Earlier this year, Japan's Nikkei business news service predicted that Sony would end its fiscal year with an operating deficit in excess of billion, a significant contrast to the company's own forecast of ¥200 billion (.1 billion/£1.4 billion) in operating profit.

Unfortunately for Sony, the results were at the very bottom end of Nikkei's predictions, with the electronics giant today posting an annual operating loss of ¥227.8 billion (.38 billion/£1.57 billion) and a net loss of ¥98.9 billion (.03 billion/£682 million)--its first since 1995. A company's operating margin is defined as sales minus the cost of goods sold and administrative expenses. Net income includes deductions relating to taxes, as well as changing values of a company's assets and other factors not directly related to sales.

Sony, which late last year announced that it would be slashing 16,000 jobs and would undergo "sacred-cow slaying" changes to cut costs, has blamed the strong yen and the current economic climate for the losses, which lie in stark contrast to last year's profits of ¥374.5 billion (.9 billion/£2.6 billion) and Nintendo's significant revenue increases this year. Anticipation of losses in the earnings announcement caused shares to fall 6.8 percent this morning.

The games division, which encompasses PlayStation 2, PlayStation 3, and PSP hardware and software, saw an operating loss of ¥58.5 billion (2 million/£403 million), an improvement on last year's loss of ¥124.5 billion (.3 billion/£859 million), which Sony is attributing to an improvement in the PS3 business and reduced hardware manufacturing costs.

Overall, game hardware sales were down, due to significantly slowing PS2 sales, with the PS2 hitting 7.91 million units, a decrease of 5.75 million over the previous 12 months. However, sales for both the PSP and the PS3 were up, selling 14.11 million (an increase of 300,000) units and 10.06 million (an increase of 940,000) units respectively.

Software sales for both the PS2 and PSP saw significant dips, with 83.5 million pieces of PS2 software (a decrease of 70.5 million) shipping and PSP software shipments down 5.2 million units to 50.3 million units. PS3 software sales, however, saw a massive jump, up 45.8 million units to reach 103.7 million shipped.

Sony presented a bleak outlook for the next 12 months, forecasting a net loss of ¥120 billion (.3 billion/£827 million). Sony also warned that there would be an overall decline in the games business, due to the likely change in value of the yen and a further decrease in PS2 sales, and expects that it will record a loss again next year. The firm remained optimistic about the PS3 business, however, which it expects to improve in profitability due to reduced hardware costs and an "enhanced" lineup of software.