WRAPUP 2-Sony Q2 fuels recovery hopes; Samsung outlook tough

* Sony Q2 profit Y68.65 bln vs market consensus Y35.1 bln

* Sony lifts full-year forecast by Y20 bln to Y200 bln

* Sony PC and game businesses improve; camera sales strong

* Samsung Q3 profit 4.9 trln won, chip earnings hit record

* Sony shares set to rise on Monday
(Recasts, adds detail)

By Sachi Izumi and Miyoung Kim

TOKYO/SEOUL Oct 29 (BestGrowthStock) – Sony Corp’s (6758.T: )
improved outlook and forecast-beating results showed the
consumer electronics giant is reaping the benefits of years of
cost cuts, but tough economic challenges lie ahead.

Sony’s results came as South Korean rival Samsung
Electronics (005930.KS: ) broke a trend of two consecutive
quarters of record profit and braces for a challenging outlook
on all fronts. [ID:nTOE69Q079]

“Sony’s results far exceeded market expectations,
reflecting a better product mix and cost-cutting. Based on the
results, the company’s cost-cutting measures should be able to
support profit growth going forward,” said Chiang yi-Chien,
manager of Japan and Korean fund at Prudential Financial in
Taipei.

“We like the results and we’ll consider buying Sony
shares,” said Chiang, whose fund sold its holding in Sony
shares a while ago.

Quarterly profit at Panasonic Corp (6752.T: ), which vies
with Sony for the title of Japan’s largest consumer electronics
company by market value, also jumped, but stuck to its annual
outlook, citing signs of weakness in the European and U.S.
markets.

The results underscore a recovery across much of the
electronics sector, which is reaping the gains of cost-cuts
made in the wake of the financial crisis and benefitting from
government programmes such as tax incentives in Japan on
energy-efficient goods.

However, the optimism is laced with caution due to signs of
weakness in advanced economies. Sony lifted its profit forecast
but lowered its annual sales estimate, while analysts warn
Samsung’s profits will fall in the current quarter.
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Graphics on Samsung earnings:
http://link.reuters.com/new72q

Graphics on Sony earnings: http://link.reuters.com/byj82q

StarMine comparative table: http://r.reuters.com/rat82q

Analysts’ view on Samsung: [ID:nTOE69Q08M]

Analysts’ view on Sony: [ID:nTOE69S0B5]
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PROFITS UP, OUTLOOK RAISED

“Looking forward we see the business environment getting
harsher, partly due to the economic uncertainty in U.S. and
Europe,” Sony Chief Financial Officer Masaru Kato told a news
conference in Tokyo.

Sony attributed the strong quarterly result, double market
expectations, to strong sales of Vaio personal computers and
PlayStation 3 game consoles, after the recent launch of its
Move motion-based videogame controller to challenge Nintendo’s
Wii.

Sony, which competes with Samsung and LG Electronics
(066570.KS: ) in TVs and with Nintendo (7974.OS: ) and Microsoft
(MSFT.O: ) in games, reported an operating profit of 68.65
billion yen ($847 million) for July-September, against a loss a
year ago.

Sony lifted its annual profit estimate to 200 billion yen
from 180 billion yen, above the market consensus of 187 billion
yen, but trimmed its revenue forecast by 3 percent to 7.4
trillion yen, citing a firmer yen.

“I feel better after the results and after the
restructuring. Sony is moving in the right direction and is
getting better,” said David Huo, fund manager at RBC Asian
Equity Fund in Hong Kong. “It was a good sign to see it revise
up guidance, and it gives a vote of confidence in its
business.”

Sony shares have fallen about 26 percent since hitting a
two-year peak in March. The Tokyo market’s electrical machinery
subindex (.IELEC.T: ) is down about 13 percent. Sony shares
closed down 1.4 percent ahead of the results announcement.

CUTTING COSTS, PRICES

Sony also pointed to big gains from cost savings, which
suggest the company is making progress on the reforms of Chief
Executive Howard Stringer, who has been struggling to boost the
company’s margins since taking the helm five years ago.

“It’s quite impressive to see Sony swinging back to profit
when its business conditions were really tough, with the yen
surging and TV makers cutting prices to battle weak demand,”
said Kim Yeong-Jun, analyst at LIG Investment & Securities in
Seoul.

“I think it’s the result of Sony’s aggressive restructuring
and cost cuts implemented in the past couple of years … but
even Sony will see profit margins going down again in the
current quarter because of intensifying competition.”

Samsung, the world’s top maker of memory chips, reported a
4.9 trillion won ($4.36 billion) operating profit for
July-September, matching a consensus forecast of 12 analysts
polled by Reuters. [ID:nTOE69Q079]

But analysts expect Samsung’s profits to drop 25 percent in
the current quarter, hit by slumping demand for chips and
screens and with growing price competition set to hit flat TV
margins ahead of the year-end shopping season, analysts said.

“A slowdown in the memory chip sector is ahead as DRAM
prices are set to fall, probably through the first quarter of
next year,” said Hwang Yoo-shik, an analyst at SK Securities.

“But new devices such as the tablet PC could be Samsung’s
next big thing and may help offset a slowdown in other
businesses … I expect Samsung’s earnings to pick up from the
first quarter of next year.”

Shares in Samsung, Asia’s most valuable technology firm
with a market value of $112 billion, have dropped about 5
percent so far this year, lagging a 14 percent gain in the
wider market (.KS11: ).
(Additional reporting by Nathan Layne, Isabel Reynolds and
Tetsushi Kajimoto in TOKYO; Miyoung Kim and Hyunjoo Jin in
SEOUL, Donny Kwok in HONG KONG and Faith Hung in TAIPEI;
Editing by Edmund Klamann and Anshuman Daga)

WRAPUP 2-Sony Q2 fuels recovery hopes; Samsung outlook tough