Earthquake and PSN Hacking Will Cost Sony Dearly

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Earthquake and PSN Hacking Will Cost Sony Dearly
In a year when Sony expected strong performance, the earthquake in Japan and the hacking of Sony's PlayStation Network will bleed $3.2 billion of operating profit. The loss is the largest Sony has seen in 16 years and 2011 could be its third straight year of losses. But Sony is going ahead with its Sony Tablet with Android 3.0, due this fall.
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.


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