Sony shares surged 14 percent Friday as investors welcomed better-than-expected earnings that suggested a budding recovery at the Japanese company thanks to booming flat-panel TV sales.
Sony's stock finished at 5,800 yen ($50), leading a rally on the Tokyo stock market, where the benchmark index rose 3.6 percent to a five-year high, wiping out its losses last week when the market plunged over a probe into Internet startup Livedoor Co.
On top of reporting a healthy 17.5 percent gain in quarterly net profit on Thursday, Sony Corp. revised its earnings outlook to a 70 billion yen ($605 million) profit for the full fiscal year through March, reversing a previous prediction of a 10 billion yen ($86 million) loss.
But analysts warned that the company has a long road ahead to a full recovery after stumbling in recent years because of dropping prices and competition from cheaper Asian rivals.
"It's starting to take the first hop. It still needs to take another step, and it's unclear when we'll be able to say it's the excellent company it used to be in the past," said Keita Wakabayashi, analyst at Mito Securities Co. in Tokyo.
Its soaring share price is merely a reflection of how dismally low expectations about Sony have fallen among investors, he said.
Tokyo-based Sony — known worldwide for its Walkman portable music players and PlayStation video-game machines — has embarked on a serious cost-cutting mission since Welsh-born Howard Stringer took over the company in June.
Stringer has promised to trim 10,000 jobs, or nearly 7 percent of Sony's global work force, by March 2008.
But even more crucial is the turnaround at Sony's core electronics division, which had lost money for two straight fiscal years.
That business has been improving with the new Bravia liquid-crystal display TVs, whose panels are produced with South Korean rival Samsung Electronics Co. in a joint venture. The TVs sold well during Christmas, grabbing No. 1 market share in the U.S., Sony said.
Operating profit in Sony's electronics unit for the quarter that ended Dec. 31 improved 56 percent from the same period a year earlier to 78.9 billion yen ($681 million).
Sony, which also has big entertainment units, including movies, music and video-games, is also abandoning some businesses such as entertainment robots, plasma display TVs and its expensive luxury audiovisual line offered in Japan called Qualia.
But analysts say Sony's TV business is still losing money, and the flat-panel business remains risky because product prices could plunge.
Its overall group net profit for the October-December quarter totaled 168.9 billion yen ($1.5 billion), up from 143.8 billion yen in the same period a year earlier.
Sales for the quarter climbed 10 percent to 2.37 trillion yen ($20.5 billion) from 2.15 trillion yen.
If Sony had posted an overall loss for fiscal 2005, it would have been the company's first full-fiscal-year loss in more than a decade since sinking into the red in 1994 for losses related to its acquisition of Columbia Pictures.
Uncertainties remain, such as how the PlayStation 3 video-game console fares when it goes on sale this year. And a favorable currency rate and other one-time boosts were behind Thursday's positive results, analysts say.
Sony Senior Vice President Takao Yuhara said another quarter is needed to see if Sony's improved health is here to stay.
"We really can't say we had a turning point by only seeing one quarter's results," he told reporters.
But the mood was clearly celebratory in Tokyo trading.
"Everyone likes the story of a company coming back, and it was Sony, after all," said Ryuta Otsuka, strategist at Toyo Securities.