Sony (6758) – How Good, Really, Was Its “Blow-Out†June Quarter?
Sometime around 2003, Sony started generating "exceptionals". It hasn't stopped since. Whether it be write-downs on business closures, write-offs against goodwill and tax losses, inventory losses on PS3s, or Acts of God: over the last decade-and-a-half, there has been a steady flow of major hits to Sony's P&L. That said, there have also been "wins": such as the sale of the Osaki site; profit-taking on its holdings in M2 Inc. (2413) and Olympus Corp (7733); and some interesting shenanigans over the acquisition of Sony Ericsson, that no one understood at the time, and which essentially had to be reversed a couple of years later.
Therefore, it should be no surprise that Sony's 1Q FY17 results are infested with exceptionals.
Key Points
- “One offs” account for ¥90bil of the swing in operating profit.
- As well as "exceptionals", you also need to factor in "unusuals".
- The big difference in the Q1 earnings was the game division; without the repeat of the hugely successful Unchartered 4 released last year, divisional profits fell.
- Even without a hit game in the quarter, sales of PSVR headsets and PS4 consoles have been healthy, thus the full year OP for the gaming division has been raised – a positive surprise.
- Substantial improvement on the semiconductor side as well.
- With all divisions revised up, the lack of revision to the full year OP is muddied by what we think are overly pessimistic “corporate and eliminations”.
- While the 1Q FY17 performance at Sony wasn't quite the blow-out quarter that the headline OP figure of ¥157bil suggests, it is a very good one; better than it is widely being credited with in the media, and which puts the company well on the way to reporting record profits for this FY17 year.
Sony is engaged in the development, design, production, manufacture, offer and sale of various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets such as network services, game hardware and software, televisions, audio and video recorders and players, still and video cameras, mobile phones, and semiconductors. Co. is engaged in the development, production, manufacture, and distribution of recorded music and the management and licensing of the words and music of songs as well as the production and distribution of animation titles. Co. is also engaged in the production, acquisition and distribution of motion pictures and television.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
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