Sony Group is facing fresh challenges in its critical videogame division as component shortages and supply-chain disruptions risk hampering production of the flagship PlayStation 5 hardware.
The Tokyo-based company said it sold 11.5 million units of the console in the financial year that ended in March and would aim to sell roughly 18 million units in the current financial year. Both figures are well behind initial targets of 14.8 million and 22.6 million units, respectively.
In a conference call after earnings, chief financial officer Hiroki Totoki said the lower target for the current year stems from supply-chain complications because of the Covid-19 pandemic, including lockdowns in China. The city of Shanghai, a key centre for tech production, has largely been under lockdown since the beginning of April.
The 18 million figure is “our best current estimate”, Totoki said during the call. “A downside risk would be if there is a further worsening in the supply chain, including the potential widening of lockdowns in China.”
Sony reported operating profit for the fourth financial quarter that fell short of analyst estimates and projected earnings for the current fiscal year that were also less than projected. The company said it would buy back as much as ¥200-billion (R24.7-billion) of its own shares, which could bolster the stock.
The PlayStation 5 has suffered supply constraints from component shortages and logistics disruptions since the product’s release in November 2020. Data from outside firms such as US-based NPD Group show Microsoft’s Xbox hardware began to outpace PlayStation in recent months.
“It is a risk given they have assumed China Covid issues are resolved in three months’ time,” said MST Financial senior analyst David Gibson. “No one really knows what will happen in China.”
Another concerning sign is the trend of user activity on the PlayStation platform, with both monthly active users and the number of PlayStation Plus subscription service declining in the March quarter. Totoki said the company sees the numbers positively as they both remained high despite some weakening of stay-home entertainment demand. Analysts said the company should boost the numbers this year to ensure the success of its gaming platform.
“This year will be crucial. Sony can’t miss this chance to revitalise the PlayStation 5’s momentum,” said Morningstar Research analyst Kazunori Ito.
Sony will roll out new online services for PlayStation users in June, including an option similar to Xbox’s Game Pass subscription offering. But reactions by fans to the new service are not all positive, especially because Sony doesn’t plan to add new games to the all-you-can-play list like the Xbox offers. Sony’s Totoki said the company doesn’t plan to match Xbox on that front “for the sake of building a better brand image”.
Sony’s shares have dropped 27% so far this year, roughly in line with the tech-heavy Nasdaq index.
In the financial year that just ended, Sony benefited from its movie business, thanks largely to the success of the hit Spider-Man: No Way Home. Sales for the division surged more than 50% to ¥1.24-trillion, while operating income more than doubled to ¥217.4-billion. — Takashi Mochizuki, (c) 2022 Bloomberg LP