A day after Nintendo Co. delivered a sweet surprise, compatriot Sony Corp. joined the gaming party with an earnings beat and outlook upgrade.
The last time Sony delivered an increase in operating profit (last quarter), more than two-thirds came from one-time factors such as gains from spinoffs or the absence of earlier single-event expenses.
This time, the increase is more tangible: Only 24 percent of it came from one-time gains, mostly in forex.
Star of the show was Sony's semiconductor division, which not only boosted revenue by 18 percent but managed to extract more than 100 yen (88.4 cents) in operating profit for each 100 yen in extra revenue, according to Gadfly calculations. That's after accounting for forex and one-time gains that contributed 35 percent of the profit turnaround.
Then there's games, which raised revenue by 113.3 billion yen while squeezing 28.9 yen of operating profit out of each 100 yen in extra sales -- again, after one-time items.
At the same time as it released such inspiring results, Sony raised its full-year operating income estimate by 26 percent to 630 billion yen.
It would be easy to link this greater earnings optimism to improved sales of its games, chips and entertainment divisions. But that would be a stretch. The revenue outlook was increased a mere 2.4 percent to 8.5 trillion yen. The real superstar is the yen. Most of that higher profit will come not from operating leverage but forex leverage.
With around 68 percent of its revenue coming from outside Japan, Sony is susceptible to exchange-rate fluctuations. In April, the company was forecasting the yen at 105 per dollar. By August this was changed to 110 per dollar, and now it's been tweaked to 112 yen.
So cheer on Sony's improved sales and operating leverage if you must, but don't forget to cheer on the yen as well.
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