(Bloomberg) — Sony Corp. cut its full-year revenue outlook as sales of PlayStation 4 games console, televisions and Xperia smartphones declined faster than the company originally anticipated.
The electronics maker lowered its own sales target for the year ending March 2020 to 8.6 trillion yen ($79 billion), or 200 billion yen less than a forecast in April, the Tokyo-based company said in a statement Tuesday. The profit outlook was left unchanged.
Sony is predicting annual operating profit will drop for the first time in three years as it steps up investments in games and semiconductors. Chief Executive Officer Kenichiro Yoshida, who played a key role as finance chief in the company’s turnaround over the past half-decade, is looking for ways to spark growth. Sony is developing a successor to the PS4 and has partnered with Microsoft Corp. on cloud gaming. The CEO is also boosting capital spending to 1.2 trillion yen through March 2021, fueled by investments in smartphone camera sensors.
“Investors have come to rely on Sony to beat its own PlayStation forecasts, but this miss might give them a pause,” said Hideki Yasuda, an analyst at Ace Research Institute. “It raises questions about their grip on the business.”
Sony’s shares have climbed 10% this year. They closed at 5,859 yen before the earnings announcement on Tuesday, up 14% from the start of April last year, when Yoshida took the helm.
In games, its most important unit, Sony trimmed its revenue outlook by 4.3% to 2.2 trillion yen after sales fell 3% in the first quarter. The PS4 sales target was cut by 1 million units to 15 million. The company kept the forecast for the segment’s operating profit to fall 10% to 280 billion yen because of rising costs in research and development related to the PS5.
The games division faces a big challenge in topping last year’s performance, when blockbusters such as God of War drove record earnings. This year’s lineup consists of lesser-known titles and the PS5 won’t go on sale this year, giving competitors a chance to win consumers over with new hardware.
In electronics products, a segment that includes smartphones and TVs, Sony cut its annual revenue outlook by 3.6% to 2.16 trillion yen. The TV target was cut by half a million to 10.5 million units. The company slashed its smartphone sales to 4 million units from 5 million, although it still expects the mobile business to narrow losses to 47 billion yen.
“Investors are keen to check the company’s progress toward that goal,” Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo, said ahead of the earnings announcement.
Sony left its full-year profit outlook unchanged, forecasting a 9.4% drop to 810 billion yen. Analysts on average expect a profit of 821.5 billion yen. Operating income in the first quarter was 231 billion yen, more than the 176 billion yen average of analysts’ projections. Sales fell about 1% to 1.93 trillion yen, slightly lower than analysts’ average prediction for 1.94 trillion yen.
Sony has again come under fire from activist investor Daniel Loeb. Loeb’s Third Point revealed a $1.5 billion stake in the company and advocated for a spin-off of the chip business, which includes camera sensors, to finance a deeper expansion into entertainment, including games and movies. That’s the opposite of what he championed in 2013, when he called on executives to sell a part of their film division.
Yoshida has responded by saying that management is constantly studying how to increase long-term shareholder value. He has also carried out two record buybacks this year, pleasing investors and pre-empting calls for more drastic change.
“The buybacks have obviously had a positive impact, but another one isn’t likely,” Jefferies Group senior analyst Atul Goyal said ahead of the earnings release. “It’s difficult to get excited about Sony this year, because there is no growth story to be told.”
(Updates with analyst’s comment in fourth paragraph.)
To contact the reporters on this story: Pavel Alpeyev in Tokyo at [email protected];Sheryl Tian Tong Lee in Hong Kong at [email protected]
To contact the editors responsible for this story: Edwin Chan at [email protected], Peter Elstrom, Reed Stevenson
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