Sony said yesterday that it expects see a huge impact on earnings from the weakened euro, underscoring a vulnerability that many companies may be facing thanks to the ongoing European debt crisis.
"There are no countermeasures that we can take for the moment,” said Hiroshi Kurihara, corporate treasurer at Sony in an interview with Bloomberg yesterday. “There is a huge impact on our earnings."
The euro has fallen to its lowest point in a decade against the yen and is proving to be a challenge for Sony, because it is eroding the value of sales in company's biggest export market.
"Even as companies take various measures against exchange rate fluctuations, it’s going to be tough for those with higher sales ratios in Europe," said Yoji Takeda, who manages $1.1 billion at RBC Investment Management (Asia) Ltd. in Hong Kong. He adds that the euro’s sharp drop "is a problem for Japanese exporters."
Europe is a huge market for many Japanese companies including Sony and Nintendo. Nintendo got 41 percent of revenue in the quarter that ended June 30 from Europe, so the exchange rates between the euro and the yen will have a dramatic impact on profits.
On the plus side, Sony's relocation of some manufacturing operations to China and other Asian countries and an increase in outsourcing has helped it balance its revenue and costs, reducing the risk of losing money from the currency’s shift downward, according to Kurihara.
Most of this impact relates to sales of electronics like televisions and computing devices, where stiff competition from Korean companies like Samsung make it incredibly difficult to raise prices – usually a sure-fire way to counter-balance weakened currency. Raising prices would be a bad idea given that Sony's top competitors would simply maintain their price points and inevitably make off with most of the market share in Europe.
Source: Bloomberg
