Sony FY 2014 Earnings: Winning The Console Battle, Losing The Profits War?
Sony Corporation reported its financial results for the financial year ending 31 March 2014 Wednesday. With a wide range of products and divisions reporting, and the numbers broken out to provide greater transparency, the stand-out number for many will still be the ¥128.4 billion (approximately $1.26 billion) net loss, and ¥124.99 ($1.21) loss per share .
Driven largely by the costs involved in Sony's exit from the PC business, and impairments in the battery and disc manufacturing businesses, this nonetheless represents a considerable reverse from a small net profit of ¥41.5 billion last year, itself driven in part by asset sales.
Opening the earnings call for Japanese shareholders, Sony CFO Kenichiro Yoshida expressed regret that the company had failed to meet expectations, after Sony revised its own forecast at the beginning of May to a ¥130 billion loss.
Playstation a PlusThe promotion to President and CEO of Kazuo Hirai, formerly leader of Sony Computer Entertainment and then the Networked Products and Services Group that included Sony Computer Entertainment and Sony Online Entertainment, signalled a commitment to the interactive entertainment space in Sony's future, in the face of falling margins in its traditional sectors, most notably TVs.
Since his elevation in April 2012, Sony has been knocking balls out of the park, to appropriate a metaphor from another form of gaming, with its living room console offering. Sony Computer Entertainment produced both critically and commercially successful games for its outgoing PlayStation 3 platform, and won the battle for hearts and minds against Microsoft's Xbox One when the two products launched against each other in the final quarter of 2013.
PlayStation 4 sales helped to push Sony's total sales and operating revenue up 14.3% over the prior year to ¥7,767.3 billion ($75.4 billion), along with improving foreign exchange rates through the depreciation of the Yen (at constant currency rates, sales dropped 2%) and a significant increase in sales of smartphones.
Mobile a focus
Since Sony bought Ericsson out of their mobile phone joint venture for $1.47 billion in February 2012, the Experia smartphone line has won praise and market share: Sony now has 3.8% of the global smartphone market, according to IDC statistics.
Sales in the Mobile Products & Communications division were up 29.6% year on year (6% at constant currency rates) at ¥1,630.1 billion ($15.8 billion), with sales of higher-value smartphones offsetting falling sales in the PC business and trimming the division's operating loss to ¥75 billion ($729 million).
That PC business was a major contributor to Sony's results, with losses of ¥91.7 billion ($890 million) including restructuring charges, as its physical assets and the VAIO brand transfer to Japan Industrial Partners. Losses for the current financial year related to the PC business are expected to total ¥80 billion next year, contributing to a predicted loss for FY 2015 of ¥50 billion.
Yoshida credited the growth in sales of smartphones to product appeal and good relationships with carriers: Sony treats its phone business as primarily a B2B business, he added, with the carriers as their customer rather than the end users, and profitability would continue to take a second place to range and reach in the mobile division's strategy.
Game buoyed by PS4 success
Along with Mobile and Imaging, the Game division makes up Sony's core electronic offering, and, as with mobile, the news was broadly positive, with sales up 38.5% (16% at constant currency) to ¥97.2 billion ($9.5 billion). Unit sales of the PlayStation 3 dropped faster than expected, but this was balanced by increased sales of PS3 software.
In total, 14.6 million Sony consoles - PS2, PS3 and PS4 - were sold in the financial year, along with 4.1 million handhelds. Sell-through of 7 million PS4s was announced in mid-April 2014. A ¥8.1 billion ($78 million) operating loss, against a narrow positive income of ¥1.7 billion in the prior year, was related to the cost of launching the PS4. As production efficiencies increase and the cost of the initial promotional push recede, the profit/cost balance of each unit will realign. Much of that loss was composed of a ¥6.2 billion write-off in Sony Online Entertainment, which incurred costs in development its as-yet-unreleased Everquest Next and H1Z1.
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