The strengthening of Sony Corp (NYSE:SNE) from PlayStation 4 sales and image sensors, as well as the sunny profit forecast for fiscal 2015, weren’t enough to keep SNE stock from falling today.
SNE stock is down nearly 2% after reporting earnings for its fiscal year and quarter ending March, offset by the 1% run-up to earnings after Sony raised its guidance on a preliminary basis last week.
Nevertheless, promising sales from Sony’s PlayStation and imaging sensors weren’t enough to overcome the shuttering of Sony’s PC business and trimming of its smartphone business, causing Sony to post a loss of $1.1 billion.
SNE Stock’s Loss, Your Gain
While Sony posted a net loss, the company expects to pull a $1.2 billion profit this fiscal year.
And, frankly, SNE didn’t do all that bad in fiscal 2014 either: Sales rose 5.8% despite a 43% decrease in “all other” sales, related to Sony’s shuttering of its PC business and restructuring costs.
Its PlayStation business ended fiscal 2014 on top, taking top honors for both hardware and software sales as the recent release of Bloodborne sold 155,000 digital copies in less than two weeks.
Sony’s PlayStation 4 enjoys a relatively stress-free existence compared to Microsoft Corporation (NASDAQ:MSFT), which is struggling to move consoles off the shelf with 400,000 less in shipments year-on-year, even with a price cut.
Compare that to Sony, whose games division did much better than expected, jumping 33% year-over-year (25% on a constant currency basis) and raking in $11.5 billion for the year. Sony sold 14.8 million PS4s, more than the combined sales of PS3 and PS4 last year, and raked in $3.9 billion in software sales.
The real winner, though, is Sony’s network services, which saw revenue nearly double to $3 billion, making the Games & Network Services (G&NS) division Sony’s biggest source of revenue.
Operating income for G&NS climbed to $401 million over last year’s loss of $78 million, giving G&NS the distinction of SNE’s sixth-most profitable service.
CEO Kazuo Hirai believes revenue from its G&NS could reach $13 billion in the next three years, and the PS4 could sell as many as 16 million units next year.
One SNE to Rule Them All
Sony’s Imaging Products & Solutions (IP&S) division sustained a roughly 3% loss (7% constant currency) from lackluster sales of digital cameras, a market that GoPro Inc. (NASDAQ:GPRO) has all but cornered.
Under Hirai, Sony is no longer the same company known for its Walkman. This Sony makes money on other companies’ innovations, namely the Apple Inc. (NASDAQ:AAPL) iPhone, and SNE cashes in up to $20 per each iPhone Apple sells.
It’s really no mystery then why year-end sales of Sony’s Devices arm (which includes semiconductors and components) increased 24% to nearly $8 billion.
Sony is not only the world’s leader supplier in image sensors in digital cameras, it is among the most cutting edge — its Exmor RS IMX230 has a resolution of 21 megapixels and is the first smartphone sensor with autofocus technology. What’s more, Sony is the only company to master “stacked” image sensors, layering two chips on top of one another for incredible performance in slim packages adored by both Apple and Samsung Electronics Ltd (OTCMKTS:SSNLF).
Sony added another planned $375 million investment in image-sensor factories on top of its earlier announced $900 million, and recently expanded production capacity to nearly 10% by the end of its fiscal 2015, a display of confidence in the demand for CMOS image sensors.
Sony’s entertainment division, however, took a huge hit with the hacking of its U.S. studio, costing the SNE $41 million for investigation and remediation. To that tune, Sony Pictures sales decreased 4% with constant currency factored in.
Music was mostly flat year-on-year, and the worldwide decline in sales offset the boost in digital streaming.
As the year progresses, though, the entertainment division is one to watch: Sony and MRC recently made a deal with horror novelist Stephen King to compete against Walt Disney Co (NYSE:DIS) with a cinematic universe of its own in The Dark Tower.
Hirai is a firm believer in a Sony united by its entertainment division. Short of another cyberattack, Sony Pictures looks good in the coming year.
Bottom Line
Investors have renewed faith in Sony with CEO Kazuo Hirai and CFO Kenichiro Yoshida at the helm with a focus on profitability and accountability.
The Street has come to expect a pattern from SNE to underpromise and overdeliver, and going forward the Tokyo-based company expects to see a two-decade high in 2018 from PlayStation 4 and its Network Services, image sensors and its entertainment arm.
SNE stock is one to buy and hold.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
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