Market decline

Sony’s key business in image sensors affected by decline in smartphone market

TOKYO – Sony expects net profit for this fiscal year to drop 12% to 510 billion yen ($ 4.8 billion), marking the lowest level in three years, the Japanese conglomerate said on Tuesday. , while the economic fallout from the coronavirus pandemic is putting the brakes on its image sensor activity.

“Business confidence and economic activity weakened amid the coronavirus and led to a slowdown in the smartphone market,” said Hiroki Totoki, chief financial officer of Sony.

The company is one of the world’s largest producers of image sensors, which are used in smartphones as well as cameras. Last year, Sony held 50% of the global market share.

The image sensor business has been a crucial growth engine for the conglomerate, however, the outlook has changed in the wake of the pandemic.

Global lockdowns have dampened consumption and led to lower sales of smartphones and digital cameras.

Sony CFO Hiroki Totoki said that amid reduced economic activity during the pandemic, “consumers are turning to mid-to-low-end products.” (Screenshot from Sony website)

Totoki noted that “consumers are turning to mid-to-low-end products,” amid the coronavirus. Sony’s strength, however, lies in its ability to provide high-quality image sensors for high-end products.

The company said it will revise its business strategy for image sensors by reassessing its investment as well as its research plans.

Sony previously planned to invest 700 billion yen in the three years leading up to fiscal 2021 to meet growing demand, but now plans to reduce that amount to 650 billion yen as the market slows down.

In addition, sales to the main customer Huawei have also been clouded by the increased restrictions by the United States on the Chinese tech group, which it accuses of industrial espionage.

However, Sony does not expect the downtrend to last forever, with Totoki saying, “We believe this is a short-term collapse and once the pandemic is under control we will see a collapse. increase in the smartphone market. “

The CFO stressed that consumers will be looking again for smartphones with high-quality cameras. “We will adjust our business strategy to match the current market environment, but we hope to return to the path of profit growth by the second half of fiscal 2021,” he said.

Along with a drop in net profit, Sony is also forecasting a 27% drop in operating profit to 620 billion yen for the year ending March 2021, with revenue remaining stable at 8.3 trillion yen, a 0.5% increase over the previous year.

Sony previously said it expects operating profit to decline by around 30% this fiscal year.

Forced closures to prevent the spread of COVID-19 have also delayed productions in Sony’s music and film industry. Sales of movie tickets also declined. Reduced consumption continues to hurt sales of televisions, digital cameras and other electronics.

On the other hand, Sony’s winning games segment, with subscription models like PlayStation Plus and PlayStation Network, has seen an increase in the number of users with people being forced to stay at home during the pandemic. PlayStation Plus, which allows users to access online multiplayer games for a monthly fee, saw an 8% increase in subscribers in the three months through June, to more than 45 million.

Gaming software sales are also expected to boost revenue, with Sony’s plan to launch the next-gen PlayStation 5 console towards the end of the year still on track.

“We are seeing an increase in demand as more and more people stay at home,” Totoki said.

Software like The Last of Us Part II, developed by California studio Naughty Dog under Sony and released in June, has sold over 4 million copies worldwide in its first three days, becoming one of the best-selling titles for the PS4 console.

However, the massive sales growth in its gaming activity will not be able to compensate for the decline in Sony’s other segments. Additionally, the initial costs of deploying the PS5 mean that there will only be a slight increase in profits for the gaming industry.

During the April-June period, net profit rose 53% to 233 billion yen, while operating profit fell 1% to 228 billion yen. Lower tax charges and capital gains on shares held boosted net income.

The company recorded a 2% jump in revenue to 1.9 trillion yen. Its gaming business has benefited from the increase in home gamers brought on by the pandemic, while its financial services business has also seen increased sales.

The current financial year will once again be difficult for Japanese society. For the year up to last March, Sony’s net profit fell 36% to 582 billion yen from 916 billion the previous year. Operating profits fell 5% to 845 billion yen while revenues fell 5% to 8,200 billion yen.

Sony also announced a share buyback plan worth up to 100 billion yen, purchasing around 20 million shares – around 1.64% of the group’s outstanding shares – between August 5 and March 31, 2021.

The company’s stock price closed at 8,686 yen on Tuesday and is trading at a 19-year high.