One of the biggest eyebrow raisers from the Sony Q4 FY15 earnings report was the huge drop in Devices – down ¥75.3 billion compared to a year ago. For those unaware, Devices comprises mostly of Sony’s semiconductor business which supplies companies such as Apple and Samsung with components like batteries and camera sensors. At that time, I had heard from:

 a little birdie that Sony may have lost a major customer which could lend credence to the dramatic drop. 

Now it’s looking like my initial sources were spot on.

Joe Rossignol writing for MacRumors that:

 Sony may be running behind schedule in terms of supplying Apple with dual-lens camera modules for the next-generation 5.5-inch iPhone, which rumors suggest may be called the iPhone 7 Plus 

An issued noted from Chris Chang of Nomura Securities to investors claimed that they believe:

Sony may not be able to deliver its full share of dual cameras to Apple due to: (1) lower-than-expected yield, and (2) damage to its production facility from the April earthquake in Kumamoto

Sony has been working hard at getting their Kumamoto factory up and running with the most recent update from just two weeks ago indicating that:

 as of May 9, 2016, testing operations, which are one of the back-end processes carried out on the upper layer of the building, have resumed and other back-end processes, such as assembly, are also expected to restart sequentially beginning May 17, 2016. 

Clearly though with the massive launch numbers Apple pulls, they don’t feel confident in Sony’s abilities to provide enough camera modules to satisfy their demand. However even if Sony’s factory had not been damaged, I’m not convinced Apple would have given them the full order as Tim Cook and company have been working hard at diversifying their suppliers. For Apple, this allows them to lower their risk by not tying their product roadmap to a singular company should a natural disaster or other unknown factors like low product yield arise. According to Chang:

 Apple will instead turn to LG as its primary supplier of dual-lens camera modules for the larger-sized iPhone expected to launch in September. 

Ultimately for Sony, this could prove to be a big blow as that’s a business volume they might not ever fully regain.

Discuss:

Do you think this will hurt Sony’s business in the long term or is this a short term bump?