James Bond, Adele Save Sony Profit in Global Smartphone Rut

  • CEO Kazuo Hirai maintains full-year company forecasts
  • Adele's record-breaking `25' was kept off streaming services

Sony Corp.’s earnings got a huge helping hand from Hollywood, music and games last quarter, validating Chief Executive Officer Kazuo Hirai’s shift away from its consumer hardware roots. The company’s U.S. shares jumped the most in more than seven years.

As Apple Inc. and Samsung Electronics Co. reel from the twin blows of a global smartphone slump and emerging-markets uncertainty, Sony posted better-than-expected results. A 33-percent surge in net income to 120.1 billion yen ($997 million) in the December quarter appeared to endorse its move toward gaming and entertainment, confining mobile exposure mainly to the sophisticated camera sensors it’s known for.

Kazuo Hirai, president and chief executive officer of Sony.
Kazuo Hirai, president and chief executive officer of Sony.
Photographer: Kiyoshi Ota/Bloomberg

Sony gave due credit on Friday to both the James Bond film “Spectre” and record-breaking sales of Adele’s “25,” which wasn’t available on streaming services Spotify and Apple Music. Games, its biggest division by sales, sold more PlayStation 4 consoles and software titles to help offset a plunge in sensor orders from smartphone customers such as Apple and Samsung.

“Games, music and movies are now in a position to help out when the electronics business isn’t doing well,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management. “From the credit market point of view, Sony has become a solid investment.”

Forecasts Maintained

Sony has relied on image sensors to bolster profits while Hirai shifted focus away from consumer electronics such as TVs. The company kept its forecast for the highest annual profit in eight years.

Operating income for the quarter was 202.1 billion yen, 16 percent more than estimates while sales of 2.58 trillion yen surpassed the 2.53 trillion yen expected by analysts.

Sony’s American depository receipts rallied 18 percent to $23.88, their biggest jump since October 2008. The ADRs, which rose 20 percent in 2015, recovered much of this month’s decline, leaving them down 3 percent this year.

While Sony kept its full-year forecasts unchanged for the whole company, including operating income of 320 billion yen, it increased projections for games on higher network sales while cutting expectations for the devices unit that produces image sensors.

Game Sales

Gaming operating income will be 85 billion yen, about 6 percent more than an October forecast, Sony said. Quarterly operating profit for the business was 40.2 billion yen.

It’s now sharpening its focus on streaming and online game services by bringing its PlayStation hardware, software and network operations under one roof.

Sony has said it will launch PlayStation VR, a virtual reality headset, by June 30. The company’s nearly 36 million-strong global base of PS4 consoles may give it an advantage over rivals like Facebook Inc.’s Oculus, which require a high-end computer to run. Sony can also leverage two decades of experience working with game studios and already has more than 100 titles in development.

Virtual Reality

About 7 million VR headsets will be sold by the end of 2016, according to market researcher IHS Technology. By 2020, the market is expected to reach $2.6 billion with 37 million headsets sold.

Both music and film turned in solid performances. The film division was its fastest-growing in the quarter, with revenue climbing 27 percent to 262.1 billion yen. Sony had the fourth-biggest hit at the North American box office in the quarter with “Spectre, which grossed $199 million, according to BoxOfficeMojo.com.

Adele’s latest album, featuring the hit “Hello,” helped propel music revenue 8 percent higher to 181.2 billion yen. Full-year earnings at the music division are now seen 14 percent higher than the company forecast in October.

While the new album was kept off streaming services, demand for other titles in Sony’s catalog is helping revive the music industry, the company said.

Feeling Pain

“Thanks to services like Spotify and Apple Music, the music market is finally showing signs of rebounding,” Chief Financial Officer Kenichiro Yoshida told reporters in Tokyo on Friday. “Movies is another business we expect to contribute to profit growth. We will also continue to invest in TV production.”

Sony’s devices unit however felt the pain of decelerating smartphone demand as markets matured and China slowed. It had a loss of 11.7 billion yen in the quarter after Sony took a 30.6 billion yen impairment on its battery business. The full-year operating income forecast for the business was cut to 39 billion yen from 121 billion yen.

“Film and music are very much hit-and-miss and profit will vary greatly depending on whether there are hits like Adele or James Bond,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. “Sony is in a very advantageous position for VR. With 37 million PS4s out there, they have a much better chance of growing this business.”

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