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 With Sony's three core electronics businesses - the third is imaging
- looking increasingly lopsided, the company is having to shrink and
restructure in mobile, and focus its growth hopes on image sensors
and the 20-year-old PlayStation games console.
Buoyed by strong sales of the latest PlayStation 4 and the rollout
of games and content for its network services, Sony Computer
Entertainment CEO Andrew House hopes he can again raise the
division's profit forecast for the year to end-March. Sony pushed up
that forecast in July to 25 billion yen ($230 million) from 20
billion yen.
"We raised our profit prediction and I hope that's a trend we can
continue, even within this fiscal year," House told Reuters in an
interview on Thursday, adding his unit's profits looked certain to
increase next year from this year's levels.
Sony has sold 10.3 million PlayStation 4 consoles as of Sept. 6,
almost double the sales of Microsoft Corp's XBox One, and well ahead
of the 7.2 million WiiU's sold by Nintendo Co Ltd, according to
market research firm VGChartz.
House's upbeat comments came a day after Sony's struggling
smartphone division announced a 180 billion yen impairment charge,
triggering the company's sixth profit warning in two-and-a-half
years. It also said it would not pay a dividend this year - the
first such move since its 1958 listing.
SHARES ROCKED
While Sony had warned in July of a potential charge, the axing of
the dividend stunned investors and sparked an 8.6 percent drop in
Sony shares to 1,940 yen. That ended a 25 percent rally in the share
price over the past six weeks as confidence grew in Sony's
restructuring plans and its prospects in growth markets such as
automotive sensors.
Sony will cut another 1,000 jobs, around 15 percent of its
headcount, in its smartphone business, where it's up against
fast-growing Chinese manufacturers such as Xiaomi Inc as well as
established names such as Apple Inc and Samsung Electronics Co Ltd.
"If the company were to go through further restructuring, it needs
cash, so from this perspective it makes sense that the company's not
paying dividends," said Mitsushige Akino, chief fund manager at
Ichiyoshi Asset Management.
Sony's move also sparked a surge in the price of insuring its debt
against default, with its 5-year credit default swaps rising 40
percent compared with levels prior to the profit warning.
And Standard & Poor's, the only leading credit ratings agency to
retain an investment-grade rating on Sony debt, put the company's
credit on review for a possible downgrade to junk status. "We
believe it will not be easy for Sony to maintain brand recognition
and generate stable profitability in this competitive market," S&P
said of Sony's smartphone business.
NETWORK SPENDING
The mobile unit's woes will mean greater scrutiny of the
PlayStation's profit performance, which has typically been erratic -
swerving from steep losses as Sony spent heavily to develop new
consoles to strong profits when those consoles reached peak
popularity.
Sony CEO Kazuo Hirai - House's predecessor - has said he hopes the
PlayStation 4 can recapture the profit levels of the PlayStation 2,
the best-selling game console which at its peak earned Sony more
than $1 billion in annual operating profit.
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While House declined to be drawn on specific numbers, he touted
bright profit prospects at the game division, which brings in 10-12
percent of Sony's revenue, and aims to boost monthly revenue per
user from services such as online games, which offer a steadier
stream of income than one-off purchases of hardware and software.
"I do feel we have a higher opportunity to build a higher ARPU
(average revenue per user) than with the PS3, and that should make a
very strong profit contribution over the life-cycle," he said.
He warned, however, that profitability of the game division, which
had been combined with network services such as streaming video and
music as well as games, would be constrained in the near term as
Sony needs to invest in its network infrastructure over the next
12-18 months.
He denied there was pressure for the games division to take up the
slack for the mobile business, and noted that both Hirai and CFO
Kenichiro Yoshida's background in games and networking was favorable
for his business.
"Kaz obviously comes out of the games business. He was in that for
10 years in the States and has a deep understanding of what a
healthy ecosystem looks like and what we have to do," said House, a
49-year-old Briton who has worked at Sony for more than two decades.
"I think Yoshida coming in as CFO has been hugely beneficial for us.
He comes from a network services business."
House said Sony's cloud-based TV service, due to launch in the
United States this year, was an opportunity to expand the user base
of its network services, now at 52 million - a fraction of Apple's
800 million or so iTunes users. Sony is also looking for more
content providers after signing a deal with Viacom to stream 22 of
its channels.
For some analysts, the contrasting fortunes of Sony's business
pillars was not necessarily a bad thing.
"This has shown that a sensible CFO is able to control the
expansionary aspirations of business heads, which if unchecked,
would lead to larger losses for Sony," said Atul Goyal, analyst at
Jefferies.
(Additional reporting by Reiji Murai in TOKYO and Umesh Desai in
HONG KONG; Editing by Edmund Klamann and Ian Geoghegan)
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