Sony forecasts big jump to record annual profit on winning gaming strategy

Japan’s Sony Corp boosted its annual profit outlook by 30 per cent to a record level after a strong second-quarter, propelled by popular game titles like “Marvel’s Spider-Man” as well as growing demand for its online gaming services.

The results are a vindication of a strategic shift by the entertainment and electronics firm to build up more content-oriented businesses like gaming, which generate recurring revenue and are less susceptible to the earnings ups and downs seen in consumer electronics.

“Sony has become, more than most people realise, a company that generates profit through content. Until just a few years ago, the worry was always that it was going to revise down on hardware woes but now it has transformed to generate stable earnings,” said Hideki Yasuda, an analyst at Ace Securities.

Sony now expects an annual operating profit of 870 billion yen ($7.7 billion), a level that comfortably beats market expectations of 796 billion yen. The gaming business will be the biggest profit driver generating 310 billion yen. Big gaming hits exclusive to Sony have offset declining sales for its mainstay PlayStation 4 console, now five years old.

The action-adventure title “God of War” sold 3.1 million copies in the first three days of its release in April, the fastest sales rate of any PlayStation first-party title in history. The record was renewed just five months later, when “Marvel’s Spider-Man” was released in September and sold 3.3 million in its first three days.

“We’ve been very blessed with some blockbuster titles,” Chief Financial Officer Hiroki Totoki said at an earnings briefing. “The lineup will remain strong in the second half of the year.”

Its PlayStation Plus subscription-based service has also seen steady growth in subscriber numbers while in the Japanese mobile gaming market, role-playing game “Fate/Grand Order” published by a unit of Sony’s music division continued to deliver a strong performance.

In the second-quarter, operating income climbed 17 per cent to 239.5 billion yen. Profit for its gaming division surged 65 per cent. Sony also raised its annual profit forecast for its semiconductor division, which includes imaging sensors, by 17 per cent to 140 billion yen.

Although the global smartphone market is maturing, demand for Sony’s image sensors has remained healthy as phone manufacturers introduce multiple-lens camera systems for high-end models. Sony now aims to invest 600 billion yen in imaging sensors over the three years through March 2021, up by 20 per cent from its previous goal and accounting for half of the group’s planned capital expenditures.

Sony controls more than half of the imaging sensor market for smartphones, with customers including Apple Inc and most other major handset makers.  Meanwhile, Sony’s own smartphone handset business was one of few weak spots in the robust earnings as the firm is now bracing for a loss of 95 billion yen for this financial year and expects the business to return to profit only in the year from April 2020.

“We’ll scale down the business further to minimise risks,” Totoki said but added that the company had no intention of exiting the business entirely. Also, domestic gaming peer Nintendo Co Ltd said sales of Switch consoles and games pushed operating profit up 30 per cent in the July-September period to reach the firm’s highest quarterly result in eight years.