The last two days have been anything but pretty on the stock market with most companies down a few percentage points. Shares of Sony however have taken even a bigger beating, down $1.81 or 9%. Despite Sony having incurred multiple quarters of losses with more losses expected, the Japanese electronic giant surprised investors with an announcement which pointed towards bigger fiscal year 2012 losses which ends in March. The good news is that the bigger loss isn’t due to further market erosion from competition with the like of Apple and Samsung but due to “a ¥300 billion non-cash charge to reflect the adjustment of certain assets.”

Despite the optimistic view, this adjustment in taxes will leave Sony with a net loss of ¥520 billion ($6.4 billion) which is a far cry from the  ¥220 billion ($2.7 billion) the company had forecast on February 2nd which in itself is terrible. Sony who has not recorded a profit on their balance sheet since 2008 also incurred a loss of $3.2 billion in 2011.

 Based on U.S. GAAP under which Sony reports its consolidated results, cumulative losses in recent fiscal years are considered significant negative evidence regarding the realizability of deferred tax assets. Sony evaluates its deferred tax assets on a tax jurisdiction basis to determine if a valuation allowance is required. In the U.S., Sony’s holding company and its subsidiaries file a consolidated federal tax return. This consolidated tax filing group is expected to have incurred cumulative losses in recent fiscal years including the fiscal year ended March 31, 2012. After comparing this significant negative evidence, to objectively verifiable positive factors, Sony expects to record a non-cash charge to establish a valuation allowance against certain deferred tax assets held by the consolidated tax filing group in the U.S. This expected charge represents approximately 80 percent of the aggregate additional tax expense. 

Despite the gloomy news, analysts are still optimistic about Sony’s long term viability and have reiterated a “reiterates a Hold rating on Sony shares, and a $20 price target, while raising his net loss estimate for the full year to $6.54 from $2.80.” Many expect that with a rough start to 2012, Sony will be able to transition to profitability for the 2013 fiscal year by leverage its growth and focusing on cost reduction.

Kaz Hirai who has just taken helm of Sony is expected to do just that with the ‘One Sony‘ initiative which will focus on Sony’s core group of products. With a big announcement set for April 12th, many seem to think that Sony will be reducing its workforce by 10,000 or nearly 6 perfect which will mainly come from the ailing television group.

[Via Barron’s]