Tuesday, July 07, 2020

Sony warns profit may fall 30% or more in fiscal year

May 13. 2020
A Sony mirrorless digital camera on display at the Sony Shop Tec Staff store in Tokyo on Feb. 8, 2019. MUST CREDIT: Bloomberg photo by Kiyoshi Ota.
Photo by: Kiyoshi Ota — Bloomberg
A Sony mirrorless digital camera on display at the Sony Shop Tec Staff store in Tokyo on Feb. 8, 2019. MUST CREDIT: Bloomberg photo by Kiyoshi Ota. Photo by: Kiyoshi Ota — Bloomberg
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By Syndication Washington Post, Bloomberg · Takashi Mochizuki · BUSINESS, TECHNOLOGY, US-GLOBAL-MARKETS 

Sony warned operating profit could fall 30% or more in the current fiscal year as the coronavirus hampers production of devices like smartphones and saps consumer demand for digital cameras and other electronics.

 The company sounded the note of caution as it reported operating profit of 35.45 billion yen ($331 million) for the quarter ended in March, down 57% from the same period a year earlier. Revenue also fell, to 1.75 trillion yen. Sony declined to provide a specific forecast for the current fiscal year for the first time since 2016 when the Kumamoto earthquake disrupted its operations.

Chief Executive Officer Kenichiro Yoshida has overhauled the technology icon in recent years to focus on franchises such as sensors for smartphone cameras and the PlayStation games business, yet many of its operations remain vulnerable to people getting stuck at home. Consumers can't go out to buy phones or electronics or watch Sony movies in the cinema, while factories that make its products are struggling to return to full capacity.

"We will hold off on making additional capital investments on our sensor factories as long as we can so that we can gather more information and make the most-informed decisions," said Hiroki Totoki, chief financial officer, on a conference call after the results.

In a presentation, the company warned of unusual uncertainty because of the pandemic's effect on production and demand. Based on its best assumptions now, "operating income for the fiscal year ending March 31, 2021 is currently estimated to be at least 30% lower than the level achieved in the previous fiscal year," it said.

The virus is impacting operations in unusual ways. Sony said its most affected unit is consumer electronics, with disruptions hitting factories that make televisions in Malaysia, Mexico and Slovakia, although they have resumed partial operations. Television sales have also slumped, especially in Europe, India and Vietnam, while demand for digital cameras has decreased.

The flagship gaming business saw PlayStation 4 console sales decline 42% to just 1.5 million units in the quarter, partially because of the widely anticipated launch of the successor PlayStation 5 at the end of the year. Subscribers to Sony's PlayStation Plus service, however, surged to 41.5 million, showing one positive impact for the company from the millions of people stuck at home in search of entertainment.

Sony's financial services business, one of its most lucrative, has seen a deterioration because its sales people can't go out to pitch customers on insurance and other products. The difficulty in projecting future performance for that unit affected Sony's ability to give a companywide forecast for the year.

Totoki also said Sony now finds it difficult to make movies and music, essential parts of its entertainment portfolio. The company is not certain whether consumer behavior will change over the long term, with for example a new reluctance to gather in large groups at movie theaters or concert halls.

"Covid-19 may have a lasting impact on markets like Brazil, India and Southeast Asia because it could decrease demand for consumer electronics, movie theaters and music concerts," said Bloomberg Intelligence analyst Masahiro Wakasugi.

Sony said the virus hasn't had a large impact on its manufacture of image sensors, which are incorporated into many of the world's leading smartphones, including Apple Inc.'s iPhones. But the company is uncertain whether Apple and other phone makers can keep up their production -- or whether consumers will keep buying. Smartphone shipments fell in the first three months of the year by the fastest rate on record because of constraints on supply and demand.

"While we expect demand for our image sensors would continue to grow in the mid- to long-term, we see a risk that revenue from the business this fiscal year would be flat from the year-earlier period," Totoki said.

Sony said production of the PlayStation 4 game console has been hit by the Covid-19 pandemic to some extent, but the output is sufficient to cover the current demand for the console and sales are stable. Meanwhile, the PlayStation 5 remains on track for a release at the end of this year. Software for the new console is also on schedule, the company said, as it hasn't seen any major impact on games development.

"We may beef up PlayStation's network services because of a potential increase in demand from covid-19," said the CFO, adding he couldn't comment on the likely demand for the new game console.

 

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