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Sony hikes profit outlook but fears coronavirus impact

Virus outbreak threatens supply chain and strong sensor business results

A screen displaying an advertisement for iPhone 11 Pro is seen outside an Apple store in Beijing. Sony provides image sensors for the cameras.   © Reuters

TOKYO -- Sony told investors on Tuesday that the coronavirus outbreak in China could disrupt its operations, despite raising its operating profit and revenue forecasts for the current fiscal year, mainly due to strong sales for its image sensor business.

The epidemic in China has cast a pall over the otherwise bright picture, with Sony's Chief Financial Officer Hiroki Totoki warning: "It may negate our revised earnings outlook," at a news conference in Tokyo the same day.

The cautious comment highlights the challenges facing Japanese suppliers of key smartphone components for assembly in China. Unless entire chains begin functioning normally soon, Japanese manufacturers will not be able to crank out the products their businesses depend on.

Sony and Murata Manufacturing are both suppliers to Apple and Huawei Technologies. Murata operates four factories around Shanghai and Shenzhen. The plants are scheduled to reopen following the Lunar New Year holiday on Feb. 10, but the virus has thrown the schedule into doubt. Partly as a result, the Kyoto-based electronic parts maker kept its earnings estimate unchanged despite growing 5G-related demand.

Sony, by contrast, lifted its revenue estimate by 100 billion yen ($920 million), or 1%, from its previous forecast in October to 8.5 trillion yen and its operating profit forecast by 40 billion yen, or 5%, to 880 billion yen.

However, the company acknowledged concerns about the coronavirus outbreak possibly affecting its supply chain. Sony operates four big factories in China.

"We are concerned about the spread of the coronavirus," Totoki said, adding that it is difficult to assess the impact of the epidemic. "Depending on the future progress of the virus, we cannot deny that our production and sales supply chain for the image sensor and electronics business could be affected enormously."

Sony's Chief Financial Officer Hiroki Totoki speaks at a news conference in Tokyo on Feb. 4. (Photo by Shihoko Nakaoka)

Sony is still gathering information about its factories and workers in China, but is having difficulty as authorities in Hubei and other provinces have extended the Lunar New Year break to the end of this week.

"At this point we cannot properly assess how we will be able to supply products and such, as we have not been able to contact people in the factories because operations have stopped," Totoki said.

At present, Sony assumes the virus may have the biggest effect on its smartphone image sensor and module parts production, as well as production of its PlayStation 4 gaming hardware, depending on when its plants are back in operation.

In addition to its supply chain, Sony also worries that its music and movie business could be impacted if concerts and movie showings are canceled due to the outbreak.

For the nine months through last December, Sony racked up strong profits, especially in its image sensor business. The company is one of the biggest image sensor makers in the world, with a global market share of about 50% as of last year.

Revenue from the business jumped 22% on the year to almost 840 billion yen while its operating profit also rose 63% to 201 billion yen.

Sony's image sensors, used in smartphone cameras, are in higher demand as the roll out of ultrafast 5G networks is expected to spur buying of smartphones equipped with high-end camera functions. The company also expects its automotive image sensor business to grow along with the market for autonomous vehicles.

Additional reporting by Mitsuru Obe in Tokyo.

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