Sony Corp's conservative profit estimate suggests the road to recovery for the Japanese electronics maker is bumpy as it braces for unfavorable currency rates and tough competition.

Sony has shed jobs, shut factories and cut procurement costs to better compete with the likes of Samsung Electronics Co in TVs and Apple Inc in portable music, and is hoping to reap the fruit of its restructuring.

The world's No.2 LCD TV maker behind Samsung has vowed to turn its television and game operations profitable this year by slashing production costs and boosting unit sales, and helped by the launch of 3D TVs and 3D-ready games in June.

Sony's profit forecasts are a good indication of its drive toward a growth path after a series of restructuring moves, said Ryosuke Katsura, an analyst at Mizuho Securities.

But there is a risk the company will face a build-up of inventories as competition heats up toward the year-end and if the economy slows down later this year.

Sony's U.S. shares, which rose about 15 percent this year, slipped 3 percent on Thursday morning.

The maker of Cyber-shot digital cameras and Vaio personal computers factored in a hit from foreign exchange rates as well as weaker earnings at its finance division, which operates an insurer and an online bank.

If the Greek crisis spreads and the European economy stalls, that would have a big impact, Sony Chief Financial Officer Nobuyuki Oneda told a news conference.

If you ask me if Greece's problems are included in our operating profit forecast, the answer, regrettably, would be 'hardly'. It surfaced as a big problem just a few weeks ago.

Greece's sovereign debt crisis has plagued Europe and shaken global market confidence. Europe accounted for 22.8 percent of Sony's revenues in the year ended March 31.

Sony expects an operating profit of 160 billion yen ($1.7 billion) in the year to March 2011, up from a 31.8 billion yen profit last year, but short of the 209 billion yen consensus in a poll of 21 analysts by Thomson Reuters I/B/E/S.

Capitalizing on growing consumer interest in 3D images could be one of the last major challenges tackled by Howard Stringer, the 68-year old CEO and former journalist who has failed to restore the company to a high level of profitability despite a series of large restructurings since taking the helm in 2005.

The arrival of 3D film and television is expected to play to Sony's strengths given its wide business portfolio that combines both electronics and entertainment, including movie studios, theater-use projectors and professional-grade video cameras.

But Sony's recent track record of taking advantage of such opportunities is not good. The creator of the Walkman was outmaneuvered by Apple with its iPod player and Nintendo, which scored a hit with its easy-to-use Wii console, in video games.

SONY AS A THREAT

Sony forecast its annual revenue to rise 5.4 percent to 7.6 trillion yen. It projected LCD TV sales to jump 60 percent to 25 million units, and unit growth of 15 percent for PlayStation 3 game consoles and nearly 10 percent for digital cameras.

Sony said it has managed to cut production costs for the PS3 below the selling price as of March, enabling it to finally profit on the hardware more than three years after the console was launched.

The PS3's Blu-ray DVD player and powerful Cell microchip help produce life-like graphics, but had until recently forced Sony to make a loss for each console it sells.

For the three months ended March 31, Sony posted an operating loss of 56.0 billion yen, against a loss of 294.3 billion yen. The quarterly result was in line with Sony's revision to its past year earnings forecasts earlier this week.

The company could get some help from the recently stronger won, a disadvantage for South Korean exporters LG Electronics and Samsung.

Sony is really pushing hard to boost TV sales, and with the Korean won getting stronger against the yen it's going to be a real threat to Korean makers like Samsung and LG this year, said Baek Jong-Suk, an analyst at Hyundai Securities in Seoul.

Sony's big push toward 3D TV will also get an additional boost from its gamings and entertainment businesses and could help it wage a successful fight against Korean rivals and win back some of the lost market share.

Profitability at its TV division will likely improve by about 100 billion yen this business year from an operating loss of 73 billion yen a year earlier, Sony's Oneda said, indicating an operating profit of around 27 billion yen, its first annual TV profit in seven years.

Sony shares closed up 4.1 percent at 3,165 yen ahead of the announcement, outperforming a 2.4 percent rise in the Tokyo stock market's electrical machinery index.

Sony's stock has gained 18.5 percent in the year to date, double the gain in the subindex.

(Additional reporting by Rie Ishiguro and Aiko Hayashi in Tokyo, Miyoung Kim in Seoul, and Franklin Paul in New York)

($1=93.22 Yen)

(Editing by Anshuman Daga, Michael Watson and Nathan Layne)

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