Sony Surpasses Second Quarter Profits By 1% As PS5 Costs Squeeze Margins

TOKYO, Oct.28 (Reuters) – Japan’s Sony Group Corp (6758.T) posted a surprise 1% increase in operating profit for its second quarter on Thursday, although costs related to sales growth of its PlayStation 5 (PS5) console weighed on the margins.

Lower profitability in the key gaming segment also could not prevent the group from raising its full-year operating forecast by 6% to 1,000 billion yen ($ 8.81 billion) from its August forecast, driven by expected earnings growth in areas such as films, music and electronics.

Sony said it has sold a total of 13.4 million PS5 units since its launch last November. This contributed to a 27% increase in year-over-year sales of its gaming unit, although profit was less robust as the conglomerate sold hardware below cost.

Manufacturers of game consoles frequently sell new devices below the cost of manufacturing because they provide an installation base for selling software. Sony said sales of proprietary titles have fallen, although sales from other developers have increased.

Sony aims to sell 14.8 million PS5 consoles this fiscal year – a target that takes into account the global semiconductor shortage.

Sony announced group profit of 318.5 billion yen for July-September. This compares to the 222 billion yen average of six analyst estimates compiled by Refinitiv.

The conglomerate – covering areas such as entertainment, sensors and financial services – switched to IFRS accounting standards from US GAAP in the current fiscal year.

To meet long-term demand, Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) is planning to build a chip factory in Japan. Sony is considering becoming a factory partner, Nikkei reported earlier this month. Read more

Across its business, Sony is engaged in a global battle for consumer attention as entertainment giants look beyond the United States for growth and exploit non-English-speaking creators for content.

Bringing a blow to Sony’s pop culture credentials, boy group BTS, South Korea’s largest cultural exporter, said last week they had abandoned their Columbia Records label for a deal with Universal Music Group NV (UMG .AS).

Other challenges include an investor’s attempt to oust the management of Indian firm Zee Entertainment Enterprises Ltd (ZEE.NS), casting a shadow over merger talks with Sony’s local unit. Read more

($ 1 = 113.5,300 yen)

Reporting by Sam Nussey; Editing by Christopher Cushing

Our standards: Thomson Reuters Trust Principles.