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Sony back at top of its game with near $7bn record profit

Online and subscription services have made content a cash cow

Visitors try out video games at Paris Games Week in November 2017. Sony is riding high on the success of its game and network services business.   © Getty Images

TOKYO -- Sony has logged its first record full-year operating profit in two decades as the electronics and media giant's shift to an online content distribution model for gaming bears fruit.

The Japanese company on Friday reported a 734.9 billion yen ($6.73 billion) profit for the year ended March 31, two and a half times the fiscal 2016 level. Net profit nearly septupled to 490.8 billion yen for the first record in 10 years.

Sales increased 12% to 8.54 trillion yen, with gains concentrated in such content businesses as video games, music and movies. The top line also benefited from a shift toward high-value-added products in television and digital camera operations. Higher sales of image sensors for smartphones lifted business in semiconductor operations.

These figures show Sony back at the top of its game, having fought its way out of a historic earnings crunch early this decade. Its challenge now is to achieve earnings on this scale on a continuous basis, Chief Financial Officer Hiroki Totoki said in a Friday news conference. The company has never managed to keep operating profit north of 500 billion yen for long, he said.

Online content distribution is now Sony's most promising earner, according to President Kenichiro Yoshida. The game and network services segment brought in a 177.5 billion yen operating profit for fiscal 2017, contributing 24% of the overall figure. The tally is seen rising 7% to 190 billion yen this fiscal year, even with sales of the PlayStation 4 console apparently having peaked.

Indeed, this division is a symbol of all that has changed at Sony over the past 20 years. When the company last logged record profit, in fiscal 1997, the segment's fortunes followed every shift in console sales. Now, its profit structure is far more resilient to a slump in that arena. Network sales, including subscriptions to the PlayStation Plus online multiplayer gaming service that run around 5,000 yen a year, topped 1 trillion yen for the first time last fiscal year. The operations "are structured so as not to be swayed by the ups and downs of the hardware business," said Yu Okazaki of Nomura Securities.

Sony President Kenichiro Yoshida says that online content distribution is now Sony's most promising earner. (Photo by Keiichiro Sato)

The semiconductor business is less robust. Sony is undeniably a key global player in the field, commanding a 40% share of the market for image sensors used in mobile phones and digital cameras, and profited mightily from its position last fiscal year. But unfavorable exchange rates and growing research and development costs are expected to slash profit in fiscal 2018.

In the longer term, Sony has its sights set on the automotive electronics business as an opportunity for immense growth. After all, image sensors are essential to helping automated vehicles "see" what is on the road. But getting its products into these next-generation cars will take time, and Okazaki said it will be a while before the technologies start adding to Sony's earnings.

The company's smartphone business is also struggling, despite strength in the rest of its electronics operations. Sony sold just 13.5 million handsets in fiscal 2017, fewer than the year before, after repeatedly trimming its sales estimate during the year. The mobile communications segment also booked a 31.3 billion yen impairment charge in the fiscal fourth quarter.

For fiscal 2018, sales are seen declining 3% to 8.3 trillion yen and operating profit is expected to drop 9% to 670 billion yen. Net profit is projected to fall only 2% to 480 billion yen, thanks partly to earnings from the sale of Spotify Technology stock. The music-streaming service went public in April.

These declines owe less to expected operational difficulties than to the absence of one-time profit boosters enjoyed in fiscal 2017, such as profits from land and facilities sales and beneficial exchange rates. The company assumes 105 yen to the dollar and 125 yen to the euro for fiscal 2018 -- around 5 or 6 yen stronger than last fiscal year.

Sony's next three-year management plan comes out May 22.

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