Sony Shares Surge After Best Quarterly Profit in 7 Years

The Secret Behind Sony’s Selfie-Starting Turnaround

Sony Corp. surged the most in two years as Chief Executive Officer Kazuo Hirai leads it toward a recovery with help from a business most consumers have never heard of.

The stock rose 12 percent in Tokyo, the biggest gain since January 2013. Sony raised its operating earnings forecast Wednesday with the biggest contributor being its devices unit, which supplies the image sensors that power cameras built into its Xperia smartphones and Apple Inc.’s iPhones. Hirai is boosting investment in the chip unit to build more modules for phones, tablet computers and automobiles.

The business helped Tokyo-based Sony post its best quarterly profit in seven years and increase its projection for annual sales. With the PlayStation 4 winning over gamers and Chief Financial Officer Kenichiro Yoshida cutting costs through a restructuring, the company is making progress in moving beyond the losses of the past and last year’s cyber-attack on its Hollywood studio.

“The demand for front-facing camera modules is going through the roof, because everyone wants to take high-quality selfies, and that doubles the market size for Sony,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. “The auto segment of the market is also beginning to boom. Cars potentially may have more than five modules per car.”

The stock closed at 3,101.5 yen in Tokyo, the highest since May 2010 after surging by the daily limit earlier. Analysts at Credit Suisse Group AG raised their price forecast for the shares by 27 percent to 3,300 yen with an outperform rating.

Boosting Capacity

In the three months ended Dec. 31, Sony’s preliminary operating income more than doubled to 178.3 billion yen ($1.5 billion), the highest since the same period of 2007.

“We believe this outstanding performance is the result of company’s renewed focus on profitable businesses where Sony has competitive advantage,” Atul Goyal, a Singapore-based analyst at Jefferies Group LLC, said in a report. “We like the focus on cost-control (rather than job-cuts),” he wrote.

Sony now expects a full-year operating profit of 20 billion yen, compared with an earlier forecast for a 40 billion-yen loss, and annual sales will be 8 trillion yen, it said.

The company also narrowed its projected full-year net loss by 26 percent to 170 billion yen, a prediction that includes a 176 billion-yen writedown at the Xperia phone business.

Better-than-expected sales of sensors and positive foreign exchange moves led Hirai to raise the devices unit’s profit outlook by 49 percent to 100 billion yen and the revenue forecast by 6.7 percent to 950 billion yen.

Camera Sensors

Sony will boost the output capacity of image sensors by 33 percent to 80,000 wafers by the end of June 2016, the company said Monday. It’s also shifting 220 employees involved in the development and production of chips for gaming consoles to the image sensor business and other operations.

The company gained a competitive advantage after switching to a technology known as complementary metal-oxide semiconductors, or CMOS. The sensors help record images in low light or with strong backlight, boosting the quality of pictures from smartphone and car cameras.

The electronics company expects camera modules and sensors to generate about 63 percent of its device unit revenue in the year ending March 2018, it said in November.

Full-year operating income from games is forecast to reach 40 billion yen, while weakness in the Japanese yen will help the imaging-products division post earnings of 53 billion yen even as digital-cameras sales slide.

Xperia Cuts

“Games and image sensors are doing great, even as impressions from digital cameras and televisions are less favorable,” Yu Okazaki, an analyst at Nomura Holdings Inc. in Tokyo, said before the release. “The company’s full-year outlook was quite conservative coming out of the first-half result, suggesting there is room at the top.”

The company will cut 2,100 jobs from its mobile business by the end of fiscal year 2015, and it trimmed the smartphone sales outlook to 39.2 million units from 41 million units this year.

Sony expects the picture operations to report a profit margin of 3 percent to 5 percent as sales decline by as much as 32 percent to 900 billion yen.

In the face of fierce competition from Apple, Samsung Electronics Co. and other producers, Sony is ending development of new smartphones for China and culling its Xperia lineup. Hirai is due to announce a mid-term plan for the business before the fiscal year ends in March.

Hacking Costs

In January, Sony sought permission to delay the release of its final quarterly earnings because of the disruptions caused by the hacking of its studio, which U.S. officials blamed on North Korea. Sony said it was unable to produce a full third-quarter report by the expected deadline and was cleared to file its final earnings statement by March 31, the last day of the fiscal year.

Investigation and remediation expenses related to the hacking are about $15 million so far, and the attack will cost the company about $35 million in total, Sony said.

The pictures unit had provisional operating income of 2.4 billion yen in the December quarter, while gaming earnings more than doubled to 27.6 billion yen, it said.

“The company is also getting a big boost from the weaker yen for all of its segments relying on domestic production,” said Hideki Yasuda, a Tokyo-based analyst at Ace Research Institute. “The PS4 sold well, and of those who bought the console, half are joining the company’s network service, creating a continuous contribution to the bottom line.”