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Sony Jumps to Decade High on Blow-Out Quarter, Record Outlook

  • Revises forecast to highest ever, topping analyst estimates
  • Sales climbed in all major divisions, topping estimates

Sony Corp. is prospering again. Shares climbed 11 percent to their highest since 2008, after the company increased its annual operating profit outlook to a record 630 billion yen ($5.6 billion). That exceeded the 591 billion yen average that analysts were projecting.

Demand for high-end 4K televisions and wider use of camera chips helped to make up for slower growth in the PlayStation business and a lack of blockbuster films. The revenue forecast for the period was raised to 8.5 trillion yen from 8.3 trillion yen. Since taking charge in 2012, Chief Executive Officer Kazuo Hirai restructured the Tokyo-based company and invested in key divisions, helping to restore the company’s reputation as a manufacturer of high-quality electronics products.

“This is a blow-out set of results,” Atul Goyal, an analyst at Jefferies Group, said of the just-ended quarter, which also topped projections.

In the September quarter, Sony posted an operating profit of 204 billion yen, topping analyst projections for 139 billion yen in the period, according to estimates compiled by Bloomberg. Net income was 131 billion yen, better than the prediction for 81 billion yen. A more favorable exchange rate also helped to fuel revenue, which topped estimates at 2.06 trillion yen.

Photographer: Tomohiro Ohsumi/Bloomberg

“Hirai is indeed hitting full stride here,” said David Dai, an analyst at Sanford C. Bernstein & Co. “The 630 billion yen forecast is not a complete surprise as their previous guidance, 500 billion yen, was known to be overly conservative. But the raise shows management is now confident in meeting the higher target.”

Chip Recovery

Sony has invested billions to develop state-of-the-art image sensors, a move that is beginning to pay off as smartphone makers embrace the use of multiple cameras to improve image quality and create augmented reality features.

Operating profit from chips rose to 49 billion yen during the quarter, compared with a loss of 4.2 billion yen a year ago, when the division was still recovering from damaging earthquakes in Kyushu. Revenue rose 18 percent to 228 billion yen.

Apple Inc., Xiaomi Corp. and other smartphone makers are outfitting their latest models with two cameras on the back of each device. This lets software compare two pictures to improve photo quality and gauge depth to perform basic AR functions.

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Bloomberg’s Stephen Engle reports on Sony’s profit forecast.

(Source: Bloomberg)

“The biggest earnings driver is chips,” Masahiko Ishino, an analyst at Tokai Tokyo Securities, said prior to the results. “Dual cameras are becoming the norm in phones. As we enter a phase where 20, 30 or 40 percent of phones begin to carry dual cameras, we’re going to see that continue to lift Sony’s earnings into next year and the year after.”

Sony held 42 percent of the image sensor market as of last year, according to researcher Yole Developpement. Besides image sensors, it’s now investing in 3-D sensors that can detect their environment by calculating how long it takes for light to reflect off surfaces. Mass production is slated for next year, with the new chips set to be adopted by next-generation AR devices and self-driving cars.

Read more on what’s behind Sony’s results

Here’s how Sony’s other divisions are performing:

  • The company boosted its operating profit forecast in consumer electronics to 76 billion yen from 58 billion yen, driven by stronger sales of televisions. Sony has positioned itself as a provider of high-end 4K TVs, and consumers are showing they’re willing to pay higher prices for a premium experience. Sony cited lower component prices for the profit revision.
  • In games, operating profit during the quarter rose to 55 billion yen from 19 billion yen a year ago. Revenue rose 35 percent to 433 billion yen. PS4 sales accelerated to 4.2 million units in the quarter, up from 3.9 million from a year ago. Sony increased the forecast for unit shipments this year, to 19 million from 18 million.
  • In films, Sony generated 244 billion yen in revenue during the latest quarter, partly due to “Spider-Man: Homecoming,” which was released in early July. The reboot of the Marvel superhero series generated $117 million in sales in North America on its first weekend, beating Sony’s own forecast for $80 million. In May, Sony appointed a new head of the division after taking a $1 billion writedown on poor DVD sales and a lack of hits.
  • In music, the success of the smartphone game Fate/Grand Order was notable. The title, which is based in Sony’s music division and not under PlayStation, was the main catalyst for the rise in the unit’s full-year operating profit forecast to 94 billion yen from 75 billion yen. Sony’s partnership with Spotify Ltd. also contributed, with revenue from streaming services climbing to 53 billion yen, up from 31.5 billion yen a year ago.
Kenichiro Yoshida presents the results.