SONY, the Japanese electronics company, stunned investors yesterday with a dramatic cut to its earnings forecast and its first back-to-back quarterly loss in four years.

The dire figures, the result of tumbling prices for Sony’s core consumer electronics products, echoed the infamous “Sony Shock” of 2003, when the company unveiled its biggest quarterly deficit in more than eight years. Brokers are already dubbing yesterday’s warning the “Second Sony Shock”.

The grim forecast was accompanied by revelations that the group had fallen to a net loss of 7.3 billion yen (£38 million) in the April to June quarter, creating what one analyst described as “almighty problems” for Sony’s new president, Sir Howard Stringer.

Sony has been battered by the effects of plunging retail prices of digital cameras and flat-screen televisions. These products were supposed to be the saviours of the electronics industry, but have instead left the sector with over-capacity problems and an inability to maintain margins as manufacturers from Japan and South Korea churn out the technology at record speeds.

Sony attributed the loss to “severe competition in the plasma display TVs market” and blamed similar problems in LCD televisions.

But there was also bad news from Sony Computer Entertainment (SCE), the division that produces the PlayStation games consoles and is gearing up for a showdown with Microsoft’s next-generation Xbox machine next year.

Ken Kutaragi, the president of SCE has promised the world that the PlayStation3 would be a “home supercomputer”, but development costs have spiralled out of control.

Sir Howard took over at Sony this year as the Japanese company’s first foreign number one, and is due to announce details of a turnaround plan within the next six weeks. Investors said the Welsh former journalist would have to be more radical if he is to convince the market that Sony can be pulled back from the edge of oblivion. He is also battling against the findings of a report published by Interbrand last week that showed that Sony’s brand has lost ground to its South Korean arch-rival, Samsung.

Many believe that he must reorganise the group completely, and will probably begin divesting a range of non-core assets.

The forecast downgrade from Y80 billion to Y10 billion, which was revealed after the Tokyo market had closed, undermines the view formed recently by some investors that the worst of Sony’s problems are now behind it. It is expected to spark a massive sell-off in Sony stock today.

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