(As always, keep in mind that these charts are fairly wide and created in very high resolution so simply click on them to enlarge)
The more I look at Sony’s Q4 FY15 earnings report which comprises of how they did in Q1 2016, the more hopeful and cautious I am of the company. In short, I find the direction Kaz Hirai is pursuing to be the correct one for Sony at the time. The question which remains is if Sony can execute his vision at a quick enough pace and transition to the next phase which is being a more lean and robust company with hopefully better selling devices on the market. That is outside of PlayStation which continues to do gangbuster numbers. Otherwise for Sony, it’s a tale of lower sales but higher profits, thanks to their more premium lineup which offers better margins.
If you look at the above chart, you’ll notice that excluding entertainment endeavors which in my mind comprises of PlayStation, Sony Pictures, and Sony Music, most of Sony’s electronic businesses were down compared to a year ago’s quarter. I’ve already discussed in length what’s been happening at Sony Mobile which you can read about here. However as the chart below shows, despite a drop in sales, Sony’s prospects on each division is improving, including their troubled mobile division. In fact Sony has posted a 666.5% rise in pretax profit for its full fiscal year.
Across nearly all core electronics business, Sony has seen a rise in operating income, even if they’re still posting negative numbers. The reason Financial Services dipped is mostly due to stock market volatility which has been in full affect the entire year. As Sony put it:
Increases in the amortization of deferred insurance acquisition costs and the provision of policy reserves, primarily driven by a significant decrease in interest rates and the deterioration in the stock market
For comparison, Apple each quarter has ‘lost’ more money due to currency volatility than companies like Facebook actually make. Context is king, right? Otherwise, as I said earlier, it seems like most of Sony’s businesses are humming right along the path set out by Kaz. However, let’s not forget about the elephant in the room – that division right in the middle – Devices. As you can see, compared to a year ago’s quarter, Devices is down ¥75.3 billion. It’s as if that division fell off of a cliff. For those unaware, Devices comprises mostly of Sony’s semiconductor business which supplies companies like Apple and Samsung things like batteries and camera sensors. According to Sony, the large negative number is in part due to:
Deterioration in the operating results of the camera module business
Deterioration in the operating results of the battery business
Increases in depreciation and amortization expenses as well as in research and development expenses
I’ve heard from a little birdie that Sony may have lost a major customer which could lend credence to the dramatic drop. Otherwise it’s hard to equate their reasonings and that number but for now, all we have is Sony’s vague statement on the matter. For those wondering what percentage of the company each division of Sony comprises, wonder no more with the chart below.
Way more details on each division from the Sony Q1 2016 earnings report after the jump.
Mobile Communications Segment FY2015
- Sales: 20.0% decrease (FX Impact: -0%)
- (–) Significant decrease in smartphone unit sales resulting from a strategic decision not to pursue scale in order to improve profitability
- (+) Improvement in the product mix of smartphones, reflecting an increased focus on high value-added models
- OI: 156.1 bln yen improvement (FX Impact: -67.5 bln yen)
- (+) Absence of the goodwill impairment charge of 176.0 billion yen recorded in FY 2014
- (+) Improvement in product mix
- (+) Cost reductions
- (–) Decrease in smartphone unit sales
- (–) Negative impact of the appreciation of the U.S. dollar, reflecting the high ratio of U.S. dollar-denominated costs
- (–) Increase in the restructuring charges
Game & Network Services Segment FY2015
- Sales: 11.8% increase (FX Impact: +2%)
- (+) Increase in PS4 software sales including sales through the network ·(+) Increase in PS4 hardware unit sales
- (–) Decrease in PS3 software and hardware sales
- OI: 40.6 bln yen increase (FX Impact: -47.7 bln yen) ·(+) Increase in PS4 software sales
- (+) PS4 hardware cost reductions
- (+) Absence of 11.2 bln yen write-down of PS Vita and PS TV components recorded in FY14
- (–) Negative impact of the appreciation of the U.S. dollar, reflecting the high ratio of U.S. dollar-denominated costs ·(–) Decrease in PS3 software sales
Imaging Products & Solutions Segment FY2015
- Sales: 1.7% decrease (FX Impact: +3%)
- (–) Decreases in unit sales of video cameras and digital cameras*2 reflecting a contraction of the market
- (+) Improvement in the product mix of digital cameras reflecting a shift to high value-added models
- OI: 30.4 bln yen increase (FX Impact: -1.6 bln yen)
- (+) Improvement in the product mix of digital cameras
- (+) Cost reductions
Home Entertainment & Sound Segment FY2015
- Sales: 6.4% decrease (FX Impact: +2%)
- (–) Decrease in LCD TV unit sales
- (–) Decrease in home audio and video unit sales reflecting a contraction of the market
- (+) Improvement in the product mix of LCD TVs reflecting a shift to high value-added models
- (+) Impact of foreign exchange rates
- OI: 26.5 bln yen increase (FX Impact: -36.7 bln yen)
- (+) Cost reductions
- (+) Improvement in product mix
- (–) Negative impact of the appreciation of the U.S. dollar reflecting the high ratio of U.S. dollar-denominated costs
- (–) Decrease in sales
Devices Segment FY2015
- Sales: 0.9% increase (CC basis: +7%)
- (+) Impact of foreign exchange rates
- (+) Increase in camera modules and image sensor sales
- (–) Decrease in battery business sales
- OI: 117.6 bln yen deterioration (FX Impact: +24.7 bln yen)
- (–) Deterioration in the operating results of the camera module business, including the recording of a 59.6 billion yen (528 million U.S. dollars) impairment charge related to long-lived assets
- (–) Deterioration in the operating results of the battery business, including the recording of a 30.6 billion yen (271 million U.S. dollars) impairment charge related to long-lived assets
- (–) Increases in depreciation and amortization expenses as well as in research and development expenses
- (+) Positive impact of foreign exchange rates
Pictures Segment FY2015
- Sales: 6.8% increase (U.S. dollar basis: essentially flat year-on-year)
The following sales analysis is on a U.S. dollar basis- (+) Increase in Media Network sales due to higher advertising revenues in India and the United Kingdom
- (+) Increase in Television Productions sales due to higher subscription video-on-demand licensing revenues for Breaking Bad, The Blacklist and Better Call Saul
- (–) Impact of foreign exchange rates
- (–) Decrease in Motion Pictures sales
- (–) a decrease in home entertainment revenues as FY14 benefited from the strong home entertainment performances of The Amazing Spider-Man 2, 22 Jump Street and Heaven Is For Real
- (+) Higher theatrical revenues in FY15 driven by the strong worldwide theatrical performances of Spectre and Hotel Transylvania 2
- OI: 20.0 bln yen decrease
- (–) Decrease in home entertainment revenues
- (–) Underperformance of The Walk and The Brothers Grimsby
- (–) Negative impact of foreign exchange rates
- (+) Higher Media Network revenue in India and the United Kingdom ·(+) Strong worldwide theatrical performance of Hotel Transylvania 2
Music Segment FY2015
- Sales: 10.4% increase (FX Impact: +5%)
- (+) Significantly higher Visual Media and Platform sales reflecting the continued strong performance of a game application for mobile devices
- (+) Increase in Recorded Music sales
- (+) Higher digital streaming revenues
- (–) Worldwide decline in physical and digital download sales
- OI: 26.7 bln yen increase
- (+) Gain recorded on the remeasurement to fair value of SME’s 51% equity interest in Orchard Media, Inc.
- (+) Increase in digital streaming revenues in Recorded Music
- (+) Increase in Visual Media and Platform sales
- (–) Decline in physical and digital download sales in Recorded Music
Financial Services Segment FY2015
- Revenue: 1.0% decrease
- Revenue at Sony Life: essentially flat year-on-year (revenue: 952.6 bln yen)
- (–) Deterioration in investment performance in the separate account driven by the deterioration in the stock market
- (+) Increase in insurance premium revenue reflecting a steady increase in policy amount in force
- Revenue at Sony Life: essentially flat year-on-year (revenue: 952.6 bln yen)
- OI: 36.8 bln yen decrease
- (–) Decrease in OI of Sony Life (39.2 bln yen decrease, OI: 138.8 bln yen)
- (–) Increases in the amortization of deferred insurance acquisition costs and the provision of policy reserves, primarily driven by a significant decrease in interest rates and the deterioration in the stock market
Discuss:
What do you think of the Sony Q1 2016 results?
[Via Sony]