Sony Tops Profit Estimates as Chips and Music Lead Growth

Sony’s turnaround is right on track, according to Bloomberg. The Japanese company posted quarterly profit that topped analyst estimates, thanks to demand for smartphone camera chips, a healthy music business and brisk sales of PlayStation 4 consoles and games.

Operating profit was 157.6 billion yen ($1.4 billion) in the fiscal first quarter that ended in June, beating analysts’ average projection for 133.3 billion yen. Sales rose 15 percent to 1.86 trillion yen, topping predictions. The increasing number of PlayStation 4 owners is driving sales of software and online services, while smartphone makers adopt more camera chips per device and more people pay to stream music.

Still, Sony appears to be playing it safe, keeping its full-year profit guidance of 500 billion yen, even though it lifted its sales forecast by 3.8 percent to 8.3 trillion yen. CFO Kenichiro Yoshida defended the conservative outlook, saying “for one thing, we only had three months in this fiscal year.“ Sony decided not to raise its guidance due to “variations of the macro-economic environment, and also cost and demand factors,“ he said.

During the quarter, Sony finalized the sale of a Chinese subsidiary that produced camera-modules, resulting in a one-time profit of 27.5 billion yen. Declining insurance and recovery costs related to the April 2016 earthquake in Kumamoto also provided a one-time benefit of 9.3 billion yen. Net income was 80.9 billion yen, exceeding the prediction for 66.5 billion yen.

Games, the biggest division by revenue, saw operating profit decline 60 percent to 17.7 billion yen, while sales rose 5.4 percent to 348.1 billion yen. The company blamed the sharp profit drop on inflated profits a year ago, when adventure game Uncharted 4 was released. The flagship title went on to become the second-best selling title of the year, according to vgchartz.com.

Despite the profit drop this quarter, Sony upgraded its games profit guidance for the full year by 5.9 percent and sales by 4.8 percent. It sold 3.3 million PlayStation 4 units during the quarter, slightly down from 3.5 million last year. The company kept its forecast to sell 18 million units this year unchanged.

Operating profit in chips was 55.4 billion yen, recovering from a loss a year earlier, as the company recovered from last year’s earthquake and demand from phone makers increased due to the rising popularity of multiple-sensor models. Sony controls about half of the market for image sensors, the chips that convert light particles into digital photos and videos. Chip division revenue rose 41 percent to 204.3 billion yen.

The company increased its annual profit guidance for semiconductors by 8.3 percent, but lowered its sales forecast by 2.3 percent. That drop is probably due to the expected delay in Apple’s upcoming OLED iPhone version, which will push Sony’s sales out to the next period. In music, where operating profit grew to 25 billion yen, Sony benefited from its partnership with Spotify, which has tripled paying subscribers to 60 million in the past two years.