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Sony Posts Surprise Profit on PlayStation, Movies

Sony, Moody's, Sony Rating Cut

Sony Corp. posted a surprise first-quarter profit on strong demand for the PlayStation 4 game console and a rebound at the box office for its Hollywood studios.

The company posted net income of 26.8 billion yen ($261 million) in the three months ended June, compared with 3.5 billion yen a year earlier, Tokyo-based Sony said today. That compares with the 11.5 billion-yen average loss of four analyst estimates compiled by Bloomberg.

Content and mobile devices are underpinning Chief Executive Officer Kazuo Hirai’s efforts to revive earnings as the company heads for its sixth annual loss in the past seven years because of declining demand for traditional electronics. New games including Madden NFL 15 are being released to follow up on the success of the PS4, while “The Amazing Spider-Man 2” and “22 Jump Street” lead a recovery at the entertainment unit.

Sony’s content business is its “crown jewel,” Chris Konstantinos, director of international portfolio investment at Riverfront Investment Group in Richmond, Virginia, said before the announcement. “It’s certainly been better than the other pieces of the business.”

The group oversees $4.7 billion in assets.

Sony fell 1.1 percent to 1,772 yen in Tokyo before the announcement, extending its loss this year to 3 percent. The stock has underperformed Japan’s benchmark Topix stock index, which declined 0.2 percent today.

Smartphone Forecast

Operating profit, or sales minus the cost of goods sold and administrative expenses, was 69.8 billion yen in the quarter, the company said. That compares with the 23.7 billion-yen average of seven estimates compiled by Bloomberg and a 36.4 billion-yen profit a year earlier.

Hirai, who cut last year’s net-income forecast three times, is trying to overcome sinking demand for the products that underpinned Sony’s rise into a Japanese icon. When he took over as CEO in 2012, he said Sony’s revival would be driven by games, imaging products and mobile devices.

Sony today cut its sales forecasts for smartphones and TVs, and announced a display venture with Panasonic Corp., Japan Display Inc. and Innovation Network Corp. of Japan.

“If a profitable company like Samsung is struggling, it will be very difficult for Sony” to boost smartphone sales, Atul Goyal, an analyst for Jefferies Group LLC, said before the earnings announcement.

PlayStation Sales

Sony already has cut about 18,000 jobs, including engineers, during the last two years, Vice President Kunitaka Fujita said at the annual shareholder meeting last month. The company has announced an agreement to exit personal computers and a restructuring to make TV manufacturing a separate unit as it tries to build on successes with smartphone camera sensors and the PS4. The company has lost about 85 billion yen during his tenure.

Hirai also pledged to make Sony’s TV manufacturing unit profitable, a business that has now lost more than 700 billion yen over the past decade. He apologized to investors last month after forecasting a loss of 50 billion yen this fiscal year.

The game unit posted profit of 4.3 billion yen, compared with a loss of 16.4 billion yen a year earlier. Sales of Sony’s console have outpaced those of Microsoft Corp.’s Xbox One.

Sony’s mobile products posted a loss of 2.7 billion yen, compared with a profit of 12.6 billion yen a year earlier. Sony expects to sell 43 million smartphones this year, down from its previous forecast of 50 million.

World Cup

Sony accounted for 3.2 percent of global smartphone shipments in the March quarter, down from 3.7 percent in the December period, according to data compiled by Bloomberg from IDC. That ranked the company seventh in the world and compares with about 31 percent for Samsung Electronics Co. and 15 percent for Apple Inc.

“The smartphone business is one of Sony’s core businesses,” Ryosuke Katsura, a Tokyo-based analyst at USB AG, said before the earnings. “They are investing more into it but that may increase the risk because demand in that market is slowing.”

Home entertainment, which includes the television unit, more than doubled its profit to 7.7 billion yen. Sony is shifting its focus to ultra high-definition TV sets, away from organic light-emitting diode, or OLED, technology. The company said TV sales increased 11 percent in the quarter, helped by the soccer World Cup.

Spider-Man

The movie unit posted a profit of 7.8 billion yen, compared with earnings of 3.7 billion yen a year earlier.

Sony’s film unit has ranked third at the North American box office in the year through July 27, according to data from Boxofficemojo.com. “Amazing Spider-Man 2” has grossed more than $700 million globally, while “22 Jump Street” has ticket sales of about $280 million.

Its music division has been buoyed by the success of Magic!’s “Rude,” which topped the Billboard Hot 100.

One of Sony’s biggest electronics moneymakers has been complementary metal-oxide semiconductors, known as CMOS, that act as digital eyes in smartphones and cameras made by Apple and Samsung.

The imaging products unit had earnings of 17.4 billion yen in the quarter, Sony said. The company last week announced plans to spend 35 billion yen to boost capacity for CMOS.

The financial-services business, Sony’s biggest profit generator, posted profit of 43.8 billion yen, the company said.

Sony this week said it agreed to sell land at its Tokyo headquarters to Sony Life Insurance Co. for 52.8 billion yen.

After announcing job cuts, Sony is also seeking to change the way worker salaries are calculated. The company is in talks with its unions to stop basing part of worker pay on their years of employment, according to Yo Kikuchi, a spokeswoman.

(Source: Bloomberg)