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Monday, May 23, 2011

Sony anticipates losses from earthquake, breach

On May 23, 2011, Sony Corp. revised previously optimistic revenue predictions to reflect "a significant deterioration from our February forecast" – a $3.2 billion loss due to the impact of an earthquake and the ongoing consequences from a data theft of the personal information of 100 million Sony PlayStation Network customers.

The anticipated loss would be the largest the company has reported in more than 15 years and the third year in a row the company has reported a loss.

Earthquake destroys profits

The company said nine of its plants were damaged in the earthquake and tsunami that overwhelmed Japan on March 11. Sony estimates the earthquake damage was responsible for a $268 million drop in sales, with an operating income loss of $207 million.

When the costs of plant shutdowns, loss of sales and plant repairs are calculated, the company believes costs will amount to another $134 million.

"At present, we estimate the impact of the earthquake on consolidated operating income for the fiscal year ending March 2012 to be approximately $150 billion yen [$1.8 billion]," Sony said in its financial forecast. The company said, despite these losses, it still expects sales to grow and operating income to remain flat.

"Our supply chain was significantly damaged by the earthquake and tsunami," the company acknowledged in the forecast. "In addition to direct damages, component procurement conditions and power outages are also affecting our operation. We have spent the time until last week investigating the conditions of recovery from this damage and reviewing our business plan whilst taking our new forecast into account, which has resulted in today's announcement."

Computer hack costs not fully known

Sony's forecast said the company has lost about $171 million so far in the wake of the massive computer hack of its PlayStation Network that reportedly occurred April 16 and 17, 2011. This number includes the cost of identity theft insurance for all of its PlayStation Network customers.

The company is additionally paying for welcome-back programs for PlayStation customers, customer support costs, network security upgrades, legal costs and the potential impact of projected future revenue loss.

The forecast emphasized, "So far, we have not received any confirmed reports of customer identity theft issues, nor confirmed any misuse of credit cards from the cyber-attack. Those are key variables, and if that changes, the costs could change."

Sony also noted it has no way at the present time of assessing costs associated with class-action lawsuits filed against it over the data theft.

"Those are all at a preliminary stage, so we are not able to include the possible outcome of any of them in our results forecast for the fiscal year ending March 2012 at this moment," Sony said.

Sony's forecast for next year is expected this week. end of article

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