BENGALURU: About four months ago Sony Corp (Sony) had announced an expected loss of ? 50 billion for the financial year ending 31 March, 2015 (FY-2015). While announcing its forecast results for the third quarter ended 31 December, 2014 (Q3-2015), the company upgraded that figure by almost 5 times – to ? 230 billion as it wrote down the book value of its mobile communications (MC) unit.
While the MC unit will cross the revenue target of ? 900 to 1100 billion during FY-2015, it is likely to incur a loss of ? 215 billion on a higher forecast income of ? 1320 billion. Sony had earlier predicted that the MC unit would have a positive operating margin of between 3 to 5 per cent.
Note: Due to the aftermath of a cyber attack on Sony Pictures Entertainment Inc. (“SPE”), a consolidated subsidiary of Sony Corp (Sony) the results of which are reported as the Pictures business segment, had a serious disruption of its network and IT infrastructure. In order to provide timely disclosure of currently available financial information on a consolidated basis and foreach of its segments, Sony is disclosing forecasted results, which include the estimated impact of the cyberattack, on a consolidated basis and for the Pictures segment. Sony is also disclosing the actual results of its other segments, whose results were not impacted by the cyber attack, for the third quarter ended 31 December, 2014.The forecasts for consolidated results and the Pictures segment for the third quarter are based on the information currently available to management, and the actual results may differ from these forecasts. Sony plans on announcing its actual results for the third quarter by 31 March, 2015.
Nine segments contribute to Sony numbers: Mobile Communications, Game & Network Services (G&NS), Imaging Products & Solutions (IP&S), Home Entertainment & Sound (HE&S), Devices, Pictures, Music, Financial services, All other.
The company reported a 6.1 per cent increase in operating revenue/sales in Q3-2015 at ? 2257.8 billion as compared to the ? 2410.7 billion reported in the year ago quarter. Sony says that this increase is primarily due to the favourable impact of foreign exchange rates, an increase in MC segment sales reflecting an increase in unit sales of smartphones, an increase in Devices segment sales due to the strong performance of image sensors, and an increase in G&NS segment sales reflecting the strong performance of PlayStation 4 (PS4). This increase is expected to be partially offset by a decrease in sales in All Other, primarily related to Sony’s exit from the PC business, and a decrease in sales in the Pictures segment, mainly due to lower Motion Pictures and Television Productions sales. On a constant currency basis, sales are expected to decrease by 1per cent y-o-y.
Operating income is expected to increase 89.4 billion yen y-o-y to 178.3 billion yen ($1,474 million). During the current quarter, the net income attributable to Sony stockholders more than trebled (went up 3.4 times) to ? 89 billion from ? 26.4 billion in Q3-2014.
This increase is expected primarily due to an improvement in the operating results of the Devices, HE&S, G&NS, and IP&S segments. This improvement is expected to be partially offset by a decrease in operating income in the Pictures segment.
Segment Results
Mobile communications
MC reported a y-o-y growth of 28.7 per cent in sales to ? 429 billion in the current quarter from the ? 333.2 billion in Q3-2014. Operating income from this segment grew 46.2 per cent to ? 9.3 billion from ? 6.3 billion reported in the year ago quarter.
Game & Network Services (G&NS)
Sales for the G&NS increased 16.8 per cent y-o-y (an 8 per cent increase on a constant currency basis) to ? 531.5 billion ($4,393 million). The company says that this increase was primarily due to an increase in PS4 hardware unit sales, the favourable impact of foreign exchange rates and an increase in network services revenue, partially offset by a decrease in PlayStation®3 (PS3) hardware and PS3 software sales. Sales to external customers increased 19.7 per cent y-o-y.
Operating income of the unit increased ? 15.2 billion y-o-y to ? 27.6 billion yen ($228 million). This increase was primarily due to increase in sales, partially offset by the impact of the decrease in PS3 software sales, the unfavourable impact of the appreciation of the US dollar, as well as the recording of an ? 11.2 billion ($93 million) write-down of PS Vita and PS TV components.
Imaging Products & Solutions (IP&S)
Sales increased 1.5 per cent y-o-y (a 5 per cent decrease on a constant currency basis) to ? 201.0 billion ($1,661 million), primarily due to the favourable impact of foreign exchange rates, partially offset by a decrease in unit sales of digital cameras.
Operating income increased ? 10.9 billion y-o-y to ? 23.0 billion ($190 million). This increase was mainly due to a reduction in selling, general and administrative expenses and the favourable impact of foreign exchange rates, partially offset by the decrease in sales of digital cameras.
Home Entertainment & Sound (HE&S)
HE&S unit sales increased 2.3 per cent y-o-y (a 5 per cent decrease on a constant currency basis) to ? 413.3 billion ($3,416 million). This increase was primarily due to the favourable impact of foreign exchange rates and an increase in sales of televisions, partially offset by a decrease in Audio and Video sales. Unit sales of LCD televisions increased mainly due to an increase in North America and Europe, partially offset by a decrease in Latin America.
Operating income increased ? 18.9 billion y-o-y to ? 25.3 billion ($209 million). This increase was primarily due to cost reductions, partially offset by the unfavourable impact of the appreciation of the US dollar.
In Televisions, sales increased 10.1 per cent y-o-y to ? 280.6 billion ($2,319 million). This increase was primarily due to the increase in unit sales, and the favourable impact of foreign exchange rates. Operating income of ? 9.3 billion ($77 million) was recorded, compared to an operating loss of ? 5.0 billion in the same quarter of the previous fiscal year.
Devices
Devices sales increased 38.6 per cent y-o-y (a 26 per cent increase on a constant currency basis) to ?292.9 billion ($2,421million). This increase was due to an increase in sales of image sensors reflecting higher demand for mobile products, the favourable impact of foreign exchange rates, as well as an increase in sales of camera modules. Sales to external customers increased 47.2 per cent y-o-y.
Operating income of ? 54.5 billion yen ($451 million) was recorded, compared to an operating loss of ? 23.5 billion in the same quarter of the previous fiscal year. This improvement was primarily due to the recording of a ? 32.1 billion impairment charge related to long-lived assets in the battery business in the same quarter of the previous fiscal year, the above-mentioned increase in sales of image sensors, and the favourable impact of foreign exchange rates.
Pictures forecast
As a result of the cyber attack, Sony has disclosed forecasted results for the Pictures segment, which include the estimated impact of the cyber attack, for Q3-2015.
Pictures unit sales are expected to have decreased 11.7 per cent y-o-y (a 23 per cent decrease on a constant currency (U.S. dollar) basis) to ? 197.6 billion yen ($1,633 million). The expected decrease in sales on a US dollar basis is primarily due to a decrease in sales for Motion Pictures and Television Productions. The expected decrease in Motion Pictures sales is due to lower home entertainment and theatrical revenues. The expected decrease in home entertainment revenues is due to fewer major home entertainment releases in the current quarter as compared to the same quarter of the previous fiscal year while theatrical revenues are expected to have decreased due to the stronger worldwide performance of theatrical releases in the same quarter of the previous fiscal year. The expected decrease in Television Productions sales is due to the same quarter of the previous fiscal year benefitting from higher home entertainment and subscription video on demand (SVOD) revenues for the US television series ‘Breaking Bad’.
Operating income is expected to have decreased ? 21.9 billion y-o-y to ? 2.4 billion ($20 million) due to decrease in Motion Pictures and Television Productions sales. The current quarter is expected to include approximately $15 million U.S. dollars (? 1.8 billion) in investigation and remediation costs relating to the above-mentioned cyberattack.
Music
Music unit sales increased 13.1 per cent y-o-y (a 3 per cent increase on a constant currency basis) to ? 163.6 billion ($1,352 million) due to the favourable impact of the depreciation of the yen against the US dollar and an increase in Recorded Music sales. Recorded Music sales increased on a constant currency basis due to the strong performance of several releases and higher digital streaming revenues. Best-selling titles included One Direction’s Four, AC/DC’s Rock or Bust, Pink Floyd’s The Endless River, Foo Fighters’ Sonic Highways and Garth Brooks’ Man Against Machine.
Operating income increased ? 3.7 billion y-o-y to ? 25.4 billion yen ($210 million). This increase was due to the favourable impact of foreign exchange rates and the increase in Recorded Music sales.
Financial services
Financial services revenue increased 8.1 per cent y-o-y to ? 304.9 billion ($2,520 million) due to an increase in revenue at Sony Life. Revenue at Sony Life increased 8.2 per cent y-o-y to ? 279.1 billion ($2,307 million) due to an increase in insurance premium revenue reflecting an increase in policy amount in force, as well as an improvement in investment performance.
Operating income increased ? 4.5 billion y-o-y to ? 50.9 billion ($420 million). This increase was mainly due to an increase in operating income at Sony Life. Operating income at Sony Life increased ? 2.9 billion y-o-y to ? 51.2 billion ($423 million) due to an improvement in investment performance in the general account.
All other
All other unit sales decreased 46.7 per cent y-o-y to ? 144.3 billion ($1,193 million). This decrease was due to a decrease in sales reflecting Sony’s exit from the PC business.
Operating loss decreased ? 0.5 billion y-o-y to ? 14.3 billion ($118 million). Operating loss was essentially flat y-o-y due to a decrease in PC operating loss, partially offset by the deterioration of operating results in the disc manufacturing business.
