Cost-cutting is keeping Sony Corp's profits on track for its full-year target but investors say more inspiration and a hit product is needed to restore growth to a company once a symbol of Japan's high-tech might.

Sony's profits dipped in the October-December quarter on cut-throat competition in TVs, while domestic-focused rival Sharp Corp saw profits rise by nearly a tenth, as Japanese consumers rushed to buy TVs ahead of cutbacks to a government incentive scheme.

Investors like the approach taken by Sony's Welsh-born CEO, Howard Stringer, who has slashed jobs and sold off factories to improve margins since becoming the first foreign national to take the helm in 2005.

But they agree it will take more than streamlining to help the firm catch up with rivals including Apple Inc,, Nintendo and Samsung Electronics.

Sony hasn't even come up with its own tablet, and is already a year behind Apple, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investment in Tokyo. It's not a company that has the appeal of a fresh and innovative powerhouse.

At the recent Consumer Electronics Show in Las Vegas, Sony said it aimed to become the No. 2 maker of tablet computers in a year, but has yet to reveal a product in the booming market.

Since Stringer took the helm in 2005, the company's share price has fallen by a quarter and Sony has failed to replicate its early successes with the likes of the Walkman and PlayStation game console.

The results came a week after Sony unveiled a new portable games device, the Next Generation Portable (NGP), aiming to compete with Nintendo Co Ltd's DSand fend off competition from Apple's iPhone.

The NGP, announced alongside a plan to make PlayStation games available on other makers' Android-based mobile devices, was generally well received, but analysts said its specifications would likely make it more expensive than Nintendo's DS, potentially deterring some consumers.

Sony reported a 5.9 percent fall in operating profit to 137.5 billion yen ($1.68 billion) for the October-December period, beating an average quarterly estimate of 127 billion yen in a poll of eight analysts by Thomson Reuters I/B/E/S.

The maker of Vaio PCs and Bravia TVs cut its forecast for sales of TVs in the full year to March 31 to 23 million units from the previous 25 million, while it kept its forecast for PS3 game console sales unchanged at 15 million units.

Even if TV sales bounce back, in the absence of a new innovative product worthy of the Sony name we should not be expecting the stock to stage a full-fledged recovery, said Toshihiko Matsuno, senior strategist at SMBC Friend Securities.

Sony left its full-year operating profit forecast unchanged at 200 billion yen, lower than the consensus estimate of 217 billion yen but up on the 32 billion yen of last year, and trimmed its annual revenue forecast by 3 percent as TV sales weakend.

GRAN TURISMO DRIVES GAINS

One bright spot was the network products and service division, which includes games, where profits doubled, partly on brisk sales of the latest version of the Gran Turismo motor racing game.

Sharp's October-December operating profit grew 9.5 percent to 23.0 billion yen, slightly better than the 21.9 billion yen estimate in a poll of five analysts by Thomson Reuters I/B/E/S.

The company benefited from increased sales in Japan for a wide range of energy-efficient consumer electronics ahead of a cut in government subsidies from December, but overseas earnings were hurt by a strong yen and stiff foreign competition.

The manufacturer of Aquos LCD TVs kept its operating profit forecast at 90 billion yen for the year to March, higher than the consensus of 84.1 billion yen in a poll of 23 analysts.

Sharp, which makes a slew of electronics products and their components from audio systems to solar cells, had lowered its annual profit forecast by a quarter in October, citing a stronger yen and weaker demand for LCD panels.

Shares in Sharp have risen 3 percent so far this year through Wednesday, outperforming a 1.7 percent rise in the Tokyo stock market's electrical machinery index.

Sony has fallen 21 percent since a high reached on March 23 last year, largely reflecting the yen's rise against the dollar and euro, which eats into offshore earnings.

In contrast, shares in Samsung hit an all-time high late last month on an expected rebound after hitting its worst profit in six quarters.

(Additional reporting by Christine Chan, Editing by Lincoln Feast)

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