Sony shares drop most since 2016 on weaker PlayStation 4 demand

TOKYO • Sony Corp shares fell the most in 21/2 years yesterday after reporting slower growth in its PlayStation business and a cut in revenue forecasts for the year.

The stock slumped as much as 8.6 per cent - the most within a day since June 2016 - after operating income in games fell 14 per cent to 73 billion yen (S$900 million) for the holiday quarter.

The company - the latest big technology company to suffer from the slowing global economy - sold 8.1 million PS4 consoles, compared with nine million units a year ago. For total sales, Sony lowered its outlook to 8.5 trillion yen for the fiscal year through March, compared with the prior forecast for 8.7 trillion yen.

Macquarie Group analyst Damian Thong, in a report he wrote after cutting his rating to neutral, said: "We are moving to the sidelines until we can better assess the risks in the games segment. Strong profits from gaming software were offset by higher promotional and marketing costs aimed at driving PS4 volumes."

Goldman Sachs Group and Nomura Holdings also cut their price targets on Sony's stock.

Weaker demand for camera chips, mobile handsets and financial services were behind the revision although a tax adjustment will boost net income, the Tokyo-based company said in a statement last Friday.

Sony's results underscore the struggle at big tech companies, which are seeing slowing demand for their products and services. Apple reported a decline in revenue for the first time in two years, while chipmakers Intel and Nvidia have warned of weaker sales as China's economy starts to sputter and uncertainty over Brexit looms.

A man trying out Sony's PlayStation 4 VR device during a presentation in Madrid last November. Sony's latest results underscore the struggle at big technology companies, which are seeing slowing demand for their products and services.
A man trying out Sony's PlayStation 4 VR device during a presentation in Madrid last November. Sony's latest results underscore the struggle at big technology companies, which are seeing slowing demand for their products and services. PHOTO: REUTERS

Mr Andrew Jackson, head of Japanese equities at Soochow CSSD Capital Markets in Singapore, said: "It's definitely not as positive as the headline numbers would suggest. It feels slightly negative overall."

Operating profit in the last three months of last year was 377 billion yen, compared with analysts' projection for 365 billion yen. After adjusting for a one-time gain in the music business, the result was far lower at 260 billion yen. Quarterly sales fell 10 per cent to 2.4 trillion yen.

With fewer games in store for the already-ageing PlayStation 4, and Sony's own Xperia phone business still bleeding money, Sony chief executive Kenichiro Yoshida will have to prove that the company's turnaround can continue instead of peaking this year.

The mobile division continued to struggle, with an operating loss of 15.5 billion yen during the quarter, the fourth straight period. Mr Yoshida has so far rebuffed pressure to sell the unit, saying it is vital for pushing innovation including 5G-related research.

"The market is closely watching for a turnaround in the mobile communications business, but it looks like things are worse year on year due to a decrease in smartphone unit sales," Mr Jackson said.

For the current fiscal year, operating profit will be 870 billion yen, compared with analysts' projections for 884 billion yen, according to estimates compiled by Bloomberg.

The PS4, headed for its sixth year, will likely surpass the 100 million unit sales milestone by the middle of this year, cementing its status as one of the best-selling consoles in history. But this year's software line-up is smaller than the record-setting one last year, which saw first-party blockbusters God Of War and Spider-Man, and third-party hits like Red Dead Redemption 2.

This year is mostly focused on a pair of zombie titles, the lesser-known Days Gone, scheduled for April, and a sequel to the award-winning The Last Of Us - likely released later this year. For the full fiscal year, Sony kept its forecast for the games division of 310 billion yen.

Sony's camera chips business is also seeing an impact from slowing global demand for smartphones. Operating profit in chips fell 23 per cent to 46.5 billion yen.

The PS4, headed for its sixth year, will likely surpass the 100 million unit sales milestone by the middle of this year, cementing its status as one of the best-selling consoles in history. But this year's software line-up is smaller than the record-setting one last year, which saw first-party blockbusters God Of War and Spider-Man, and third-party hits like Red Dead Redemption 2.

Jefferies analyst Atul Goyal wrote in a report last week: "We are cautious but not overly worried about CMOS despite iPhone weakness."

CMOS sensors are used in iPhone cameras and camera modules.

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A version of this article appeared in the print edition of The Straits Times on February 05, 2019, with the headline 'Sony shares drop most since 2016 on weaker PlayStation 4 demand'. Print Edition | Subscribe