Sony's operating profit tumbled 68 pct to 71.8 bln yen in the fiscal year ended March because of huge start-up costs for its PlayStation 3 game console.
However, the company expects earnings to rebound in this fiscal year as losses at its game unit narrow and it sells more of its flat-screen televisions.
Sony said its net profit had risen 2.2 pct to 126.3 bln yen in the last fiscal year because of healthy contributions from cellphone maker Sony Ericsson and lower restructuring costs.
Its revenue increased 10.5 pct to a record 8.29 trln yen, led by strong sales of its Bravia liquid crystal display TV sets and its Cyber-shot digital cameras.
Sony chief financial officer Nobuyuki Oneda told a press conference: 'As we set a suggested retail price for the PS3 at a level below the production cost for a strategic reason, the game division suffered a big loss.'
He added: 'The huge recall cost for our PC rechargeable batteries also weighed heavily on profitability.'
The company's game division made an operating loss of 232.3 bln yen in the last fiscal year, reversing the profit of 8.7 bln yen it made in the year before.
It missed its target of selling 6.0 mln PS3s in the last fiscal year, managing to deliver only 5.5 mln since the product was launched in November, despite heavy marketing efforts.
Sony aims to sell 11 mln PS3s globally in this fiscal year.
'Although it seems to be difficult to fully turn around the performance at the game division in the current fiscal year, increased sales of the PS3 should help narrow losses here notably,' Oneda said.
He said the launch of a more cost-efficient PS3, using 65-nanometer process technology, was the key to success for the game division. Sony now makes the PS3 with 90nm process technology.
The company's TV segment made an operating loss of just 22.5 bln yen, 74 bln yen less than the loss it made a year before.
Sony aims to sell 10 mln LCD TVs globally in this fiscal year.
The Sony Ericsson cellphone venture made pretax profit of 150.9 bln yen, up from 59.3 bln yen the year before.