Sony expects sensor business to not recover from Huawei sanctions until FY22

The company has still raised its profit outlook, however, due to strong performances from its gaming business.
Written by Campbell Kwan, Contributor

Sony on Wednesday announced it has cut the FY20 profit outlook for its sensor business by 38% to ¥81 billion due to the United States banning Sony from supplying chips to Huawei. 

In August, the United States issued sanctions that ban Huawei from procuring chips made by foreign manufacturers using US technology, like Sony.

Due to this impact, CFO Hiroki Totoki anticipates the sensor business will not make a full recovery in profitability until the fiscal year ended March 2023.

"We expect that it will take a long time for other customers to follow the trend to higher-functionality and larger die-sized smartphone cameras that the Chinese customer was leading. Thus, we expect the substantial recovery of profitability driven by these high value-added products to take place in the fiscal year ending March 31, 2023," Totoki said during the results presentation.

Despite the hit to Sony's sensor business, the company has raised its annual profit outlook as it expects its gaming business to grow following the launch of the PlayStation 5 (PS5) next month. The revised outlook raises Sony's expected operating income from ¥620 billion to ¥700 billion.

Sony is expecting to sell more than 7.6 million units of its PS5 console in the year through March, Totoki said. 

"As for the unit sales of the PS5 this fiscal year, we are aiming to exceed the 7.6 million units we sold in the fiscal year of launch of the PS4, which achieved substantial market share and was a major success," the CFO said.

Along with the raised forecast, Sony also said it expects the gaming business to post an annual profit of ¥300 billion, up from the previously estimated ¥240 billion.

The optimistic annual profit outlook comes off the back of a strong first-half performance for FY20, with Sony posting ¥4.98 trillion in sales, a 23% year-on-year increase, despite impacts from the coronavirus pandemic.

In terms of operating income for the half year, Sony posted almost ¥546 billion, up from ¥510 billion. 

Income before taxes reached ¥619.5 billion, a 25% year-on-year uptick, and net income attributable to Sony's stockholders doubled to ¥693 billion.

The uptick in sales was largely attributed to Sony's gaming business providing strong performances throughout the year so far. For the first half, Sony's gaming operating income jumped from ¥139 billion last year to ¥229 billion. The gaming division's sales also saw growth, increasing to ¥1.11 trillion, a 22% year-on-year uptick that was driven by an increase in game software sales as well as PlayStation Plus. 

Half-year sales from Sony's Electronics Products and Solutions business came in at ¥836.5 billion, down 14.5% year-on-year, despite increased demand for televisions during the second quarter that saw a 2.3% year-on-year uptick to ¥505 billion. The segment's operating income was ¥45 billion compared to ¥66.5 billion from a year ago.

Meanwhile, Sony's imaging and sensing solutions business saw sales drop by 5.2% year-on-year for the half year due to a decrease in sales of image sensors to ¥513 billion. The segment's operating income also dropped, going from ¥126 billion to ¥75.3 billion as a result of inventory write-downs and increases in R&D expenses.

Sony's pictures business also saw sales tumble, with its sales figure dropping by 18% year-on-year to ¥367 billion. The company attributed the drop to theatre closings on account of the COVID-19 pandemic, lower advertising revenues for media networks, and falls in revenues because of fewer deliveries of TV shows. However, its operating income rose to ¥56.5 billion from ¥39.7 billion due to reduced costs.

Despite Sony's sensor business being adversely affected by US sanctions, the company said it would continue to invest in artificial intelligence and 3D sensing sensors as part of its core strategy. 

Sony added it would not prematurely reduce research and development spending as it wants to meet the needs of smartphone customers, as well as maintain and increase its "future technological competitive advantage".

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