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An old adage has it that "when Sony sneezes, the whole electronics industry catches cold." If that's so, there could be an epidemic brewing. Sony's profits plunged an astounding 98% in the first quarter of its current fiscal year. Thomson, Samsung, and some large retailers also reported big drops.

In a report issued July 24, Sony Corporation attributed the huge decline during the April-to-June period to diminishing sales of its video games and TV sets, in addition to unprofitable theatrical releases from Sony Pictures Entertainment—specifically Charlie's Angels: Full Throttle, which received a battering from critics when it opened and hasn't caught fire with movie fans the way last year's Spider-Man and Men in Black II did. Sony Pictures' most profitable year ever was 2002, and it was a record year for Sony Corporation overall.

Sony Music didn't do well in the first quarter of 2003 either, although it performed better than during the same period of 2002. Sales in the music division dropped 8.8% to ¥117 billion ($975 million) from the previous quarter; however, the quarterly loss was "only" ¥6 billion ($50 million) versus last year's ¥10 billion ($83.3 million). Sony Music execs blamed piracy and downloading for the continuing crisis, but acknowledged that there is intense competition from elsewhere for consumers' entertainment dollars.

Video games were also hugely profitable for Sony last year, but sales of the company's popular PlayStation2 dropped severely in the most recent quarter. Only 2.65 million of the gaming consoles were sold from April through June, a decline of 42%. Q1 gaming revenue (software and hardware) tumbled 18% to ¥125 billion ($1.04 billion); the division's operating income was off 32% to ¥1.8 billion ($15 million).

The first-quarter loss came in the wake of a loss incurred the previous quarter, January to March 2003. Between April 1 and June 30, Sony's sales dropped 6.9% to ¥1.6 trillion ($13.3 billion), compared to the first quarter last year, with profits down 98% to ¥1.1 billion ($9.1 million). Sony posted profits of ¥57.2 billion ($47.6 million) in the same period last year. Projected profits for the year remain at ¥50 billion ($41.6 million), a 57% slip from the previous year. Sony indicated that it expects sales to drop 1% overall, for a projected total of ¥7.4 trillion ($61.6 billion).

Japan's second-largest electronics company, behind Matsushita Electric (parent company of Panasonic), Sony has cut its workforce and reorganized its management and marketing structure in an attempt to improve profitability. The company's annual outlay for research and development is said to be one of the world's highest on a proportion-of-budget basis. In that light, Sony has invested heavily in semiconductor production and hopes to increase revenue from both raw components and finished products in the coming months. In a prepared statement, chairman Nobuyuki Idei said Sony should begin to see results from its investments and restructuring by the "third quarter of this fiscal year," with a goal of attaining strong profits by 2006.

The quarterly financial picture was bleak elsewhere. Paris-based Thomson SA, parent company of RCA electronics in the US, reported an overall sales decline of 36% to $787.5 million, down from $1.2 billion reported for the same period a year earlier. For the first half of its fiscal year, Thomson's consumer product sales were off 33% to $1.6 billion, down from $2.4 billion in the first six months of 2002. Revenue declined 24% to $1.8 billion. Offsetting some of these losses were gains in the DVD sector, with unit sales doubling during the quarter compared to the same period a year earlier. Thomson is projecting a turnaround later in the year, with expected second-half sales in the $5.3-to-$5.8 billion range. Some of the growth should come from upmarket digital products to be introduced in the US, company officials explained.

Samsung Electronics' digital media division, the umbrella group for digital televisions, DVD players, and computers, posted $1.58 billion in second quarter sales, a decline of 25% from the $2.1 billion reported in the same three months a year ago. That figure was also slightly below the $1.60 billion total for the previous quarter. During the second quarter, Samsung's digital media unit accounted for 19% of the company's revenue. LCD sales—both video displays and computer monitors—totaled $938.9 million during the quarter. Samsung is a world leader in mobile phones, and sold 12 million units during the quarter, below a goal of 13 million. Samsung's consolidated operating income for the period was $993.1 million, a significant drop from the $1.6 billion reported for the same period the previous year. Operating profit for the first half was $2.1 billion, down from $3.5 billion in the first half of 2002, with net profit at $1.9 billion and $3.3 billion, respectively. Despite its dominance in many areas of the electronics market, Samsung has a weak presence in the audio arena.

Retailers are also feeling the pinch. For the quarter ended June 30, the Tweeter Home Entertainment group posted a net loss of $4.1 million, compared with a net income of $103,000 for the third quarter a year ago. The Canton, MA–based electronics chain had an operating loss of $6.4 million during the third quarter, compared with an operating profit of $678,000 in the same period in 2002. Tweeter CEO Jeffery Stone blamed his company's woes on slow store traffic, and said he and his executives are being "cautious with near-term predictions." Tweeter is predicting a net loss for the present quarter of between $3.5 million and $5.2 million.