The Grinch came early this year for Sony (NYSE: SNE), and it brought its evil twin.

Just as the electronics giant was posting improvements to its global market share for flat-panel TVs, and its LCD TV sales in Japan received a boost in the June quarter, Sony earlier this month announced that its Bravia LCD TVs may pose a fire risk and offered free inspections and repairs for certain models.

For Sony, such an announcement is likely to dampen holiday sales of its Bravia line, which contributes a chunk of change to its overall TV sales, according to Pacific Crest analyst Andy Hargreaves. Although the company does not break out Bravia sales, TVs overall represented $2.98 billion in Sony's external customer revenues during the June quarter. That makes TVs the largest slice of Sony's Consumer Products and Services segment, which in the June quarter accounted for more than half of Sony's total sales of $18.46 billion, according to its quarterly earnings report.

It also puts a double-whammy of bah-humbug on Sony's TV sales, which overall have been under pressure. The company, in its June quarter earnings report, lowered its fiscal-year forecast for LCD TV unit sales, citing deteriorating market conditions. And as a result, it noted at the time it's keeping a cautious eye on its Consumer Products and Services operating results for its fiscal year.

Bummer. Because in its May forecast, midway through its fiscal first quarter, the company thought operating income for the Consumer Products & Services segment would do better than the previous year. And that's saying a lot. Last fiscal year, Sony's Consumer Products and Services segment posted a $35 million operating profit -- compared with two previous back-to-back years of losses.

And while it's difficult to say how much the Bravia sales will have to fall off the cliff to push the Consumer Products and Services back into the red and drag Sony's overall performance with it, Sony's investors have already been on the losing side of the equation. Since the start of the year, the stock has underperformed the broader markets and it's not likely to get better if the next quarterly report yields yet another downward forecast from the company.

Competitors like Panasonic (NYSE: PC), Samsung, Sharp, LG (NYSE: LPL), and Matsushita are likely thinking the Bravia fire risk woes couldn't have come at a better time. Consumers are pulling together their holiday shopping lists. My daughter, for example, has already handed me her list, and it continues to grow as each week passes.

The company's Smokey Joe Bravia TV troubles could also dampen its worldwide market-share gains in flat-panel TVs. In the June quarter, Sony's flat-panel TV market share rose 12% over the previous quarter to account for a 11.7% slice of the market, according to research firm DisplaySearch.

Worldwide Flat-Panel Brand Rankings by Revenue Share, Q2 

Rank Brand Q2 2011 Q/Q Growth
1 Samsung 22.6% 11%
2 LGE 14.4% 8%
3 Sony 11.7% 12%
4 Panasonic* 9.4% 55%
5 Sharp 7% 1%
6 Other 34.8% (1%)
7 Total 100% 8%

Source: DisplaySearch.
*Includes Sanyo in Q2.

It's hard to say how much the fire risk will affect sales, and also how much expense the company will incur in repairing the faulty sets. So, as the holiday season rolls around, Sony's investors should prepare themselves for the possibility, at least, of a lump of coal in their stockings.

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