Sony Corp is done working for peanuts in the hardware business.
Kenichiro Yoshida, who took over as chief executive last month, is set to unveil a three-year plan today that embraces Sony’s growing reliance on income from gaming subscriptions and entertainment.
The transition is already happening: even though the company sold fewer hardware products such as televisions, digital cameras, smartphones and PlayStation consoles in the year through March, it was able to post record operating profit.
It is a tectonic shift for a company built on manufacturing prowess.
Sony popularized transistor radios, gave the world portable music with the Walkman and its TVs were considered top-of-the-line for decades.
With the rise of Chinese manufacturing, making and selling gadgets has become a business with razor-thin profit margins.
Investors have applauded the transformation that has been under way since Kazuo Hirai took over as chief executive in 2012, with the shares climbing more than fivefold amid a turnaround.
“Yoshida is clearly sending a signal that recurring revenue from the content business, software, services and subscription segments are important,” Hong Kong-based Sanford C. Bernstein & Co analyst David Dai said. “That’s what is going to drive growth and also sustain growth.”
The big question is whether Yoshida, who was chief financial officer before his promotion, can make a clear and compelling case for growth in online content, recurring subscription revenues and intellectual property licensing.
The PlayStation 4 gaming console is nearing the end of its lifecycle and the company’s Hollywood division is notorious for swinging between blockbuster hits and big flops.
Other questions for investors include how aggressively Yoshida plans to spend Sony’s growing cash pile to acquire more content, whether a merger of movies and music under a single entertainment unit is in the cards and if game streaming would be central to the PlayStation 5.
Another key area of concern is Sony’s semiconductor business, which supplies chips for iPhones and other smartphones.
Operating profit for that business is seen declining 39 percent in the current fiscal year, partly due to one-time charges, but also amid sputtering global demand for smartphones.
“Sony is proving that it can evolve with the landscape... with a shift from a hardware to content-driven profit model,” SMBC Nikko Securities Inc analyst Ryosuke Katsura wrote after the company’s latest earnings report last month. “The real key is whether it provides investors with a clear road map.”
Yoshida is due to host Sony’s investor relations day at 9:30am in Tokyo, where all eight of the company’s divisions are to present their mid-term strategy though 2021.
Those presentations are likely to stress the resilience of Sony’s content businesses.
Profits from the video-game unit are up, even amid a 20 percent drop in PlayStation 4 hardware sales, thanks to recurring revenue from PlayStation’s online network.
Paying subscribers for the service have jumped 64 percent over the past two years to 34.2 million.
Still, the shift toward online content has been bumpy.
Sony’s online TV service PlayStation Vue continues to bleed money.
The service lost access to ABC, CBS, Fox and NBC affiliated stations over a contractual spat this month.
Outside of games and chips, Yoshida is likely to talk about the rising importance of intellectual property and patent licensing.
Sony yesterday spent US$185 million to buy a 39 percent stake in Peanuts Holdings, the owner of the Snoopy brand.
As Nobuyuki Idei, the former chief executive who presided over Sony’s glory days as a hardware maker, warned in 1999 at the beginning of the Internet era: “The hardware business is peanuts.”
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to