Sony Casts Doubt on PlayStation Momentum With Cagey Outlook

(Bloomberg) — Sony Group Corp. offered a conservative profit outlook for the current fiscal year, warning about the impact of the global consumer spending slump on its electronics and entertainment businesses.

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The Tokyo-based firm said it expects operating income of ¥1.17 trillion ($8.7 billion) in the year ending March 2024, below average analyst estimates of ¥1.27 trillion. This was largely down to its PlayStation division, where Sony’s guidance fell short of consensus and the company said it expects fewer sales of PlayStation Studios games this fiscal year.

Sales of Sony’s flagship PlayStation 5 console reached 6.3 million in the quarter to March, more than tripling the supply-constrained numbers from the same period last year and showing Sony is finally able to distribute the hardware at scale. The company aims to sell 25 million units in the current year, president and Chief Operating Officer Hiroki Totoki said on a call Friday. But he cautioned that consumer electronics demand is likely to remain weak amid the wider economic slowdown.

“We expect a clear slowdown in the European economy and feel strong uncertainty on the Chinese economy,” Totoki said. “We’re not optimistic about the outlook and remain vigilant especially on the US market, which has the largest impact to our business.”

The delayed adoption of the PS5, which launched in late 2020 but has been limited by production challenges, is showing signs of hampering Sony’s ability to monetize the hardware through higher-margin software and subscriptions. Game sales in the latest quarter were down to 68 million units from 70.5 million in the same period a year earlier. The company reported operating profit of ¥128.5 billion.

“Sales of the hardware are increasing on par with Sony’s plan, but the momentum of software, the lucrative part of the game business, remains weak. This shows PlayStation users are not buying new games,” said Hideki Yasuda, an analyst at Toyo Securities.

Monthly active PlayStation network users were down to 108 million from 112 million in the holiday quarter, and PlayStation Plus subscribers were up only slightly at 47.4 million. User numbers are however up in recent weeks, Totoki said, as it takes time for the increased hardware sales to translate into greater engagement.

There were no major new releases from Sony’s in-house game studios in the quarter just ended. That limited growth in the PlayStation division, which also didn’t get much of a boost from the just-launched PlayStation VR2 headset. Sony’s virtual reality goggles and push to expand into mobile gaming went unaddressed in Totoki’s comments.

“On the software side, Sony has a lot of work to do,” said industry analyst Serkan Toto. “Everybody is waiting for PlayStation mobile and live-service games: Where are they?”

Read more: Sony PSVR2 Headset Off to Slow Start as Metaverse Push Sputters

Music streaming has proven a bright spot for Sony. Growing use of streaming services like Spotify on mobile devices has helped the company’s bottom line, thanks to its control of the publishing rights for many of the most popular artists. Totoki said Sony is strengthening ties with musicians and aiming to secure more hits.

The image sensor division was in its quiet season, as major customers like Apple Inc. generally buy large quantities of the semiconductors closer to the launch of their flagship devices, though it performed better than the previous year. Sony now has 51% of the mobile image sensor market, up from 44% previously, Totoki said. The company sees smartphone demand remaining weak for the rest of this year.

“I expect recovery of the smartphone market won’t come until next fiscal year,” Totoki said. “In China, handset inventories in distribution channels increased in March, and we expect prices of low-end and midrange image sensors will fall a lot due to piled-up inventories by competitors.”

(Updates with comments from Sony’s post-earnings call)