Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Sony is often referred to as a diversified business. A look at the Japanese company's latest financial forecast shows that in fact it's over-reliant on two units.

Financial services and games are projected to account for 95 percent of Sony's operating profit for the coming year.

Game On
Sony is forecasting 95 percent of its operating profit this year will come from just two units
Source: Sony, Bloomberg calculations

Granted, those numbers don't add up to 100 because of negative line items, reflecting losses at the devices unit and other costs. (Music is forecast to contribute 21 percent, pictures 14 percent and home entertainment 12 percent.) It's also an improvement from two years ago when a loss at the company's mobile-phone unit placed even more weight on the two leading divisions.

Still, even at the sales level, Sony's trend is toward more concentration, with 36.1 percent of revenue expected to come from financial services and games, from 30 percent a couple of years ago.

While it's heartening to see the laggard mobile business set to post a profit, the burden for the next year has been placed firmly on the shoulders of Sony's PlayStation unit, where sales are forecast to rise and the operating margin is predicted to more than double from the fiscal year that ended in March 2015.

The devices business, which accounts for 12 percent of sales, is projected to post another loss this fiscal year. Much of that may be unavoidable, a legacy of last month's earthquake in Kumamoto. The arm is also home to Sony's battery business, which has untapped potential as demand for power from mobile devices and electric vehicles increases.

The risk of such concentration is clear. In financial services, Sony forecasts 150 billion yen ($1.4 billion) of operating profit. Currency and interest-rate fluctuations could easily wreak havoc on that number.

In games, Sony is reliant on one product -- the two-year-old PlayStation 4, the backbone of its games and networking business. Even with a refresh this year, CEO Kazuo Hirai is asking a lot for the console to not only boost sales but margins as well.

Maybe virtual reality, a string of hit titles and new ways to monetize its user base will justify the company's confidence. But with competition from smartphones and online content taking attention away from console games, the unit is carrying quite a weight of expectation. Sony badly needs other divisions to step up and help its dynamic duo.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net