Gaming Slides in Recent Sony Quarter, But PS4 Becomes Second Best-Selling Console of All Time

Sam Reynolds

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Sony (NYSE:SNE) posted its strongest ever second-quarter earnings, with an operating profit jump of 16%, but results were mixed across the company's business units with the image sensor unit offsetting losses in the gaming division. 

For the quarter, Sony's net income increased 8.6% year over year to $1.7 billion. The overall operating income for the company jumped to $2.6 billion, 19% higher than what analysts anticipated. The company's overall revenue dropped quarter-over-quarter by 2.8% to $19.7 billion due to weakness in the gaming division.

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Gaming and Network services, the company's segment responsible for the Playstation, saw its sales decline by 17% and profit drop by 35% due to a dramatic slowdown in hardware and software due to the coming end-of-life of the Playstation 4 console. Sony said that it sold 2.8 million PS4s this quarter, though the company said it expected to sell closer to 4.3 million. Despite the slowing PS4 sales, the total consoles sold has slid over the 102 million mark making it the second-best-selling console of all time just ahead of the original Playstation at 100 million units, the Nintendo Wii at 101 million, but well below the PS2's 155 million units. Furthermore, given the early 2020 arrival of the PS5, Sony isn't forecasting a strong holiday season for the PS4.

Elsewhere in the company, Sony's image sensor division posted strong results with sales up 22.1% to $2.8 billion due to a significant increase in demand for camera lenses due to the trend of three-lensed cameras hitting the market. Operating income hit $702.8 million compared to $440 million for the same quarter last year.

Sales for Sony's music business also rose, thanks to its integration of EMI Music Publishing and an increase in streaming revenues. Worldwide streaming revenues climbed to $622 million — 21.4% compared to the same time last year — and its total recorded music revenues jumped 10.5% to $1.04 billion.

Looking forward to the end of its fiscal year, which wraps March 31 2020, Sony expects profit to hit $5 billion, up 8%.

Sony's Problem: Reliance on a Few Profitable Divisions

This earnings period from Sony represents a problem that keeps on occurring: Sony is reliant on a few profitable divisions of the company to keep things afloat. According to aggregates prepared by analysts, on average gaming represents 43% of the company's profits while Semiconductors come in at 20%. Music comes in at 16% while Movies is at 8%. Electronics, where Sony built its brand name, are a perpetual money loser.

Sony needs to take this into consideration: its three related entertainment businesses -- gaming, movies, and music -- are consistently the most profitable. So why not split Sony into two? Sony semiconductors, and image sensors are closely related companies. They could prop up the beleaguered electronics business which would benefit from the integrated supply chain and close attention from a new management team. Alternatively, Sony could also consider spinning off its electronic brand entirely. It might be sad to see the iconic brand go to another buyer, but at the same time it could be a necessity to keep the company competitive.


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