Sony, the Japanese electronics giant, has slashed its earnings forecasts by 57 per cent in a massive profits warning, reflecting the growing weakness of businesses across the global economy.

Sony was forced to make a dramatic downgrade to its operating profit forecast for the full year ending in March 2009.

Where Sony had previously expected to make Y470 billion (£2.94 billion), 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 collapse 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 profits warning. But the 57 per cent cut to the forecast was far below even the most pessimistic of forecasts.

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 the “intensification of price competition.”

Atul Goyal, an analyst at CLSA, the brokerage, 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, predicting 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 major exporters like 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 made the problem much more dire far more quickly than many managements had expected.

Thursday’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.

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