Sony, Sharp in turnaround battle; Panasonic battered

Sony Corp is likely to say it returned to an operating profit for July-September after it sold a chemicals business, but investors still aren't sure a consumer electronics revamp will deliver the profit growth the group seeks.

Sony shares, valued at less than $12 billion, have dropped 19 percent since end-June and its 5-year credit default swaps the cost of insuring against debt default have jumped by almost 60 percent. The benchmark Nikkei average is down by less than 1 percent.

The maker of Bravia TVs, Vaio laptops and PlayStation game consoles, battling weak demand and tough competition, is expected to say it earned operating profit of 33.8 billion yen in its second quarter, after losing 1.6 billion yen a year ago, according to an average estimate from five analysts on Thomson Reuters I/B/E/S.

"The reality for Sony now is that it's getting profit through financial accounting; beyond that, things are not good," said Tetsuro Ii, CEO of Commons Asset Management. "The question is whether Sony can tell a growth story or not."

Sony has sold a chemicals unit to state-backed Development Bank of Japan for 58 billion yen, and other asset sales may further inflate operating profit this business year. The Japanese group, which blazed a trail in the early 1980s with its Walkman portable music players, is closing the Shinagawa Technology Center, a 31-storey Tokyo office built in 1998 and may even sell the 37-storey Sony Tower, the New York headquarters of its U.S. business, according to media reports.

Sony has said it expects to reduce its global workforce by 10,000 people by end-March, around 6 percent of its total, as it seeks to lop 30 billion yen off its costs.

High risk
Kazuo Hirai, who took over as CEO in April, has pledged to rebuild Sony around gaming, digital imaging and mobile devices, and nurture new businesses such as medical devices, as the TV business shrinks Sony has lost close to $9 billion in TVs over the past 8 years. In late-September, Sony agreed to pay 50 billion yen to become the biggest shareholder in Olympus Corp, a world leader in medical endoscopes.

"The areas in which Sony is continuing to focus are of course high-risk, high-return markets," said JP Morgan analyst Yoshiharu Izumi in a recent report. "Although we expect (full-year) margin improvement in the electronics segment, we think it's too early to appraise a sustained recovery."

While battling weak demand for its products, fierce competition from Apple Inc and Samsung Electronics and others, Sony is also up against a strong yen and a depressed global economy.

Shares in rival Japanese TV maker Panasonic Corp slumped by nearly a fifth on Thursday, wiping $3 billion off its market value, a day after it said it will lose almost $10 billion this business year as it cleans its house of risky assets writing down billions of dollars of goodwill and assets in its mobile and energy units and preparing for more restructuring that is likely to see it shift away from money-losing TVs and other consumer electronics.

"It may not be on the same scale, but for the same reasons I think there's a strong chance Sony, too, will opt for writedowns," said Makoto Kikuchi, CEO fo Myojo Asset Management in Tokyo.

Outlook dimmer
In August, Sony cut its full-year operating profit forecast by more than a quarter to 130 billion yen, still some way above the average forecast by 19 analysts for 107 billion yen. At a net level, Sony sees annual profit of 20 billion yen, while the market prediction is for around a third of that.

"It's unclear if Sony will cut its full-year operating profit guidance, but we see considerable potential for second-half shortfalls, mainly in smartphones and games," Goldman Sachs analyst Takashi Watanabe said in a client note.

Sales of Sony's handsets, including its Xperia smartphones, are expected to have slid by more than a fifth in July-September, to below 8 million devices, a Reuters poll found last month. Next year it is forecast to sell 34.4 million mobiles, about the same as Samsung shifts each month.

The South Korean firm and Apple are also encroaching on Sony's gaming business, and Hirai has cut the forecast for annual sales of the hand-held Vita and PSP consoles to 12 million from 16 million.

After four straight years of net losses, Hirai is also hampered by weakened finances. At end-June, Sony's shareholder equity ratio fell to below 15 percent a rate of 20 percent is generally considered a healthy minimum.

While selling off non-core assets, Sony has also spent to bolster its business portfolio laying out $1.8 billion in four months on the Olympus stake, a cloud gaming firm and a website for doctors, but this has prompted both Moody's and Standard & Poor's to lower their long-term debt rating on the company to the second-lowest investment grade.

Sharp downturn
At rival Japanese TV maker Sharp Corp, which also announces quarterly earnings on Thursday, the need to return to profit is more urgent.

The maker of Aquos TVs has secured a $4.6 billion bank bailout, and has pledged to axe 10,000 jobs, sell assets, and return to profit. At end-June, Sharp's shareholder equity ratio was 18.7 percent.

After adding restructuring charges, valuation losses on stocks of LCD display panels and other costs, Sharp will almost double its net loss forecast for the year to 450 billion yen, two sources familiar with the matter told Reuters.

But Sharp will keep its forecast for an operating profit in the current second half, a turnaround that will let its banks justify their bailout of Japan's TV pioneer. For July-September, Sharp is expected to have made a 50.4 billion yen operating loss, according to the average of six analysts on Thomson Reuters I/B/E/S.

The bank loans may prove to be just a sticking plaster rather than a salvation, said Myojo Asset's Kikuchi. "I don't think Sharp has a future. Even if it gets by this term, financial problems could emerge again next business year, and I don't see the banks coming to the rescue."

Both Sharp and Sony may also have felt the impact of a recent dispute with China over ownership of islands in the East China Sea, which triggered sometimes violent protests against Japanese products. Sharp had almost a fifth of its revenues in China, while Sony has around 8 percent of its business there.

Sharp shares have more than halved since end-June, to record lows below 150 yen. Five years ago, the stock traded at above 2,440 yen. Its market value has slumped to below $2.4 billion.

BlackBerry 10 enters testing with RIM's carrier partners

Research In Motion said on Wednesday it has begun carrier testing of its new line of BlackBerry 10 devices, a crucial step ahead of next year's launch of the make-or-break line of smartphones.

"In the last week, BlackBerry 10 achieved lab entry with more than 50 carriers, a key step in our preparedness for the launch of BlackBerry 10 in the first quarter of 2013," Chief Executive Thorsten Heins said in a brief statement.

RIM, which once commanded the lead in the smartphone market, has rapidly lost ground to Apple's iPhone and Samsung's line of Galaxy products, especially in North American and European markets, as customers abandon its aging BlackBerry devices.

Waterloo, Ontario-based RIM is trying to reinvent itself through the new smartphones that will run on the BlackBerry 10 operating system on which it has staked its future. It says the new devices offer a faster and smoother user interface and a better platform for the apps that are critical to a smartphone's success.

RIM, attempting to lure developers onto its platform, last month showed off the new devices to a large gathering of app creators in San Jose, California.

While the devices have so far been well received by the developer community, analysts say the test will be the reception from consumers in an ultra-competitive market dominated by the iPhone and devices that run on Google Inc's Android software.

Testing with carriers typically runs two to three months and lets telecom players test the compatibility of the new devices with their networks.

"This process will continue in the coming months as more carriers around the world formally evaluate the devices and our brand new software," said Heins.

"Our developer teams are continuing to generate momentum to bring a wealth of applications to BlackBerry 10, our enterprise teams have started to present BlackBerry 10 devices and services to our business customers, and our engineers are fully mobilized to ensure that BlackBerry 10 launches flawlessly in the first quarter of 2013."

Shares of RIM closed 4.7 percent higher at $7.93, Wednesday on the Nasdaq. The Toronto-listed shares ended the day 3.7 percent higher at C$7.88.

Electronic Arts posts $381 million loss

Shares of Electronic Arts dipped in premarket trading Wednesday after its outlook fell short of most Wall Street expectations.

The video game publisher posted a loss for its second quarter of $381 million, or $1.21 per share, for the July-September period. That compares with a loss of $340 million, or $1.03 per share, a year earlier.

Revenue was $711 million, down slightly from last year's $715 million.

Adjusted earnings were 15 cents per share and adjusted revenue was $1.08 billion in the latest quarter. These figures exclude special items, stock compensation expenses, and account for deferred costs and revenue from games with online components.

Analysts, on average, were expecting adjusted earnings of 11 cents per share and adjusted revenue of $1.08 billion, according to a poll by FactSet.

"We believe EA remains in a state of transition, as it builds out digital infrastructure and online revenues, while managing a declining console business," wrote Baird analyst Colin Sebastian on a note to investors.

For the current quarter, Electronic Arts Inc. expects adjusted earnings of 50 cents to 60 cents per share and revenue of $900 million to $1 billion.

Analysts are expecting higher earnings of 62 cents per share and revenue of $1.34 billion.

Shares fell 2 percent, or 27 cents, to $11.46 before the opening bell.

Google denies receiving 1 billion euros as tax claim from French state

Google denied a newspaper report on Wednesday that it had received a 1 billion euro tax claim from the French authorities.

The weekly Canard Enchaine said in an unsourced report that the French Tax Administration was looking into whether Google's practice of charging French advertisers via its European headquarters in Ireland led it to underpay taxes in France.

European Union rules on freedom of trade within the bloc generally allow firms to freely sell into one EU market from another.

The newspaper said the French Tax Administration had sent a letter to Google, notifying it of the claim, but a spokeswoman for Google France denied this.

"Google has not received any tax assessment from the French tax administration," she said. She acknowledged the company was in talks with the taxman about its affairs but declined to give details.

The newspaper could not be reached for comment on Wednesday, but did not amend or retract the story which first appeared on Tuesday.

The French tax authority usually issues at least one preliminary assessment before issuing a final assessment, which can be the subject of litigation if not accepted, tax advisers say.

"We have and will continue to cooperate with the authorities in France. Google complies with tax law in every country in which the company operates and with European laws," the spokeswoman added.

Google paid income taxes of just 3.2 percent on non-U.S.income of $7.6 billion last year, its annual report showed.

The company had an income tax bill on $4.7 billion of U.S. income equal to 43 percent.

Calls and emails to the group's U.S. headquarters were not returned.

The tax authority and a government spokesperson declined to comment on the matter, following common practice of respecting taxpayer confidentiality.

The company said in its annual report for 2011 that it was under examination by the U.S. Internal Revenue Service and "various other tax authorities". It did not give details. The IRS declined to comment on Wednesday.

Corporate tax avoidance has become a hot topic internationally as governments struggle with large deficits following the banking crisis.

Tax campaigners say international technology groups are among the most aggressive at shifting income into low tax jurisdictions to avoid income taxes.

Last month, a U.S. senate investigation criticised Google and Microsoft for sheltering tens of billions of dollars from income taxes by using tax havens.

Google France reported sales of 68.7 mln euros in 2010, the most recent period for which accounts are available. In that year, the company paid French income taxes of 2.0 million euros, on its 4.4 million euros income.

Google earns revenue from selling space on its search engine to advertisers. European units in France, and elsewhere, are usually designated as support centres for its Irish operation, which actually bills advertisers, according to company statements.

Ireland's corporate tax rate of 12.5 percent is around half the average rate in the European Union.

In a separate development, French President Francois Hollande told Google's chief executive Eric Schmidt on Monday that France would legislate to force the web search engine to pay for displaying links to news articles unless Google struck a deal with French media outlets.

Facebook stock down after post-IPO lock-up period expires

Facebook's stock price fell Wednesday, the day employees were eligible to start selling restricted stock in the company.

A lock-up period that had prevented such sales expired on Monday. U.S. stock markets opened on Wednesday for the first time since Superstorm Sandy hit the East Coast, so that's when employees could start selling.

In all, 234 million additional shares and stock options held by employees as of Oct. 15 became eligible to flood the market. CEO Mark Zuckerberg is not selling. He has already said that he won't be selling stock until at least next September.

Lock-ups are common after initial public stock offerings and are designed to prevent a stock from experiencing the kind of volatility that might occur if too many shareholders decide to sell at once.

Facebook's stock hasn't done well since its IPO in May amid concerns about its ability to keep growing revenue. But it saw its biggest one-day gain last Wednesday after posting strong third-quarter results. The day before, Facebook detailed for the first time how much money it makes from mobile ads. Mobile had been a concern since before the Menlo Park., Calif., company's IPO.

The next lock-up expiration comes on Nov. 14, when 777 million shares and stock options will become eligible to be sold.

Facebook Inc.'s stock fell 83 cents, or 3.8 percent, to close at $21.11 Wednesday. The stock is down 44 percent from its IPO price of $38.