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As mobile arm struggles, Sony looks to PlayStation

by Sophie Knight

Reuters

The head of Sony Corp.’s PlayStation division hopes to raise its profit outlook for this year, in stark contrast to the electronics firm’s mobile business, which has forecast deep losses and sent Sony’s stock reeling.

With Sony’s three core electronics businesses — the third is imaging — looking increasingly lopsided, the company is having to shrink and restructure in mobile, and focus its growth hopes on image sensors and the 20-year-old PlayStation games console.

Buoyed by strong sales of the latest PlayStation 4 and the rollout of games and content for its network services, Sony Computer Entertainment CEO Andrew House hopes he can again raise the division’s profit forecast for the year to end-March. Sony pushed up that forecast in July to ¥25 billion from ¥20 billion.

“We raised our profit prediction and I hope that’s a trend we can continue, even within this fiscal year,” House said in an interview on Thursday, adding his unit’s profits looked certain to increase next year.

Sony had sold 10.3 million PlayStation 4 consoles as of Sept. 6, almost double the sales of Microsoft Corp’s XBox One, and well ahead of the 7.2 million WiiU’s sold by Nintendo Co. Ltd, said market research company VGChartz.

House’s upbeat comments came a day after Sony’s struggling smartphone division announced a ¥180 billion impairment charge, triggering its sixth profit warning in 2½ years. It also said it would not pay a dividend this year, the first such move since its 1958 listing. While Sony had warned in July of a potential charge, the axing of the dividend stunned investors and sparked an 8.6 percent drop in Sony shares to ¥1,940. .

Sony will cut another 1,000 jobs, around 15 percent of its head count, in its smartphone business, where it is up against fast-growing Chinese manufacturers such as Xiaomi Inc. as well as established names such as Apple Inc. and Samsung Electronics Co.

“If the company were to go through further restructuring, it needs cash, so from this perspective it makes sense that the company’s not paying dividends,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management.

Sony’s move also sparked a surge in the price of insuring its debt against default, with its 5-year credit default swaps rising 40 percent compared with pre-profit warning levels.

And Standard & Poor’s, the only leading credit ratings agency to retain an investment-grade rating on Sony debt, put the company’s credit on review for a possible downgrade to junk status. “We believe it will not be easy for Sony to maintain brand recognition and generate stable profitability in this competitive market,” S&P said of Sony’s smartphone business.

The mobile unit’s woes will mean greater scrutiny of the PlayStation’s profitability, which has typically been erratic, swerving from steep losses as Sony spent heavily to develop new consoles to strong profits when those consoles reached peak popularity.

Sony CEO Kazuo Hirai, House’s predecessor, has said he hopes the PlayStation 4 can recapture the profit levels of the PlayStation 2, the best-selling game console which at its peak generated over $1 billion in annual operating profit.

While House declined to be drawn on specific numbers, he touted bright profit prospects at the game division, which brings in 10-12 percent of Sony’s revenue, and aims to boost monthly revenue per user from services such as online games, which offer a steadier stream of income than one-off purchases of hardware and software.

“I do feel we have a higher opportunity to build a higher ARPU (average revenue per user) than with the PS3,” he said. He warned, however, that profitability of the game division, which had been combined with network services such as streaming video and games, would be constrained in the near term as Sony needs to invest in its network infrastructure over the next 12 to 18 months.

He denied there was pressure to take up the slack for the mobile business.