Sony flags disappointing profit, scraps targets as gaming slows

TOKYO (Reuters) - Sony Corp warned of a sharper-than-expected drop in its annual profit and scrapped some longer-term targets, in a sign a slowdown in its gaming business as its PlayStation 4 console nears the end of its life was beginning to hurt.

FILE PHOTO: Sony Corp's logo is seen on its Crystal LED Integrated Structure (CLEDIS) display at its headquarters in Tokyo, Japan, February 2, 2017. REUTERS/Kim Kyung-Hoon

The bleak outlook comes after two years of record profits and underlines concerns a turnaround is losing steam at Sony - which bet on entertainment and gaming for steady revenues after battling years of losses with consumer electronics, such as TV sets, that are more susceptible to price competition.

Analysts widely expect Sony to launch a next-generation console in 2020 to replace the five-year old PlayStation 4 (PS4), but the business could face tough competition with new video game streaming services from Alphabet Inc’s Google and Apple.

Sony’s finance chief, however, shrugged off concerns about the threat of cloud-based gaming. “With over 90 million customers enjoying the (PS4) platform, we have a sense of market trends,” Hiroki Totoki said at a briefing on Friday.

The Japanese firm forecast profit for the year through March 2020 at 810 billion yen ($7.25 billion), down 9.4 percent from 894.2 billion yen a year earlier and below an average forecast of 834.49 billion yen from 22 analysts polled by Refinitiv.

Sony withdrew its earnings goals for individual businesses for the year to March 2021, including an estimated profit range of 130 billion-170 billion yen for gaming, citing “significant changes to the operating environment.”


For the financial year to March 2020, Sony expects costs for developing the new console to push its gaming profits down to 280 billion yen from 311 billion yen a year earlier. PS4 sales are forecast to drop 10 percent to 16 million units.

The semiconductor business, which includes image sensors, is expected to report a profit of 145 billion yen, up a billion yen from a year earlier. Sony’s image sensors, central to its revival, are used by Apple and other major smartphone makers.

Sony remains bullish about demand for large-size image sensors and multiple-lens camera systems for smartphones, and said it may spend 100 billion yen more to build a new facility.


However, Sony shares, which have lost more than 30 percent from their 11-year highs set in September last year, underling growing worries about the company’s strategy.

Daniel Loeb’s hedge fund Third Point LLC is building a stake in Sony again to push for changes that include shedding some businesses, Reuters has reported.

Third Point wants Sony to explore options for some of its business units, including its movie studio, which the fund believes has attracted takeover interest, according to sources familiar with the matter.

CFO Totoki declined to comment on the report.

A Jefferies analyst, Atul Goyal, however, said in a note last week that the “recent reports of activist investors’ interest and stake acquisition is likely to put significant, desirable and sustained pressure on Sony to act”.

Sony CEO Kenichiro Yoshida “made some very tough but desirable decisions” to revive the company when he was finance chief, but his decisions since he became CEO “appear slightly benign”, the analyst added.

The company should exit the money-losing smartphone business, while keeping the pictures business, which has potential for a turnaround, Goyal added.

Reporting by Makiko Yamazaki; Editing by Himani Sarkar