Sony Corp shares tumbled 7 percent on Friday after its forecast for annual operating profit fell short of analysts' expectations amid unfavorable currency rates and tough competition.

Sony, which competes with Samsung Electronics Co in TVs and Apple Inc in portable music, projected a fivefold jump in annual profit to 160 billion yen ($1.7 billion), but missed the market consensus by 23 percent.

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

Fanning investor concerns over its prospects, Sony Chief Financial Officer Nobuyuki Oneda said on Thursday that the potential impact of Greece's debt problems had hardly been factored into its outlook.

Greece's sovereign debt crisis has shaken global market confidence and plagued Europe, which accounted for 23 percent of Sony's revenues in the year ended March 31.

The weak outlook would obviously be negative for the short term, but the focus will be on how conservative the company's stance is. Or maybe it is not being conservative, and we will find this out in the coming days, Deutsche Securities analyst Yasuo Nakane said.

But at the same time, the shares should be supported by a flow of news, including from E3 (Electronic Entertainment Expo), and it should be like a seesaw between a positive news flow and the negative factor that the forecast was weak.

Sony plans to offer 3D-ready video games in time for its planned launch in June of 3D TVs, and investors and game fans expect the company to unveil its 3D game lineup at the E3 video game trade show next month.

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.

Sony shares were down 6.5 percent at 2,958 yen after falling as much as 7.2 percent, underperforming the Tokyo stock market's electrical machinery index, which lost 2.2 percent.

After shedding jobs, shutting factories and cutting procurement costs to better compete with nimbler Asian rivals including Samsung and LG Electronics, it aims to turn its TV operations profitable this year for the first time in seven years.

As for its struggling video game business, Sony has managed to cut production costs for the PlayStation 3 below the selling price as of March, enabling it to finally profit on the hardware more than three years after the console was launched.

(Reporting by Aiko Hayashi and Sachi Izumi; Editing by Chris Gallagher)

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