Sony Forecasts Surge in Operating Profit on Games, Sensors

Sony Corp. forecast a surge in operating earnings by fiscal 2017 as Chief Executive Officer Kazuo Hirai drives the company’s turnaround with games, image sensors and entertainment.

Operating profit will reach 500 billion yen ($4.2 billion) in the year starting April 2017, the Tokyo-based company said Wednesday. That compares with its forecast for 20 billion yen this year. Sony is also targeting a boost in its return-on-equity to above 10 percent.

Hirai is focusing on profitability over volume growth as Sony targets areas where it has an advantage, such as image sensors used in smartphones and PlayStation 4 consoles. Chief Financial Officer Kenichiro Yoshida is restructuring operations to restore credibility with investors at a company that lowered its earnings outlook 15 times in the past seven years.

“A feeling of trust is growing as they are steadily doing what they say, and the market respects it,” Yasuaki Kogure, chief investment officer at SBI Asset Management Co. in Tokyo, said before the announcement. “Hirai’s reform is bearing fruits in the fields, such as image censors, that Sony focuses on.”

Sony shares closed at 3,174.5 yen before the announcement. The stock has surged 28 percent this year, compared with a 5.3 percent rise in the benchmark Topix index.

Yoshida and Executive Vice President Tomoyuki Suzuki will both add the roles of Executive Deputy President from April 1, Sony said. Vice Chairman Masaru Kato, medical business head Tadashi Saito and head of human resources Kunitaka Fujita will all resign after the annual shareholder meeting in June.

Device Growth

The company said it wants return-on-equity to become its primary performance indicator. Sony hasn’t had an annual return above 10 percent since posting 10.8 percent in the 12 months ended March 2008, according to data compiled by Bloomberg.

Sony this month forecast an annual operating profit of 20 billion yen, compared with an earlier projection for a 40 billion-yen loss. The company still expects a net loss this year on a writedown of its smartphone unit.

Hirai said Sony aims to revive dividend payments from next year.

The devices unit supplies the image sensors that power cameras built into its Xperia smartphones and Apple Inc.’s iPhones. Hirai is boosting investment in the chip unit to build more modules for phones, tablet computers and automobiles.

Video Restructure

The company gained a competitive advantage after switching to a technology known as complementary metal-oxide semiconductors, or CMOS. The sensors help record images in low light or with strong backlight, boosting the quality of pictures from smartphone and car cameras.

Sony last year sold its Vaio personal computer division and put TV manufacturing into a new structure as Hirai tries to end losses at the business.

The company’s video and sound businesses will be put in a separate structure from October, it said.

“Separating our business units will make cooperating with other companies, restructuring, acquisitions and attributing responsibility much easier,” Hirai said. “Image sensors, games, movies and music are the areas that will drive sales and profit growth.”

Sony expects revenue from the business that makes sensors, camera modules and memory storage will rise to as much as 1.5 trillion yen in the year ending March 2018 with an operating margin of 10 percent to 12 percent.

Revenue from the games and network business could reach as much as 1.6 trillion yen with home entertainment sales, which includes TVs and speakers, of 1 trillion yen to 1.1 trillion yen.

Sales at the film unit will probably rise to between $10 billion and $11 billion in fiscal 2017. Music business revenue would be $4.8 billion to $5.2 billion in the same period, Sony said, affirming forecasts from November.

Source: Bloomberg