Sony FY10: Game Business Improves Results

Sony’s consolidated results for the year ended March 31st 2011 (FY10)  show a significant increase in operating income. Up a superficially large 530% compared to the previous year thanks to that year’s relatively poor results their operating income was ¥199.8 billion (£1,502m, $2,407m) up from ¥31.8bn (£239m, $383m).

The bigger picture though is visible when we look at the net income figure which is the number we are used to thinking of as ‘profit’.  Sony have not recorded a net income though.  Unfortunately for them it is a net loss and a pretty huge one at that.

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For their FY10 Sony have recorded a loss of ¥259.6bn (£1.95bn, $3.12bn).  That abrupt reversal is due to Sony writing off a ¥365bn (£2.75bn, $4.4bn) tax credit that it had booked to a previous quarter.  With that distortion to their profit/loss figure we will continue to look at their operating income figures and the headline increase to get a simpler view of Sony’s performance.

Brushing that huge loss aside for a while…

Sony highlight the key reason for the year-on-year increase in operating income as being primarily driven by their Networked Products & Services (NPS) business segment which has returned better numbers due to an improved contribution from the game business.  Before returning to the NPS segment though we will take a quick wander through Sony’s other consumer-friendly departments to help colour the broader picture.

First stop on our tour is Sony’s subtly renamed Consumer, Professional & Devices (CPD) segment which has previously been known as the Consumer Products & Devices segment.  This is the part of Sony that manufacturers their TVs, cameras, Blu-ray players, home cinema amps, etc.

This segment turned last year’s operating loss (-¥53.2bn) into a small operating income (¥2.9bn) thanks to sales of the image sensors they make for digital cameras and other professional solution they supply such as digital cinema projectors.

Sony’s LCD TV sales actually had an “unfavourable impact” on the CPD segment’s results as despite a notable increase in unit sales compared to last year, 22.4m vs. 15.6m, due to falling unit prices and the strong Yen compared to the Dollar and Euro.

Financial Factoid: If currency exchange rates had not become even more unfavourable for Sony this year their consolidated operating income would have been up 845% not ‘merely’ 530%.

Vision worsens, hearing improves

Sony Pictures had a worse year than last (operating income down 9.7%) due to the somewhat unsurprising revelation that this year’s three big films, The Karate Kid, Grown Ups and Salt could not compete with last years, 2012, Angels & Demons and Michael Jackson’s This Is It.

The audio side of the business, Sony Music, recorded a modest increase in operating income (+6.6%) despite a fall in the value of sales (-9.9%).  The sales decrease was due to the Yen strengthening further against the Dollar and the fact that there was no big sales boost from the death of a popular artist this year.

That they managed to turn that into a growth in operating income was thanks to decreases in marketing, restructuring and overhead costs.  Big selling albums in FY10 were SuBo’s The Gift, P!nk’s Greatest Hits… So Far!!!, Michael Jackson’s Michael and depressingly, music from the cast of Glee.

Scroll down to here for gaming-related stuff

Sony’s Networked Products & Services segment, home to PlayStation, managed to turn last year’s operating loss (¥83, £626m, $1bn) into an operating income in FY10 (¥35.6bn, £268m, $429m).  This was achieved on the back of an improvement in the cost of sales ratio combined with an increase in gross profit from higher sales.

Key factors behind those improvements are close to the hearts and emptying the wallets of PlayStation gamers.  Contributing to the cost of sales ratio was “significant” falls in the cost of manufacturing PS3s.  Whereas higher unit sales of PS3 software were cited as a notable reason for the improved profit for higher sales.

Sales during Sony’s FY10 of the PS3, PSP and PS2 were 14.3m, 8m and 6.4m respectively.  The corresponding software unit sales figures are 147.9m, 46.6m and 16.4m.  Before you all starting shouting “Go Sony!” in the comments though there’s a few things you need to consider.

Kinect outsells PS3 during Jan-Mar

Compared to forecast sales for the year of 15m, the PS3 fell 700k short.  In the final quarter of the year, Jan-Mar, it sold only 2.1m consoles.  That means that the Xbox 360 has extended its overall sales lead and that during that period the PS3 was outsold by Kinect!

While the PS3 failed to reach its forecast sales, the PSP met its and the venerable PS2 actually beat its own target by 400k.  Looking ahead to the end of FY11 Sony expects falling PSP and PS2 hardware and software sales to help “significantly decrease” the NPS segment’s operating income.

An additional factor in that expected decrease is ongoing costs related to the cyber-attack on PSN, Qriocity and SOE.  However an unstated implication is that not even Sony expects rising PS3 hardware and software sales to offset the fall in PSP and PS2 business.  Indeed, they expect PS3 console sales to remain more-or-less flat, setting the sales forecast to the same 15m it failed to reach this year.

We can find no mention of the NGP in the financial data, as is to be expected, but Sony will be incurring significant costs related to its development and forthcoming launch.  Given that Sony seems to only now be on the cusp of recovering from the costs of PS3’s development and launch it is not something Sony’s bean-counters will be looking forward to.

Currency exchange rates used: $1 = ¥83 (Sony) and £1 = 133 (OANDA historical exchange rate data for 2011-03-31).

Source: Sony

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15 Comments

  1. £1,502m isnt that £1.5bn?

    • Depends if you use US or UK billions. :)
      I simply followed the convention that Sony use in their financial reports where they state JPY in billions and USD in millions. As the USD and GBP are closer in value than the JPY and GBP I use millions for GBP so its easier for you lot to compare with the USD figures from Sony. Simples.

    • it is in the american usage of billion, which seems to be the standard now.

  2. So thats why they posted a big loss this year …. tax credit. Its fantastic to see the PS2 still sells well 11 years after it launched but with the PS3 posting 700k short of target, its slightly worrying as it’s a fairly substantial margin. Hopefully with Sony bringing out key exclusives this year they will meet the FY11 target.

    On another note does anybody get slightly annoyed with the crazy Yen values. Its like the Italian Lira where many people are earning millions (local currency)

    • It’s nothing like as bad as the Lira was before Italy switched to the Euro. No one in Italy has earned millions of Lira since 1st Jan ’99. :)

      • No one has earned any Lira since that date ;) It was out of control back then

    • It’s just their system. They simply have Yen, whilst we have pence, US and EU have cents, etc. etc. I’m sure they find it equally weird of us to have currency that seems to be very expensive the whole time.

  3. Christ I worry about losing a tenner, shrugging off 2bn… it almost doesn’t seem like a real number.

  4. If only the PS3 ‘could be’ $199 in the shops say since last Christmas things would be so different in the USA + SONY could have millions of exclusives every month[they nearly do] :D but it’s the ‘price’ of the ‘console’ that ‘matters’ at the end of the day. You know bundle 50+ games + a PS3 & sell it for $299 still & it’s still $299 in the shops[er if you get what i mean] LoL [i.e the other consoles are still cheaper]

    • Price cut at E3?

    • PS3’s base cost is simply higher than other consoles due to components like the Blu-ray drive. It can’t compete on price without Sony losing even more money it than they already have. It has to compete on value.

  5. Not the rosiest of data, eh, Greg? :-) Sony accounts department must be a hive of happiness.

    • The only good points are perhaps that overall PS software sales are up 10m units, so PS3 titles are more than making up for falling PS2 sales. And conversely they have more PS2 beans than they expected.

      Other than that, no there won’t be much smiling.

  6. the PS2 is doing well considering its age.the PS3 needs a price cut to boost sales.How is the move doing TSA?

  7. Good write-up, thanks Greg. I do feel sorry for Sony, I don’t think next year is going to get much better.

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