Sony jumps as chips, games divisions make up for movies loss

[TOKYO] Investors cheered a quick rebound at Sony Corp's semiconductor business and robust PlayStation sales, even as the Japanese electronics giant lowered its annual profit forecast because of a writedown at its movie division.

The shares jumped 5 per cent in Tokyo on Friday, the biggest gain since Nov 10, following gains in European and US trading.

The electronics and entertainment company cut its operating profit forecast for the fiscal year through March to 240 billion yen (S$3 billion), down from 270 billion yen. But that was buffered by a 34 billion yen higher revision at its chips business, a division that was disrupted by earthquakes in southwest Japan last year. The PlayStation 4 also had its best quarter to date.

The company pre-empted the earnings release by unveiling earlier this week a 112 billion yen charge against its film business, which has struggled due to a lack of box office hits.

"Very happy with Sony's results, very happy," said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc. "What's really interesting and amazing is the turnaround at CMOS," he said, referring to its semiconductor image sensors.

Operating profit for the quarter ended in December was 92.4 billion yen, compared with the 154 billion yen average of estimates compiled by Bloomberg. Sales fell 7.1 per cent from a year earlier to 2.4 trillion yen, below analyst expectations for 2.49 trillion yen.

Sony showed strong signs of recovery in semiconductors, which saw the biggest upward revision among all of its individual units. The business, which makes camera chips used in phones, has been recovering from an earthquake last April. It has also been weighed down by cooling global demand for smartphones, although recent results including those from Apple Inc indicate demand may be rebounding.

Sony has been seeking to recover from setbacks last year, when component production was halted due to earthquakes and a loss on the sale of its battery division. In the entertainment division, the lack of box-office hits and the increasing popularity of streaming services has eroded the profitability of the business. The unit has relied on its television and media operations to make up for the shortfall in films, which suffered a paralysing cyberattack two years ago.

The loss in films "is being taken extremely seriously by management," chief financial officer Kenichiro Yoshida said at a briefing. "There are various issues piled up at our film studios. Our intellectual property is insufficient, our catalog is insufficient. We have no choice but to grind our way through these things."

The head of the film division, Michael Lynton, announced last month the end of his 13-year run, paving the way for new management. CEO Kazuo Hirai has temporarily relocated to California to oversee the transition, and is seeking to find a replacement for Lynton, shore-up profitability and expand into regions such as China. To offset part of the one-time loss, Sony sold shares in medical services provider M3 Inc to Goldman Sachs Group Inc in a deal worth about 52 billion yen.

The loss in movies came three months after Sony cut its full-year profit forecast by 25 per cent, after agreeing to sell its ailing battery division at a loss.

The results got a boost from the PlayStation 4, which had its best quarter to date as price discounts and new titles such as Final Fantasy XV buoyed demand over the critical holiday season. The device sold 9.7 million units in the latest quarter, up from 8.4 million during the same period in 2015, said Sony. The company kept its forecast for 20 million unit sales for the fiscal year.

The games business saw the release of two new pieces of hardware during the quarter: its virtual reality headset and a more-powerful version of the PS4. Analysts have mostly pared back expectations for the new products after Sony declined to give detailed indications of how well they are faring. On Thursday, Mr Yoshida said VR sales were within expectations and said he sees VR as a long-term project that Sony wants to nurture.

"The loss in movies is already known, so rather than dwell on it we should begin to shift our gaze toward the next fiscal period," Kiyoto Utsumi, an analyst at Tachibana Securities Co, said prior to the release.

BLOOMBERG