Chip Crunch Hampered Sony From Meeting FY Q2 Demand, Says CFO

Sony was "unable" to meet demand for some consumer tech products in its fiscal Q2 ended Sept. 30 “because the resurgence of the COVID-19 pandemic in Southeast Asia led to limitations on our factory operations and on the supply of components,” Chief Financial Officer Hiroki Totoki told a Tokyo investors briefing Thursday. Sony said it sold 2 million TVs globally in the quarter, 26% fewer than a year earlier and 10% fewer sequentially from Q1.

“Limitations on the supply of components, especially semiconductors, have recently become apparent,” said the CFO. “We have incorporated the impact of these shortages into our forecast for the fiscal year.”

Sony outsources virtually all production of logic wafers for its image sensors business to outside foundries, said Naomi Matsuoka, senior vice president-corporate planning and control, finance and investor relations. “Securing a stable supply of logic wafers is a critical business issue at this time, when the global semiconductor shortage is expected to be prolonged.”

In the context of the recent announcement that Taiwan Semiconductor Manufacturing Co. has petitioned the Japanese government for approval to build a new fab in Japan, Sony thinks that “building a factory of this nature could serve as a possible solution” to its uncertain supply of logic wafers, said Matsuoka. “We are studying the possibility of adding TSMC's Japan factory to our sources of logic wafers by leveraging our expertise, managing our own semiconductor factories in Japan to assist TSMC in building the new factory.” She cautioned that Sony’s TSMC involvement “is subject to further study and discussion.” Talks with TSMC are underway, she said, declining further comment. TSMC didn’t respond to questions.

Sony managed to maintain “a high level of profitability” in its core consumer tech segment, Electronic Products & Solutions, “due to our ability to maintain prices and shift to higher value-added models,” said Totoki. EP&S sales in the quarter increased 9% to 581.9 billion yen ($5.1 billion). Operating profit in the segment increased 36% to 72.7 billion yen ($639.9 million) on “improvement in the product mix” of TVs, digital cameras and AV products.

In Sony’s TV business, “although we were able to maintain market prices during Q2, a rapid decrease in panel prices going forward could impact the market prices of our products,” said Totoki.

Sony downgraded its EP&S sales outlook for the year ending March 31 by 2% from the August forecast due to lower than expected unit sales of digital cameras. It raised the full-year operating profit forecast for the segment by 12% because it now anticipates higher TV unit sales at the premium tier than previously expected.

Sony sold 3.3 PlayStation 5 consoles in Q2, up 43% sequentially from the previous quarter. Sony launched the PS5 Nov. 12. There’s no change “at this time” in Sony’s “target” of selling more than 14.8 million PS5s for the year, said Totoki. “But several factors are significantly impacting the supply of the product, such as the disruption of the global distribution supply chain and limitations on the supply of components.” Sony continues to “exert every effort to maintain the momentum of the PlayStation platform by meeting the expectations of the people who are waiting for a PS5,” he said.

Sony Pictures has “gradually” resumed releasing major films in theaters, mainly in the U.S., said Totoki. Venom: Let There Be Carnage generated box office revenue of about $90 million globally on the opening weekend of its Oct. 1 release, “which is the best opening performance of any film during the pandemic,” he said. “We are planning to release other compelling IP from Sony to theaters going forward,” he said, including Ghostbusters: Afterlife, debuting Nov. 19, and Spider-Man: No Way Home, with a Dec. 17 release.

Sony also will stick with its plan “to monetize family-oriented films,” at least for the rest of this fiscal year, “by directly licensing them to video streaming services, as we do not believe they will draw sufficient theatrical audiences during the pandemic,” said Totoki. He cited the example of Hotel Transylvania: Transformania, debuting Jan. 14 on Amazon Prime Video. “Going forward, we plan to continue to respond appropriately to the changes in the environment through a flexible releasing strategy aimed at maximizing the long-term value of our films.” Sony Pictures, the only major studio not tethered to a streaming service, also announced a licensing deal with Netflix in April.