Sony, the Japanese electronics and entertainment group, has slashed its full-year earnings forecasts by 57 per cent in an unprecedented profit warning for the year to next March, reflecting the growing weakness of businesses across the global economy.

Where Sony had expected to make 470 billion yen (£2.94 billion), operating profit is expected to come in at Y200 billion because of falling demand for its products in its key markets while the strengthening yen has hurt its export business.

Given the emerging difficulties in many of Sony's main markets, particularly the US consumer's taste for digital cameras, LCD televisions and other gadgetry, analysts had expected a profit warning. But the 57 per cent cut to the forecast was far below even the most pessimistic expectations.

Analysts said that the forecast appeared to incorporate fairly downbeat expectations for the Christmas period and the company's chief financial officer said that the global financial crisis would have a significant effect on the ability to generate profits in television sales. The company's goal of 5 per cent margins, he said, would require “more action”, particularly in view of the weakening of markets in Latin America and China.

Even analysts who maintained their positive view on Sony gave warning that Sony's situation could deteriorate further over the next three months. David Gibson, a Macquarie analyst, said that the dollar yen exchange rate is already below that used in the company's assumptions and he refused to rule out a further Y40 billion to Y60 billion in downward guidance.

The company said that it expected the results of some businesses in its electronics segment, such as video cameras and LCD televisions, to be lower than previous forecasts because of the weakening global economy and “intensification of price competition”.

Atul Goyal, an analyst at CLSA, the broker, who has been a persistent bear on Sony and believes the company could ultimately start to make losses, told clients to “sell and exit” Sony shares. He forecast that the company's earnings-per-share decline for the full year could be as much as 90 per cent. Mr Goyal said that even the new forecast of Y200 billion operating profit was “nowhere close to reality”, adding that the company would be lucky to achieve Y50 billion by the year end.

Along with the rest of Japan's leading exporters such as Canon, Panasonic and Toshiba, Sony's profits are dealt a direct blow with every upward movement in the yen. The Japanese currency's surge against the dollar has intensified the problems faced by the managements of these companies.

Yesterday's downgrade - already hailed by some traders as the “second Sony Shock” - blows a huge hole in the company's painfully engineered revival.

Since taking over as president of the company in 2005 in the aftermath of the first “Sony Shock”, Sir Howard Stringer has tried desperately to work on Sony's profit margins and restore the company's reputation as an innovator.

Until recently, his strategy was hailed by analysts as a success, with many upgrading their ratings on the stock as the troubled company's fortunes appeared to revive.

But even as margins crept back towards Sir Howard's target of 5 per cent, the company's first non-Japanese chief executive has cautioned that the company remains at the mercy of foreign exchange rates.

Birth of a giant

— Sony's origins date from 1946 when Masaru Ibuka, an engineer, and Akio Marita, a physicist, invested the equivalent of 190,000 yen (£1,215) to set up Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Corporation), or Totsuko. It had just 20 employees

— In 1955 it began using the Sony logo and three years later changed its name to Sony Corporation

— Its innovations include Japan's first magnetic tape recorder in the early 1950s; the first Trinitron colour television in 1968; the Betamax VCR in 1975; the Walkman in 1979; and the first CD player in 1982

— Sony now employs almost 160,000 people globally

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