Sony Looks Well Placed to Benefit From Next Console War -- Heard on the Street
28 October 2020 - 11:13PM
Dow Jones News
By Jacky Wong
The next videogame console war is looming. Dragons may or may
not be involved, but electronics and gaming conglomerate Sony looks
well placed after another solid quarter.
The Japanese entertainment company's results for the quarter
ended in September were impressive: its operating profit rose 14%
from a year earlier, much better than the 31% decline expected by
analysts polled by S&P Global Market Intelligence.
Sony has been cautious about coming quarters. The company's
operating profit at its gaming division rose 65% from a year
earlier for the six months ended in September, but growth will
likely slow without the boost from stay-at-home gamers.
Initial costs for the launch of Sony's next-generation videogame
console PlayStation 5, slated for next month, would eat into its
margins. Its image-sensor business will also likely hurt by the ban
restricting China's Huawei from buying semiconductor chips using
U.S. technology. Citi estimates that Sony's sales to Huawei
amounted to 290 billion yen, equivalent to $2.8 billion, last
fiscal year, around 27% of the company's image-sensor revenue. Sony
expected the division's operating profit will drop 66% this fiscal
year compared with the last one.
Yet Sony's August guidance still looks too pessimistic after
another great quarter: the company raised by 13% its operating
profit forecast for the fiscal year ending next March. That sounds
like a lot but may still be too cautious. PS5s will likely sell
like hot cakes, which could also push game sales higher. More
people are also buying games digitally, which means higher margins
for Sony. PlayStation Plus, the company's subscription-based
service offering gamers discounts and other perks, also saw
growth.
Sony will also get a boost from Aniplex, its anime and music
production company in Japan. The company's mobile game "Fate/Grand
Order" has been doing well. "Demon Slayer," an anime movie it
helped distribute, had a record opening in Japan this month.
All this bodes well for Sony in the next stage of the console
war. Both Microsoft and Sony will launch their next-generation
consoles next month, for the first time in seven years. Other
technology giants are also joining the fray: Google, Amazon.com and
Facebook have all launched cloud-gaming services, hoping that users
will play their games on any device.
That means having exclusive content could become even more
important. That is why Microsoft agreed last month to pay $7.5
billion to buy ZeniMax Media, the parent of Bethesda Softworks,
which owns popular games such as "Fallout" and "Doom." Sony
likewise acquired a stake in Epic Games, the creator of "Fortnite,"
earlier this year, but it has to keep beefing up its content
library.
Sony has played its game well so far. Whatever plot twists lie
ahead, the company appears to be in a solid position to capitalize
on them.
Write to Jacky Wong at JACKY.WONG@wsj.com
(END) Dow Jones Newswires
October 28, 2020 07:58 ET (11:58 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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