Sony’s Profit Surprise Highlights Hirai’s Gaming-Led Renaissance

Sony Corp.’s resurgent games division helped the Japanese conglomerate blow past quarterly results expectations, vindicating Chief Executive Officer Kazuo Hirai’s growing focus on media and entertainment.

Sony, which in years past has scaled back in businesses from phones to TVs, posted a surprise profit for the June quarter. It more than doubled operating income from the sale of PlayStations and software, a particularly optimistic signal given the company’s next marquee products haven’t yet come to market.

Sony is looking to cement its lead over Microsoft Corp. and Nintendo Co. by launching a virtual-reality headset in October in the U.S., as well as a souped-up version of the PS4 potentially before the end of the year. The twin gadgets mark Hirai’s long-term effort to dominate the industry with the PlayStation division, which he helped launch in 1994 before being tapped as CEO.

“Nothing short of fantastic, especially given that the market has been expecting a loss,” Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc., said in an e-mail. “The big takeaway was the games business. Profit there more than doubled and that’s even before PlayStation VR launch in October, which will be a huge shot in the arm for hardware sales.”

Quake Impact Reduced

Sony reported net income of 21.2 billion yen ($205 million) in the quarter through June, compared with the average analysts’ expectation for a 39 billion-yen loss. The firm maintained its forecast for annual profit of 80 billion yen.

The strength in games is helping investors look past the impact from the Kumamoto earthquakes, which shut the primary manufacturing site for image sensors that power digital cameras. On Friday, Sony lowered its estimate for operating losses from the earthquakes to 80 billion yen for this fiscal year, from 115 billion yen as recovery efforts wrapped up a month earlier than expected.

While Sony managed to post a rare profit in phones, by dint of reducing its mid-range line-up and retreating from unprofitable markets, it was the games unit that impressed.

Currency Impact

Quarterly revenue from that division rose 15 percent 330.4 billion yen and profit more than doubled to 44 billion yen. It sold 3.5 million PS4 consoles in the quarter, and kept its annual outlook for sales unchanged at 20 million units. Last month, Sony raisedrevenue and margin targets for the PlayStation business next fiscal year, as it expects a push into music and video streaming on its gaming network to boost user growth.

“They’re releasing more software and the time is now to harvest profits,” said Hiroyasu Nishikawa, an analyst at Iwai Cosmo Securities Co. “The first year might be a bit tough for VR, but in the long run it will contribute to profits. And by prolonging the life of the PS4, profits should grow.”

Elsewhere, the company trimmed its full-year overall sales forecast to 7.4 trillion yen from 7.8 trillion yen, partly because of currency impacts on businesses including games. Prior to the earnings release, the company on Thursday announced it would sell its batteries division to Murata Manufacturing Co. A price wasn’t disclosed but Sony warned losses were possible and that they weren’t reflected in Friday’s figures.

April’s quakes in Japan walloped the division that makes image sensors used in digital cameras. The unit reported a 43.5 billion yen quarterly loss. And its TV and movie unit posted a 10.6 billion yen loss, narrowing from a year earlier, on higher sales after the release of summer hit “The Angry Birds Movie.” Shares rose 2.8 percent to 3,282 yen in Tokyo before the earnings were released, extending this year’s gain to 9.3 percent.

[Source:- Bloomberge]