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Sony focuses on cash flow to fund image chips and games

Investors shrug at shift away from profit targets, seeking new growth strategy

Gaming is one of Sony's core businesses.(Photo by Kei Higuchi)

TOKYO -- Sony aims to bolster its cash generation in order to improve competitiveness in semiconductors and video games, but the company's stock price continues to tread water amid no clear signs of future growth.

The Japanese group targets at least 2.2 trillion yen ($19.9 billion) in operating cash flow, excluding the financial services segment, for the three-year period through March 2021 under an updated plan unveiled Tuesday. Sony raised its goal by 200 billion yen over an earlier version of the plan, and seeks a 50% increase in operating cash flow from the preceding three years.

Sony's cash machine is driven by the electronics products and solutions business, a stable money-spinner, as well as gaming, which is enjoying growing online sales of software. Funds raked in by these operations will be poured into two growth fields, President and CEO Kenichiro Yoshida said at the company's corporate strategy meeting.

One is CMOS image sensors, for which Sony is the world's undisputed leader. The company has set aside up to 700 billion yen in investments for this area covering the three years ending March 2021, increasing by 200 billion yen from an earlier plan. Investments will be made not only in sensors for smartphones, which account for 80% of the segment's sales, but in automotive sensors as well.

Entertainment is the other field of focus. The company will "dramatically" increase the graphics rendering speed in the successor to the PlayStation 4, due out as early as 2020, Yoshida said. Scene changes in the new gaming console will take just one-tenth of the current time, resulting in faster movements of characters. Sony also seeks to enhance its gaming via cloud-based solutions through the partnership with archrival Microsoft announced last week.

Sony CEO Yoshida oversaw the shift from profit to cash flow targets. (Photo by Rie Ishii)

Sony shares have seesawed since Yoshida took the helm in April 2018. After climbing to 6,973 yen a share in September, the stock went south amid the U.S.-China trade dispute and the weakening smartphone market before a rebound in recent weeks. The shares ended Tuesday at 5,610 yen, down 20% from last year's peak.

During Tuesday's trading, the stock was sold as much as 5% off Monday's close.

"Investors had anticipated new numbers and a new growth strategy, but didn't get any of these," said a trader at a Japanese brokerage, who also noted lingering concerns about the clash between Washington and Beijing.

Sony supplies image sensors to Huawei Technologies, leading to concern among investors over how the company would be affected by the recent move by the U.S. to essentially blacklist the Chinese telecom equipment maker.

Yoshida declined to remark on business partners, regulations or government policies.

He did touch upon the company's decision at the end of April to stop disclosing operating profit guidance by segment for the final year of its three-year business plan. Providing such targets carries the risk of narrowing management perspective to the short term, he said.

Switching the growth strategy benchmark from profit to cash flow likely makes sense for Yoshida, who previously served as chief financial officer. Profit can be earned by cutting costs and selling assets, while operating cash flow shows the true strength of a company, his thinking goes.

Sony is bracing for a 9% decline in operating profit this fiscal year to 810 billion yen after reporting in late April a second record profit for the year ended March 31.

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