Sony Corp shares fell nearly 7 percent in their biggest tumble in a year after the electronics maker disappointed investors with a cautious forecast and worries mounted the euro could dull the pace of its recovery.

Sony, which once ruled the game and electronics industries with the PlayStation console, Walkman music player and Trinitron TV, is also struggling to regain its reputation as an innovator of hit products, clouding its long-term prospects.

Chief Executive Howard Stringer receives high marks from investors for cutting much of the fat out of the sprawling conglomerate through a series of major restructurings since the former journalist took the top job in 2005.

But it has fallen behind Apple in portable music players and Nintendo in video games, while Samsung Electronics is in a different league in terms of profitability. The South Korean rival's operating margin was 8 percent last year, four times Sony's forecast for this year.

It seems to me they're barely managing to keep up, said Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management. In the past they often developed new products with which to compete.. but at this point it seems they're just sort of making one product after another.

Sony returned to profit last year by shedding jobs, shutting plants and cutting procurement costs, and expects a fivefold jump in operating profit to 160 billion yen ($1.7 billion) this year, though that was a quarter below what the market was expecting.

Sony Chief Financial Officer Nobuyuki Oneda said that the potential impact of Greece's debt problems had not really been factored into its forecast. Another worry is a weaker euro, given Sony gets about a quarter of its sales from Europe.

The euro was trading at 115.94 yen on Friday, while Sony's earnings forecast, announced on Thursday, was based on an assumed euro/yen rate of 125 yen. A one yen appreciation against the euro reduces Sony's annual operating profit by 7 billion yen.

There's just no way to tell which direction the euro will go from here. Under the circumstances, we cannot just chase Sony higher on hopes of continued earnings expansion, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

STRINGER CAN STAY

Sony fell 6.8 percent to 2,950 yen on Friday, the sharpest percentage fall since last May and underperforming a 2.3 percent fall in the electrical machinery index. Sony volume spiked to 23 million shares, nearly four times the average over the past month.

The sharp slide amid heavy volume suggests some investors are skeptical of Sony's ability to switch gears and capitalize on growth opportunities, rather than growing profits mainly through restructuring.

Chief Executive Howard Stringer believes the arrival of 3D film and television will likely play to Sony's strengths as both an electronics and entertainment company with a wide business portfolio that ranges from movies to theater-use projectors.

Sony plans to offer 3D TVs and 3D-ready games in June. But it will be a few months behind Samsung and Panasonic Corp in bringing 3D TVs to market, and the earnings impact should be limited over the near term.

Friday's tumble, however, should not be viewed as a call from the stock market for Stringer's departure, fund managers said.

Stringer, a native of Wales and one of the few non-Japanese to head a major Japanese company, has worked hard to break down the barriers among various business groups within the company.

That effort, carried out under the Sony United slogan, helped ensure victory in the high-definition disc format war with Toshiba Corp, when Sony's game, movie and electronics divisions threw their weight behind Blu-ray technology.

He has been doing the right thing and his strategy and direction should be commended. I believe the market would like him to take care of Sony a while longer, said Naoki Fujiwara, fund manager at Shinkin Asset Management.

Although Stringer has not always managed to make drastic change at Sony, the pace of change would have been considerably slower under a Japanese boss, Ichiyoshi's Akino said.

(Additional reporting Aiko Hayashi, Sachi Izumi and Elaine Lies; Editing by Chris Gallagher and Nathan Layne)

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