Sony Struggles With the PS3: Fool by Numbers

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On May 16, Sony (NYSE: SNE) released earnings for the fourth quarter ended March 31.

• Read our Foolish Quick Take on whether Sony is poised to make a comeback.
• Revenue increased by 12.3% to $17.7 million, thanks to the performance of the electronics and pictures segments; strong LCD sales and movie hits like Casino Royale and The Pursuit of Happyness helped offset the lackluster performance of Sony's PlayStation 3.
• While sales in the gaming segment rose 85% year over year because of the release of the PS3, the company reported significant operating losses. Intense game console competition from Nintendo's Wii and Microsoft's (Nasdaq: MSFT) Xbox led to lower prices -- which didn't offset production costs. 
• Although sales increased, the company is still in the red, with flat negative earnings per share. Gross margin and operating margin dropped significantly, but net margin improved slightly.  
• It's no secret that many Foolish contributors are bearish on the stock. Our Motley Fool CAPS community shares the same sentiment, giving Sony the lowest ranking -- one star. Meanwhile, other Japanese competitors such as Nintendo and Canon (NYSE: CAJ) sport top five-star rankings.

(Figures in millions, except per-share data.)

Income Statement Highlights

	Q4 2006	Q4 2005	Change
Sales	$17,709	$15,773	12.3%
Net Profit	($573)	($569)	N/A
EPS	($0.57)	($0.57)	N/A
Diluted Shares	1,001.8	1,000.8	0.1%

Get back to basics with the income statement.

Margin Checkup

	Q4 2006	Q4 2005	Change*
Gross Margin	24.8%	29.5%	(4.7)
Operating Margin	(5.4%)	(3.4%)	(2.1)
Net Margin	(3.2%)	(3.6%)	0.4

*Expressed in percentage points

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q4 2006	Q4 2005	Change
Cash + ST Invest.	$10,960	$10,598	3.4%
Accounts Rec.	$12,631	$9,189	37.5%
Inventory	$7,974	$6,878	15.9%

Liabilities	Q4 2006	Q4 2005	Change
Accounts Payable	$18,207	$14,259	27.7%
Long-Term Debt	$8,483	$6,538	29.7%

The balance sheet reflects the company's health.

Cash Flow Highlights

	FY 2006	FY 2005	Change
Cash From Ops.	$4,754	$3,418	39.1%
Capital Expenditures	$4,470	$3,953	13.1%
Free Cash Flow	$284	($535)	N/A

Free cash flow is a Fool's best friend.

Related Foolishness:

• Quick Take: Is Sony Really Turning the Corner?
• Before the Call: Sayonara, Sony
• Sony PS3 Gets Played
• Sony Blunders With DRM Again

Nintendo is a Stock Advisor pick, while Microsoft is an Inside Value recommendation. Try a free 30-day trial of either newsletter to level up your portfolio.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean. This data has been provided by Netscribes. To provide feedback on this article, please click on the "feedback" button below.