By Kiyoshi Takenaka

TOKYO (Reuters) - Sony Corp posted a surprise quarterly loss on Wednesday after a weak stock market ate into the value of securities held by its financial arm, but it forecast a bigger-than-expected profit this year as it boosts sales of digital cameras and flat TVs.


Sony, locked in a three-way battle with Microsoft Corp and Nintendo Co Ltd in the game industry, has been able to narrow losses on the PlayStation 3 game console by cutting manufacturing costs and expanding sales.

The electronics and entertainment conglomerate has also enjoyed strong sales of Cyber-shot digital cameras, VAIO PCs and handheld video cameras, helping push its operating profit up more than five-fold in the business year that ended on March 31.

"Considering that Sony was operating under adverse economic conditions, including a strong yen, both the results and outlook seem to show that Sony's stamina has grown stronger," said Kazuhara Miura, an analyst at Daiwa Institute of Research.

It suffered an operating loss of 4.7 billion yen ($45 million) in January-March, an improvement from a 113 billion yen loss a year earlier but short of an average estimate of a 27.3 billion yen profit from five analysts surveyed by Reuters.

The fourth-quarter loss was due mainly to a slide in the value of stocks and convertible bonds held by its financial division.

Sony said it expects operating profit to grow 20 percent to 450 billion yen in the year to March 2009, beating the market consensus of 428.5 billion yen. It sees revenues rising 1 percent to 9 trillion yen.

Japanese exporters including Sony are facing tough business conditions this year due to a firmer yen, rising raw materials prices and signs of a slowdown in the global economy.

Sony aims to sell 17 million liquid crystal display TVs in the year to next March, up from 10.6 million in the year just ended. That compares with Sharp Corp's target to sell 10 million LCD TVs and Matsushita's plans to sell 11 million flat TVs.

"The business environment is not so good but we will generate sales growth from LCD TVs," Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

IMPROVING ITS GAME

In a bid to secure enough display panels for its Bravia LCD TVs, Sony plans to take a one-third stake in Sharp's 380 billion yen LCD panel plant set for completion by March 2010.

It will also be building a new LCD panel production line with Samsung Electronics Co Ltd , Sony's partner in panel production but its archrival in retail outlets.

For the full year that ended on March 31, operating profit surged to 374.5 billion yen from 71.8 billion yen, helped by smaller losses and one-off gains from the sale of part of its former headquarters site and chip-making facilities.

But the result still missed Sony's own forecast in January of 410 billion yen.

Sony's financial services division, which includes its life insurance and banking operations, posted an operating loss of 30 billion yen for the fourth quarter, a sharp downswing from an operating profit of 29.5 billion yen a year earlier.

Sony said it planned to double its dividend in the current year to 50 yen.

Shares in Sony closed up 1.3 percent at 4,850 yen ahead of the announcement, but are still down 22 percent since the start of 2008, underperforming a fall of 7 percent in the Tokyo stock market's electrical machinery index.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Managment, said the market may react positively to Sony's outlook, especially since it is based on a currency rate of 100 yen to the dollar and the dollar is now at 105 yen.

"The game business is likely to drastically improve and the LCD TV business is also expected to be profitable. If Sony can accomplish these two things, it can easily lift its earnings forecasts, unless the yen starts trading around 90 yen," he said.

($1=103.76 Yen)

(Additional reporting by Taiga Uranaka, Mayumi Negishi, Nathan Layne and Aiko Hayashi; Editing by Michael Watson)
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