnings announcement."
Remembering 1995
On April 19, Sony fell prey to another type of earthquake -- the largest data theft ever -- when hackers broken into Sony servers and stole the personal information of more than 100 million consumers. When the dust settled, the Internet activist group Anonymous disclosed logs that showed security holes in Sony's servers.
Sony's losses are the largest the company has seen in 16 years. Not ironically, it was also a combination of unfortunate factors that led to those losses. In 1995, a devastating earthquake in Kobe and challenges to Sony's movie business negatively impacted earnings. The news also means that Sony, which was expected to rebound under the leadership of CEO Howard Stringer, could post three straight years of losses.
Despite the disruption, Sony moved ahead with the news of its Sony Tablet with Android 3.0, which differentiates itself in the market with dual touchscreens. The device is supposed to launch this fall, perhaps too little and too late to make up for the losses related to the PlayStation Network hacking.
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