The worst may be over for Sony ( SNE), which raised its full-year earnings forecast Tuesday.

Brisk sales of digital cameras and flat-panel TVs signaled a recovery in its electronics division, and a box-office strong run for movies such as Casino Royale boosted the company's fortunes in the third quarter.

For the quarter ended Dec. 31, Sony's overall sales increased nearly 10% to 2.61 trillion yen ($21.9 billion) from the same time in 2005.

However, increased costs from the launch of the PlayStation 3 console and continued loss per unit dragged profitability down 5.3% to 159.9 billion yen, from 168.90 billion yen a year earlier. Operating income decreased 14.9% to 178.9 billion yen from the same period last year.

"Sony has done much better than expected," says Martin Kariithi, ananalyst at independent research firm Technology Business Research. "Electronics had higher-than-expected earnings, and movie revenues came in strong, though games was weak. But it can only get better for Sony from here."

Electronics and games make up roughly 90% of Sony's revenue, Kariithi estimates.

Shares of Sony were down 7 cents or 1.2% to $46.43 at midday.

The Japanese giant's games division posted a loss of 52.3 billion yen in the third quarter. The division had posted a profit of 67.8 billion yen during the same period the previous year.

The PlayStation 3 may not have been a blockbuster in the quarter, but brisk holiday sales of its digital cameras and flat-panel TVs saved the day for Sony.

Sales in the electronics segment grew 17% year on year, on the basis of a strong showing by its Bravia LCD televisions and Cyber-shot digital cameras.

"Cameras are really high-margin devices," says Kariithi. "They probably are the highest-margin devices that Sony sells. Strong sales there helped Sony."

Inventory levels, as of the quarter's end, increased 42.2% to 851.7 billion yen compared with the same time a year ago because of an increase in LCD television inventory and inventory of semiconductors for the PS3, Sony said.

In the game segment, after the launch of the PS3 in North America and Japan, sales increased 5.6% vs. same quarter of the previous year.

Unit sales of PS2 showed a small reduction from the same quarter year before, and revenue greatly decreased because of price reductions, said Sony. The company shipped 4.1 million units of the PS2 during the quarter, a decrease of 1.25 million units.

PSP sales declined by 4.46 million units to 1.76 million units during the quarter. Sony shipped 1.84 million units of the PS3.

In contrast, Sony Pictures was a bright spot. The segment performed strongly with a 46.8% revenue increase to $2.5 billion attributable to higher DVD revenue led by films such as The Da Vinci Code and Talladega Nights: The Ballad of Ricky Bobby, said Sony.

Sony also raised its profit forecast for the full fiscal year through March to 110 billion yen, up from 80 billion yen. But that would be still lower than the 168.9 billion yen it earned a year ago.

Moving ahead, things can only get better for Sony -- especially in the games division, says Kariithi. Unless sales of PS3 slacken, Sony can expect to get more positive buzz around the console. With more PS3s becoming available on store shelves, Sony could profit from increased sales of game software, he said.

A price cut for the PS3, though, could hit margins. Sony loses $300 on each 20-GB PS3 sold and $200 on each 60-GB model. The 20-GB model retails for $499, and the 60-GB version sells for $599.

Sony said recently that it does not plan to cut prices for the PS3 this year.