Sony cautious after missing profit forecasts

Sony reiterated its cautious outlook for the year ahead, missing analysts' consensus annual profit expectations in spite of booming demand for its image sensors used in Apple's iPhones.

The Japanese electronics and entertainment group said it expected to book a net profit of Y140bn ($1.2bn) for the financial year to March 2016, undershooting analysts' consensus expectations for profit of Y182bn.

That compares with a loss of Y126bn in the financial year that ended last month - its sixth loss in seven years due to ballooning costs at its struggling smartphone unit. However, the loss was only half of what Sony had originally forecast after it raised profit guidance twice over the past three months.

The return to profit will allow Sony to resume paying a dividend of Y10 per share for the fiscal first half, having scrapped the payout last year for the first time since going public in 1958.

Kazuo Hirai, Sony's chief executive, is hoping to put behind a tough year that saw its movie studio attacked by suspected North Korean hackers and its mobile phone business dented by the rise of cheaper Chinese handsets.

Mr Hirai and Kenichiro Yoshida, chief financial officer, have focused Sony's efforts on ensuring profitability rather than merely growing volumes. As a result, sales are expected to fall 3.8 per cent to Y7.9tn for the 2015-16 year as sales decline in most of its divisions including television, digital cameras, smartphones, music and financial services.

With an emphasis on higher-priced models, its TV business eked out an annual operating profit for the first time in 11 years in the previous fiscal year.

Sony has also sold off its personal computer business and outlined plans to spin off all of its electronics units into separate subsidiaries. Cost cutting will be carried out across the entire group, including its headquarters and US entertainment divisions.

The company has previously announced plans to invest nearly Y200bn in the year ahead to boost output of camera sensors used in the latest iPhone 6, Samsung Electronics' Galaxy S6 and Xiaomi's Mi4 handset. Sales of image sensors are expected to expand 22 per cent.

The shift has sparked criticism of Mr Hirai from former Sony executives for undermining the company's roots in electronics, but investors have welcomed the focused strategy, boosting Sony's share price to a seven-year high.

The company expects to narrow its loss in the smartphone business from Y217.6bn in 2014-15 to Y39bn in the current financial year. Sony expects all its other electronics divisions to be profitable.

With its recovery still nascent, analysts remain wary about Sony's vulnerability to fluctuating demand for its television and mobile businesses, which comprise some 30 per cent of its total revenue. Sony is not alone in the struggle, with rivals such as Sharp, Panasonic to Toshiba all attempting to staunch losses from TVs.

"With severe volatility in the environment especially for mobile phones, there will be factors they can't anticipate even if they think that they have their costs under control," said Koji Kamichika, an analyst at SMBC Nikko Securities.

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