Sony has posted a net profit of ¥26.8 bn /$261m/ €194m for the first quarter of 2014 (Apr – Jun) with operating revenue up 93% on Q1 FY13. The PS4 led the way with a 95% increase in sales increase for the Game segment with software sales surging y-o-y. The movie-making Pictures segment performed well, owing to success with The Amazing Spider-man 2 and 22 Jump Street.

Financial Services made a loss, a reversal of a normally steady-performer within the broader corporation while Mobile disappointed, with a downward revision of a 2014 target of 50m unit sales to 43m.

Read on to see the full details.

News in 15 Seconds: The PS4 sold very well pushing up the Game segment sales by 95% y-o-y with software sales performing strongly. Smartphone unit sales are down in Mobile. Imaging and Pictures made profit with the star-performer Financial Services making a loss.

Sales and Operating Revenue

Sony made a net profit for the first quarter of their calendar 2014 year (Apr-Jun) of ¥26.8 bn /$261m/ €194m. This is a jump of 757% on the same quarter last year.

Another figure that’s very much in the spotlight for Sony right now is the level of operating income, since Sony is expected to be ejected from the Japanese government-backed list of the top 400 performing companies, which makes operating income a priority. Operating income is up 93% on the same quarter last year to ¥69.8bn. If Sony keeps up figures like that, they perhaps could reverse the fall from the Nikkei 400.

 Results by Segment

Mobile – Sales are up 10.1% but operating income is down ¥15bn / $146m / €108m. This is one of Sony’s 3 prioritized segments; the sales increase is welcome, but the loss based on those sales is a disappointment based on the progress made in the past two years.

Game – Sales are up 95% on the same quarter last year with operating income moving forward by ¥20bn / $195m / €145m. The sales boost is obviously the PS4 and importantly they are making a profit based on those sales too. Gone are the days when the game companies could make a loss based on a console sold.

Imaging – Sales are down 9% and operating revenue is up ¥8.3bn / $80m / €60m. This follows the pattern seen in the full year 2013 results where Imaging made healthy profit on weak sales.

Pictures – Sales moved up 22% with a profit of ¥4.1bn / $39m / €29m. Hits like The Amazing Spider-man 2 and 22 Jump Street boosted the segment this quarter.

Financial Services – Sales are down 1.8% on the same quarter last year with operating income also down ¥1.3bn. This must be very disconcerting for Sony as this segment has not been an ‘also ran’, it has been the steadiest stream of pure profit for many quarters now. But for this quarter at least, that has stalled.

Home Entertainment – A “significant increase” in LCD televisions in Europe and Asia-Pacific pushed sales up 3.8% and operating income up from 5.2 to 7.9 billion yen / $77m / €57m.

Other segments – Music and Devices contributed to profit, though nothing notable.

 

PC Market Exit, Restructuring

The figures above are packaged together. Firstly, the PC business exit figures show that the drain on the broader corp. finances is winding down. In the quarter just past, there was a ¥18.3bn / $175m / €130m cost attributed to this however. Restructuring costs still appear, though also winding down. They came in at ¥4.5bn /$43m / €32m for the 1st quarter this year.

Mobile – A Closer Look

Unit sales are being revised downward from the 2014 full year target of 50m smartphone unit sales to 43m.  Sony attributes the drop in unit sales to a misfire in targeting mid-range smartphones in emerging markets. They continue by mentioning a review of its mid-range plan. Sony aimed to dramatically increase shipments of premium smartphones in developed markets and as they mention, target emerging economies with the mid-range fold.

This has left consumers in the developed markets wondering where the successors to the mid-range smartphones of last year have gone. The 2014 mid-range seems to consist of the Xperia M2 and little else. The Xperia T3 and C3 are not flagships, but they might be premium. Where are the 4″ mid-rangers in Sony’s portfolio? Samsung still ships 4″ (or thereabouts) mid-rangers. Will every device in Sony’s future portfolio have a 5″+ screen? The 2013 Xperia C blurred the lines, it had a large screen but otherwise mid-range specs. The 2014 fleet seems to go from budget Xperia E1 to mid-range Xperia M2 then back up to premium. There is obviously a hole in that plan.

Quarterly shipments are down 200,000 units from 9.6m units this quarter last year to 9.4m.

Game – A Closer Look

The whopping 95% surge in sales is clearly all about the PS4. It’s also one of the more long-term investments within the corporation that has been draining money needed for investment for years while we have been playing with our PS3s. A poor smartphone model can be trashed but the PS4 needed to deliver the sales and now it has. In combination with hardware sales jumping (including a modest portable jump) software unit sales have shot up – which is where Sony will really recoup investment well. Sony mentions that both PS3 software sales have started to fall and that the PS4 is enjoying a “cost reduction” presumably in the manufacturing process. There is no ‘PS4 slim’ talk yet but reducing the costs of production is always welcome.

Imaging – A Closer Look

This is the second quarter that Imaging posted flat sales or a small decrease but healthy profit. That’s impressive profit per unit compared with what’s happening in the Mobile and Game segments – per unit. Here Sony says there was a “Significant decrease in unit sales of compact digital cameras”. We know that smartphone cameras are consuming digital cameras, but if there is any hope of a slowdown, it’s not visible yet. Will there be much of a compact digital camera market left? Will that mean Sony (and other manufacturers) become high-end camera specialists for professionals? If so, Sony would need to restructure and reorganise this segment in anticipation of the market direction.

Other Segment Results – click to enlarge

 

 

 

 

 

Segment Performance Comparison

Overview

Performance Comparison 2012-2014

Unit Sales in Key Segments

Key Announcements

July 23rd – CMOS image sensor production is to increase (for smartphone cameras, likely for rival manufacturer’s smartphones.

July 30th – Application to delist from London Stock Exchange, “The listing of our shares on the London Stock Exchange has become less economically rational because of low trading volume,”.

July 31st – Joint venture with Panasonic for creating OLED displays.

Sony earnings results in full.

 

Discuss:

Can the PS4 keep up the lead if the rumoured XB1 price cut happens? Should Sony bring mid-range smartphones back to Europe and the US? Will Sony maintain profit in the next quarter?