(Bloomberg) — Sony Group Corp. reported strong third-quarter earnings and raised its fiscal-year forecast on Wednesday, propelled by a hit Spider-Man movie and sales of image sensors used in Apple Inc.’s iPhones.
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The Japanese electronics and entertainment group reported operating profit of 465.2 billion yen ($4 billion), surpassing average analyst estimates of 342.1 billion yen. The strong figures led Sony to upgrade its operating profit forecast for the year ending March to 1.2 trillion yen, up from the previous 1.04 trillion yen.
One sour note for the company was its key PlayStation 5 business, where Sony said it now expects to sell fewer units this fiscal year due to the ongoing chip shortage. The company revised its full-year outlook down to 11.5 million units from the previous 14.8 million and also reduced its sales forecast for the gaming division to 2.73 trillion yen from 2.9 trillion yen in October.
Chief Financial Officer Hiroki Totoki said the weaker-than-expected PS5 sales were driven by short-term factors and won’t have an impact on the company’s long-term plan during Sony’s post-earnings call. Sony maintained its target for next fiscal year, though the CFO said it expects the supply and logistics crunch to persist in 2022.
“The ongoing chip shortages and logistics confusion will keep affecting PlayStation 5 production, and especially the second half of next fiscal year is hard to foresee,” Totoki said. “But I want to keep the previously-held goal of selling 22.6 million units next year unchanged as cutting it now would lower the motivation of the team.”
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“Spider-Man: No Way Home” starring Tom Holland became the biggest-selling film of 2021 after its December release, and it continues to perform well this year despite the spread of the Omicron variant of Covid-19. Sony said last week that the superhero movie was the sixth-highest grossing film in history with more than $1.7 billion at the global box office. Venom: Let There Be Carnage was another strong performer for the division, bringing in $503 million in global sales in the quarter.
Sony’s image sensor business also helped push up the bottom line, as it provides components for Apple’s iPhone cameras. The Cupertino, California-based company posted record quarterly results due in part to strong hardware sales. The outlook for the division in the current quarter is less positive, however, as Totoki said Chinese phone makers are ordering high-end image sensors at a slower pace than anticipated.
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Investor are also concerned about Sony’s PlayStation division. Microsoft Corp.’s plan to acquire Call of Duty publisher Activision Blizzard Inc. for $69 billion sparked a selloff that took $20 billion off Sony’s market value in a single day in January. Totoki declined to comment on the transaction.
Sony responded this week with its own acquisition announcement, a $3.6 billion deal for Bungie Inc., the U.S. video game developer behind the popular Destiny and Halo franchises. Totoki said Sony hopes to leverage the move to reach more users on platforms outside its PlayStation hardware ecosystem.
“What is really important for Sony is that PlayStation Plus subscribers are now higher quarter-on-quarter, despite a lack of top releases in Q3,” industry analyst Serkan Toto said after the results. “Launching ten new live-service games within the next four years almost sounds crazy and just highlights why Sony acquired Bungie, one of the best studios worldwide in the gaming-as-a-service business.”
The Xbox maker has committed to existing agreements to keep Activision games on the PlayStation, but the long-term threat to Sony’s business is significant. Microsoft will eventually reduce the cut it takes from software sales on the Xbox, compelling Sony to do the same, according to Macquarie Capital Securities analyst Damian Thong. “The sell-side consensus underestimates risks in Sony’s game unit,” he wrote in a letter to clients. Amir Anvarzadeh of Asymmetric Advisors also warned that the fight over reducing fees taken by Apple and Google on mobile platforms will add pressure to Sony’s business model.
The company sold 3.9 million PS5s in the quarter ended December, down from 4.5 million in the same period a year earlier, citing semiconductor shortages.
The chronic shortage of PlayStation 5 hardware continues to weigh on Sony’s game operations. Component companies such as TDK Corp. have warned chip shortages and supply-chain uncertainty will continue this year, challenging console makers. Mat Piscatella, an analyst at NPD Group, said he expects Nintendo Co.’s Switch to remain the best-selling hardware platform in unit terms throughout 2022.
(Updates with CFO comments from fourth paragraph)
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