Sony Corporation SNE is set to report third-quarter fiscal 2016 results on Feb 2.
The company had pleasantly surprised investors by posting earnings against loss estimates in the last two quarters. However, this was preceded by a miss, when it reported wider-than-expected losses.
Let's see how things are shaping up for this announcement.
Key Factors Influencing Q3
We believe that the appreciating Yen and weakness in the semiconductors end markets, as well as costs from the sale of its battery business are likely to hurt Sony’s upcoming financial results. Concurrent with its fiscal second-quarter 2016 earnings release, the company had estimated that appreciation of the Yen will likely have an impact of ¥63 billion on operating income this fiscal year compared to the previous one.
In addition, softness in multiple business lines, including mobile, sensor and devices, are expected to thwart Sony’s top line for the fiscal third quarter. Escpecially, sluggish smartphone sales have been a pressing concern for the company. Sony had revised its sales forecast for fiscal 2016 by ¥60 billion, due to an anticipated 2-million units reduction in annual smartphone sales to 17 million units. Also, transfer of Sony’s battery business, though beneficial for the long run, is proving to be a major drag on its key financials.
Moreover, losses due to the Kumamoto earthquakes continue to impact Sony, especially its Semiconductor and the Imaging Products & Solutions business. In fact, the present market scenario has led the company to revise the fiscal 2016 forecast for consolidated operating income downward by ¥30 billion compared with the Jul 2016 forecast. Additionally, a loss of approximately ¥37.5 billion is projected to be recorded in the its net income.
Despite these challenges, Sony has braved most headwinds leveraging on the strength of its flagship gaming product, PlayStation (PS). Sales of the latest PS4 hardware and software have surpassed those of all the previous versions, significantly bolstering Sony’s revenues. In Dec 2016, the company had announced it has sold 6.2 million units of PS4 over the holiday season. Further, its Home Entertainment & Sound segment is anticipated to supplement the fiscal third-quarter revenues as it has been witnessing an uptick in the LCD television sales.
This apart, Sony’s strategic restructuring actions since fourth-quarter fiscal 2015 are likely to enhance profitability. The company has been diligently incorporating changes in its internal administration, to attain a leaner organizational structure, in a bid to augment growth. It has reaped benefits from these actions and we believe that these can slash operating expenses for the soon-to-be-reported quarter, thus supplementing growth.