Sony profit plummets 86 percent, hit by stronger yen, restructuring and earthquake impact

Sony reports 86% slump in profit
Sony reports 86% slump in profit

Sony reported a near 86 percent plunge in net profit for its fiscal second quarter on Tuesday, as the Japanese electronics giant took a hit from a stronger yen and costs from the sale of its battery business, as well as softness in key areas like games and semiconductors.

Net income for the quarter ended September 30 came in at 4.8 billion yen ($45.8 million) down from 33.6 billion yen in the same period last year. The has depreciated from around 120 against the Japanese currency to 104.76 on Tuesday, which has weighed on Sony's earnings.

Sony's results come after it cut its annual profit outlook on Monday due to charges related to the sale of its battery business. The Japanese technology giant expects to report an operating income of 270 billion yen for the year ended March 2017, down from a previous forecast of 300 billion yen, and over 8 percent lower on the year before.

Operating income in this quarter fell 48 percent to 45.7 billion yen, down from 88 billion yen last year. This included an impairment charge of 32.8 billion yen related to the sale of its battery business.

Sony CEO: Not going to skimp on innovation
Sony CEO: Not going to skimp on innovation

In addition, the Japanese electronics giant also saw weakness in its cash cow semiconductor division, with the unit swinging to a 4.2 billion yen loss in the second quarter from an operating profit of 34.1 billion yen in the same period last year. Sony said that foreign exchange effects as well as inventory write-downs of certain image sensors for mobile products was to blame.

But the company also took a 1.2 billion yen hit in this segment relating to the Kumamoto earthquake this year, which saw one of its factories close down.

Sony also saw weakness in its gaming business with operating profit down 20 percent year-on-year mainly due to a price reduction for its PlayStation 4 hardware and decreased PlayStation 3 software sales. The company has recently refreshed its PlayStation 4 line up and released a virtual reality headset which it hopes will boost sales in this key division.

Mobile was a bright spot for the company with the division swinging to a 3.7 billion yen profit in the second quarter from a 20.6 billion yen loss the year before. Sony has been focusing on slimming down its portfolio of smartphones and focusing on higher end models that can bring the company improved profitability. The Japanese firm has struggled to compete against the likes of Apple and Samsung in the smartphone market.

Sony also posted improved profitability in its movie segment helped by increased revenues from films like "Ghostbusters" and "Sausage Party".

Chief Executive Kazuo Hirai has been restructuring the company ever since he took over the reins in 2012 by getting rid of unprofitable units, and doubling down on successes like PlayStation and semiconductors. It has been experimenting with new products from ultra-high-end Walkmans to smart artificial intelligence devices as it looks to bring innovation back to the firm.

"One of the things that we really focused on as we were going through a very tough restructuring through the past several years was that we were not going to skim on R&D (research and development) and that we were not going to skim on innovation," Hirai told CNBC in September.