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Sony's quarterly profit falls by 72 percent

As expected, profit of Japanese consumer electronics giant is hurt by a stronger yen and the global economic slowdown. (From The New York Times)

Sony reported a 72 percent drop in profit in the most recent quarter on Wednesday, hurt by a stronger yen and the global slowdown.

The poor results were expected, after the Tokyo-based electronics and entertainment conglomerate last week cut its annual profit forecast for the fiscal year through March 2009 by 58 percent. Sony made that revision after sales of its Bravia line of flat-panel televisions and digital cameras fell faster than expected in October, suggesting a deepening slump in the second half of the fiscal year.

Sony has joined a procession of Asian exporters reporting lower earnings, including Canon, Samsung Electronics, and Honda, all which cut yearly forecasts. They have blamed drops in global and particularly American demand, contradicting the once popular notion that Asian economies were decoupling from the United States.

This new evidence of continued vulnerability to an American slowdown, combined with panicked selling because of the current financial crisis, has hammered stock prices across the region. Companies like Sony, once a darling of foreign investors, have seen their shares plunge as these investors have fled. That drove Sony's shares to a 16-year low on Monday.

On Wednesday, the price rallied slightly to 2,035 yen, though that is still down 67 percent for the year. Earnings were reported after Japan's stock markets had closed on Wednesday.

Many analysts say share prices of top Japanese companies have fallen so far as to defy reason. Not only Sony but many of Japan's best-known brand names--including Toyota, Panasonic, and Bridgestone--have seen their market value drop below their so-called book value, the total worth of their buildings, equipment, and other physical assets.

As of Tuesday, Sony's market value was $21.4 billion, or about 0.58 percent of its book value, according to Paul Migliorato, head of research at NamiNori, a Honolulu-based equity research firm.

Theoretically, that means an investor could buy Sony or Toyota and turn a profit simply by selling off their assets--suggesting that the companies were worse than worthless as business franchises.

"The market is treating Sony and Toyota like pariahs," Migliorato said. "Any sense of reality has been hijacked by momentum and fear."

One source of pessimism has been the strength of the yen, which investors have bought as a safe haven in the financial crisis, and to pay back global borrowing of yen known as the yen-carry trade. A stronger yen hurts exporters like Sony by raising the price of their goods overseas and reducing the yen value of profits earned abroad.

Sony cited the yen's gains against the euro as being particularly painful to its bottom line. The euro has fallen sharply since mid-August, now trading around 120 yen per euro, well below Sony's assumed exchange rate of 140 yen, the company said. The currency is also rising against the American dollar, trading Wednesday near 97 yen per dollar.

Declining sales of its core electronics products also offset revenues from hit movies like "Hancock" and stronger sales of its PlayStation 3 game console, the company said. For the three months through September, net profit fell to 20.8 billion yen, or $213.6 million, as sales dropped 0.5 percent to 2.07 trillion yen, $21.3 billion.

Sony said it sold 2.43 million units of its PlayStation 3 game machine in the quarter, up 86 percent from the same quarter last year. Sony has slashed the price of its new game console as it has pursued rival Nintendo's popular Wii console.