Sony Hikes Outlook as Games Help Offset Smartphone Weakness

Sony Group Corp. raised its full-year forecast as its PlayStation and entertainment arms sustained momentum even as a sluggish global economy hurt other operations.

(Bloomberg) — Sony Group Corp. raised its full-year forecast as its PlayStation and entertainment arms sustained momentum even as a sluggish global economy hurt other operations.

Boosted by a weaker yen, the Tokyo-based company nudged up its net income forecast by 2% to ¥860 billion ($6 billion), closer to but still missing analyst estimates. Sony also revised up its sales outlook by 6% to ¥12.2 trillion. It left its full-year operating profit outlook unchanged.

Supply constraints that dogged the PlayStation 5 since the game console’s launch in 2020 are now history, and Sony is working to catch up on lost time. The company sold 3.3 million units in the June quarter and needs to build out its PS5 user base to entice more developers to create specifically for the platform.

“Sales momentum for the PS5 slowed from the previous quarter, and that’s going to make it tough for Sony to hit a target of 25 million units this fiscal year,” said Toyo Securities analyst Hideki Yasuda. “Sony would need to cut prices or release new models to keep its games business momentum intact.”

The conglomerate, whose operations span movies, financial services and electronic components, said momentum in the PS5 began picking up in July after slowing down in the June quarter. The PS5, Sony’s most important product, has been the best-selling console in the US this year in both unit and dollar terms, according to data from Circana.

Achieving PS5 sales of 25 million units this fiscal year remains the company’s priority, Sony Senior Vice President Naomi Matsuoka said during an earnings call Wednesday. “We will take the steps necessary to achieve that goal.”

Outside its core games division, Sony cut its outlook on its image sensors, used widely in smartphones to create photos and videos. A recovery in China’s smartphone market is taking longer than expected, and demand is worsening in the US, it said.

“We expected the smartphone market to start recovering from the second half of this fiscal year, but now we don’t see that happening until at least the next year,” said Sadahiko Hayakawa, senior general manager in charge of Sony’s finance department.

Read more: Sony Expects Smartphone Rebound Only in 2024 After China Fizzles

The company’s image sensor business is facing significant headwinds. Key customer Apple Inc. said at its most recent earnings report that its iPhone is also facing suppressed demand. Some manufacturing yield issues of Sony’s camera sensors also posed a challenge for iPhone 15 production, Bloomberg News previously reported.

Read more: Apple to Keep IPhone Shipments Steady Despite 2023 Turmoil

The global economic slowdown and geopolitical risks are spurring Sony to remain cautious on its outlook, executives said.

“We see various risks and uncertainties for months to come, including risks in our hardware businesses, from electronics to sensors to PlayStation 5s” Sony Chief Operating Officer Hiroki Totoki said. 

Sony reported better-than-expected operating profit in its fiscal first quarter of ¥253 billion, surpassing analyst estimates of ¥242.3 billion. Revenue was ¥2.96 trillion, 33% up from last year’s ¥2.2 trillion in the same period.

The Japanese entertainment conglomerate has been beefing up its content offerings in recent years, though the biggest hits of the summer have come from its rivals — from Activision Blizzard Inc.’s Diablo IV to Warner Bros. Pictures’ Barbie, a film that Sony previously held the rights to.

Console rival Microsoft Corp.’s takeover of Activision is also nearing conclusion, though the near-term impact of that deal on Sony’s business is likely negligible as the companies have agreed to keep Call of Duty on PlayStation consoles for at least a decade.

(Updates with Sony COO comment from earnings call)

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