Bloomberg/Tokyo


Sony Corp forecast its highest earnings in 20 years as Chief Executive Officer Kazuo Hirai uses games, image sensors and entertainment to revive the electronics maker.
Operating profit will reach ¥500bn ($4.2bn) in the year ending March 2018, the Tokyo-based company said on Wednesday. That’s the highest since ¥520bn in 1998, according to data compiled by Bloomberg, when income was fuelled by MiniDisc players and the first “Men in Black” movie.
Stressing profitability instead of volume growth and shifting away from PCs and TVs has helped Hirai step closer to turning around Sony through areas where it has an advantage, such as PlayStation 4 consoles and sensors used in smartphones.
Chief financial officer Kenichiro Yoshida’s restructuring of operations and move to make division heads more accountable, are helping win back credibility for a company that cut its earnings outlook 15 times in the past seven years.
“Even more important than the numerical targets is that the company’s transformation from the Sony of yesterday continues apace,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co in Tokyo. “They should sell the TV and mobile phone operations and focus on businesses that can make the most of the strengths they have in devices and entertainment content.” The forecast is 25 times the size of the ¥20bn operating profit Sony is projecting for this year.
Sony shares closed at ¥3,174.50 before the announcement.
The stock has surged 28% this year, compared with a 5.3% rise in the benchmark Topix index.
Yoshida will add the role of executive deputy president from April, Sony said. Vice Chairman Masaru Kato, medical business President Tadashi Saito and head of human resources Kunitaka Fujita will all resign after the annual shareholder meeting in June.
Sony, which is headed toward its sixth net loss in the past seven years on a writedown of its phone unit, wants its primary performance indicator to be return-on-equity, which measures earnings compared with shareholder equity. Hirai set a target of more than 10% for fiscal 2017, a return the company hasn’t had since posting 10.8% in the 12 months ended March 2008, according to data compiled by Bloomberg.
Hirai said Sony aims to revive dividend payments from next year.
The company on Wednesday affirmed its forecast for the business that makes sensors, camera modules and memory storage to post sales of as much as ¥1.5tn in the year ending March 2018. The business is expected to have an operating margin of 10% to 12%.
The devices unit supplies the sensors that power cameras built into its Xperia smartphones and Apple Inc’s iPhones.
Hirai is boosting investment in the chip unit to build more modules for phones, tablet computers and automobiles.
The company gained a competitive advantage after switching to a technology known as complementary metal-oxide semiconductors, or CMOS. The sensors help record images in low light or with strong backlight, boosting the quality of pictures from smartphone and car cameras.
“A feeling of trust is growing as they are steadily doing what they say, and the market respects it,” Yasuaki Kogure, chief investment officer at SBI Asset Management Co in Tokyo, said before the announcement. “Hirai’s reform is bearing fruits in the fields, such as image censors, that Sony focuses on.” Sony last year sold its Vaio personal computer division and put TV manufacturing into a new structure as Hirai tries to end losses at the business. The company’s video and sound businesses will be put in a separate structure from October and more business will be split out to increase autonomy, it said. A sale of the TV manufacturing business or mobile phones would be considered on merit, Hirai told reporters.
“Separating our business units will make cooperating with other companies, restructuring, acquisitions and attributing responsibility much easier,” Hirai said. “Image sensors, games, movies and music are the areas that will drive sales and profit growth.” Revenue from the games and network business could reach as much as ¥1.6tn with home entertainment sales, which includes TVs and speakers, of ¥1tn to ¥1.1tn.
Sales at the film unit will probably rise to between $10bn and $11bn in fiscal 2017. Music business revenue would be $4.8bn to $5.2bn in the same period, Sony said, affirming forecasts from November.