Pre-tax profit fell 9.8 percent to 4.41 billion yen in the September quarter from 4.88 billion yen a year earlier, Sony said in a statement.

In contrast, group sales rose slightly to 1.797 trillion yen in July-September from 1.789 billion yen in the same quarter of last year.

"Although second-quarter sales and profit in the game segment declined, the electronics area, where we have been trying to boost products, began to recover," said Sony chairman and group chief executive officer Nobuyuki Ide in a statement.

Sony revised down its forecast for pre-tax profit to 120 billion yen for the full year to March 2004 from the previous projection of 130 billion yen made in July.

But the company said it left its forecast for net profit and sales for the year unchanged at 50 billion yen and 7.4 trillion yen, respectively.

Sales in the game segment plunged 35.6 percent to 161 billion yen in the July-September quarter from 250 billion yen a year earlier.

On hardware, Sony said, the drop was in reaction to brisk sales a year earlier, when a price cut for PlayStation 2 boosted sales and retailers front-loaded procurement of game consoles ahead of a planned strike by US West Coast port workers.

Sales in software for PlayStation 2 increased but those for the original PlayStation decreased.

Sony said the relatively small decline in pre-tax profit was "due to a year-on-year improvement and the effect a net foreign exchange gain, compared with a net foreign exchange loss a year earlier."

A year-on-year decrease in securities investment losses also helped slow the fall in pre-tax profit, the company said.

The group set a new internal dollar exchange rate at 110 yen for the six months to March 2004, compared with 115 yen set earlier. Its assumption for the euro exchange rate for October-March was set unchanged at 125 yen, the company said.

"Theoretically, the yen's appreciation by one yen erodes our profits by three billion yen," Sony chief financial officer Takao Yuhara told reporters.

"The impact of the strong yen will appear in the fourth quarter (to March but I think we will not feel so much impact in the current fiscal year," as a whole.

In the six months to September, Sony's group net profit fell 66.4 percent to 34.0 billion yen from 101.2 billion yen a year earlier.

Group pre-tax profit declined by 51.8 percent to 79.8 billion yen in April-September to 165.5 billion yen.

Sales in the six-month fell 3.2 percent to 3.4 trillion yen from 3.5 trillion yen.

Ahead of the announcement Sony shares on the Tokyo Stock Exchange fell five percent in line with the overall market, which suffered its biggest single-day decline for over two years, partly on jitters over Sony's earnings.

Sony ended down 210 yen or 5.04 percent to 3,960 yen.

In April, Sony's worse-than-expected full year earnings for the year to March 31 caused a "Sony shock" which helped drive Tokyo's Nikkei 225 index to a two-decade low.

SPACE.WIRE