Sony’s gaming business is on pause. Luckily, it has other units to pick up the slack.
On Tuesday, the Japanese electronics and entertainment giant reported a 20% drop in operating income on almost flat revenue for the quarter through December. Both numbers beat analysts’ estimates on S&P Global Market Intelligence.
One reason for the profit decline was the valuation uplift Sony booked on its $2.3 billion acquisition of a 60% stake in music publisher EMI in 2018. Excluding such one-time gains, Sony’s operating profit would have grown 6% year over year, slower than in previous quarters. But Sony still managed to raise its profit forecast for the fiscal year ending March, mainly because of a better outlook for image sensors.
Sony’s gaming division, which used to be its main profit driver, is the key reason for the slowdown. Operating income from the segment fell 27% year over year. The PlayStation 4 console, launched in 2013, is getting old: Sony only shipped 6.1 million units last quarter, 25% fewer than in the same quarter of 2018.
Gamers are holding off their purchases in anticipation of the next-generation console, expected to hit stores later this year. But the PlayStation 5, as it will be known, likely won’t help profits until the year after launch, said Atul Goyal, an analyst at Jefferies.
Sony’s image-sensor division is picking up steam at just the right time. The company has benefited from the trend toward packing more and bigger cameras into smartphones. Apple’s iPhone 11 Pro and Huawei P30 Pro both sport three cameras at the back, for example. Sony’s sales of image sensors surged 40% year over year in the quarter.
Last year, Sony rejected a suggestion from Third Point, a New York-based hedge fund run by Dan Loeb, that it should split its entertainment businesses—game, music and movies—off from its semiconductor division. The proposal might have given investors a one-time boost, but would have taken away the diversification benefits that have allowed Sony to ride through the trough in gaming.
Write to Jacky Wong at JACKY.WONG@wsj.com
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