TOKYO—Hurt by cutthroat market conditions crimping television earnings across the electronics industry, Sony Corp. posted an 8.6% decline in quarterly profit and scaled back its sales targets for liquid-crystal-display TV sets.
After similarly grim television-business results from Panasonic Corp., LG Electronics Inc. and Samsung Electronics Co., Sony said its TV unit posted a loss of 13 billion yen ($159 million) for the fiscal third quarter ended Dec. 31. Sony expects further losses in the current quarter.
Sony posted an overall net profit of 72.3 billion yen, or $887 million, in the October-December quarter versus a net profit of 79.2 billion yen a year earlier.
The TV industry continues to roll out new products, offering thinner sets with larger screens or 3-D capability in an attempt to expand profit margins. But that strategy is rarely successful, with manufacturers quick to outdo one another with price cuts even as the overall market continues to grow.
Exacerbating the problem for Japanese TV makers is the strong yen, which makes their products more expensive abroad and eats into money earned overseas when brought back to Japan. While operating profit fell 6% in the quarter, Sony said group operating profit would have risen 22% without the impact from the yen's appreciation.
Last May, Sony set an aggressive target to increase LCD TV sales by 60% to 25 million units in the current fiscal year to March, but U.S. demand started to lag during the summer. Those conditions continued into the holiday shopping period, and Sony reduced its sales target to 23 million units on Thursday.
The company had also set an earnings goal of breaking even in the TV business for this fiscal year, but Sony has abandoned that target. The biggest factor, according to Sony Chief Financial Officer Masaru Kato, is that the company had to pay more to secure LCD panels than it had expected.
"Based on what we are hearing from other companies, the TV business as an industry seems to have trouble increasing earnings," Mr. Kato said. "But it's a critical business and it's not one that we can just give up on because we aren't making money, so we have to keep trying to improve the situation."
Sony's TV business, which is on track to be unprofitable for a seventh straight year, is the one major headache for the company amid an otherwise impressive earnings turnaround. Sony has reversed losses at its game business, and its Sony Ericsson mobile-phone joint venture has also turned profitable with a shift to smartphones.
For the full fiscal year to March 31, Sony maintained its forecast for a net profit of 70 billion yen and an operating profit of 200 billion yen, although it trimmed its revenue forecast to 7.2 trillion yen from 7.4 trillion yen.
Based on that outlook, Sony expects a net loss of about 58 billion yen in the three months ending in March. The fiscal fourth quarter is historically a weak quarter for the company as sales drop sharply after the holiday shopping season. Mr. Kato said Sony is taking a "conservative" view of the quarter.
Sony's outlook is based on the assumption the dollar will average 82 yen and the euro will average 110 yen for the January-to-March quarter. On Thursday in Asian trading, the dollar was at 81.60 yen and the euro was at 112.62 yen.
Sony generates about 70% of its sales outside Japan, making the company vulnerable to the yen's appreciation. Each one-yen fall in the euro's average rate shaves seven billion yen off its full-year operating profit, and a one-yen drop in the dollar's average foreign-exchange rate for the full year reduces operating profit by two billion yen. Revenue slipped 1.4% from a year earlier to 2.206 trillion yen in the most recent quarter, while operating profit dropped 5.9% to 137.5 billion yen.
Operating profit at Sony's main consumer-electronics unit halved from a year earlier to 26.8 billion yen, but the company's networked products and services division, home to its PlayStation videogame business, more than doubled its operating profit to 45.7 billion yen.
One bright spot for Japanese electronics companies was the domestic TV market, which got a boost from a government-stimulus program that provided incentives for consumers to trade in old television sets for more energy-efficient models.
Rival Sharp Corp. said it sold twice as many TV sets in Japan during the October-December quarter versus the same period a year earlier. Accounting for roughly 40% of the Japanese television market, where profit margins tend to be higher, Sharp said it expects the TV business to be profitable in the year to March.
But even the strong domestic demand is expected to fade in the coming fiscal year starting in April once the government halts the stimulus program at the end of March. Sales already plunged after Japan scaled back the program in December.
As a group, Sharp posted a 19% decline in net profit after incurring restructuring charges at its LCD panel unit.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com