After winning the HD "format war" and enjoying brisk sales of the Blu-ray-enabled PlayStation 3, Sony this week saw its profits for the past few months effectively canceled out by a surge in the relative strength of the Japanese yen.

Sony sold 2.43 million PS3 consoles from July to September of this year, an increase of 85 percent over the same time frame in 2007, according to quarterly results announced today. The company also racked up particularly strong sales in the categories of flat panel TVs and Vaio PCs.

But while other factors also came into play in the most recent quarter's dismal financial results, Sony does about 80 percent of its sales in other countries, and is therefore particularly vulnerable to changes in the exchange rates.

In overall quarterly results for the July-September time frame announced today, Sony's overall sales dipped 0.5 percent to 2.072 trillion yen, or $21.4 billion -- and profits plummeted to 20.8 billion yen, or $214 million, as opposed to 73.7 billion yen for the same period last year.

Although sales in the overall gaming category stepped up 10 percent over the previous year, Sony's gaming unit continued to lose money, anyway, as production kept imposing high costs.

In the currently declining music industry, Sony BMG underwent an equity loss of $31.8 million yen, or $31.9 million.

Sony also felt an equity loss of 1.6 billion yen, or $16.5 million, for its stake in Sony Ericsson, a mobile phone unit now facing increasing competition, especially at the higher end of the market.

Sony Ericsson is now aligning its organization to "new business conditions in order to remain competitive," said Dick Komiyama, Sony Ericsson's president, in a financial call with analysts last week.

Komiyama also pointed to a number of new forays by Sony Ericsson. "We announced the expectation of our PlayNow Arena content service and launched PlayNow Plus and [a] music subscription service that will [start] in Telenor in Sweden in Q4 with a customized W902 Walkman phone, and [will] then roll out to additional markets at the start of 2009," he said.

"We recently announced [the] C902 Cyber-Shot phone, which has sold extremely well during the quarter, and we have started shipping our new multimedia Xperia X1 phone in selected European markets."

Rivals include "old competition" such as Nokia, LG, and Samsung, as well as "new competition" from Apple's iPhone, RIM's BlackBerry, and HTC's Google Android-enabled G1, another Sony official said.

"I think when we say increased competition, we mean from all the players active in the markets," explained Anders Runevad, Sony's executive vice president. "I think that we see increased competition in the higher segments in all parts of the markets, not just Europe."

Komimaya told the analysts that Sony is now working on ways to align the user interface on the various Sony consumer electronics products more closely with the UI of the Sony Ericsson mobile phones.

But blaming the stronger yen along with weakening consumer demand, Sony last week cut its full year earnings projection for the fiscal year ending in March, 2009. Sony now expects only a 150 billion yen, or $1.5 billion profit, for 59 percent less than last year, although sales for the fiscal year are expected to inch up to 9 trillion yen, or $92.8 billion, for a 1 percent increase.