Sony Sees Highest Profit Since 1998 as Turnaround Takes Root

(Bloomberg) -- Sony Corp.’s recovery is nearly complete, with the electronics maker targeting its highest annual operating profit in two decades.

Continued dominance in gaming and strong growth in phone-camera chips will translate into operating profit of 500 billion yen ($4.5 billion) for the fiscal year through March 2018, the Tokyo-based company reported Friday. That was in line with the 507 billion yen average projection by analysts.

Sony’s return to profitability last seen during the years when it dominated consumer electronics validates Chief Executive Officer Kazuo Hirai’s efforts to revamp the company. Since taking the helm in 2012, he steered the company through years of restructuring and put more focus on gaming, camera chips and finance. With the turnaround now mostly behind him, focus is starting to shift to how Hirai plans to switch from fighting fires to igniting more growth.

“They are sticking with the mid-term plan that they had provided three years ago -- that plan looked impossible back then, but here we are,” said Atul Goyal, an analyst at Jefferies Group. “We think they can hit 600 billion yen, and expect them to revise higher in the second half of the year.”

Last week, Sony reported estimate-topping preliminary results for the period through March 2017, triggering a share rally. The stock, which has doubled since 2013, is up 15 percent this year, outperforming the Topix Index.

Operating profit in the fiscal year through March 2017 slipped 1.9 percent to 288.7 billion yen, while net income halved to 73.3 billion yen as earthquakes in Kyushu a year ago derailed the company’s chip and camera businesses. Revenue fell 6.2 percent to 7.6 trillion yen.

Games were a big boost, with operating profit climbing 53 percent to 135.6 billion yen. Sony is leaning more than ever on its PlayStation business. Operating profits for the division are expected to climb to 170 billion yen, accounting for about a third of total profit, as the company cashes in on the PlayStation 4’s later life-cycle stage, typically the most profitable period for consoles. For the first time, sales from online games, downloads and streaming services exceeded that of hardware sales, Sony said.

“Having completed a number of re-organizations, we believe that each of our businesses have achieved independence as individual businesses,” Chief Financial Officer Kenichiro Yoshida said at a news conference on Friday.

Outside of games, Sony is counting on strong growth at its chip division, where operating profit is forecast to climb to 120 billion yen, reversing a loss. The company controls half of the market for image sensors, the chips inside phones that convert light particles into digital photos and videos. With more models including the upcoming iPhone expected to adopt multiple sensors to improve image quality, analysts say Sony is well positioned to recover from last year’s earthquakes.

“If you look at near-term, dual-camera sensor usage is ramping up,” said David Dai, an analyst at Sanford C. Bernstein & Co. “That’s really good for Sony.”

For now, analysts said Sony will focus on reaching, and possibly exceeding its targets. The movies and television business, after a string of box-office disappointments, is looking to bring in a new chief. Sequels to “Blade Runner” and “Trainspotting” are due out this year, and there are high hopes that Sony’s collaboration with Marvel Entertainment will breathe new life into its “Spider-Man” franchise.

“The question is what story comes after this? That’s what’s on everyone’s mind,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities. “Do you have killer hardware? Do you have killer entertainment? The answer is they’re lacking something.”

To contact the reporters on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net, Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Edwin Chan