Sony in ‘No Position’ to Comment on Microsoft/Activision, Says CFO

Sony Chief Financial Officer Hiroki Totoki deflected questions Wednesday about the impact to Sony’s PlayStation 5 business from Microsoft’s proposed $68.7 billion Activision Blizzard buy (see 2201180009). “In terms of the acquisition by our competitor, we're not in a position to make any comments,” Totoki told a Tokyo media and analyst briefing convened to disclose that Sony’s games and consumer tech franchises took heavy hits in fiscal Q3 ended Dec. 31 from the global semiconductor shortage.

One of the looming questions from Microsoft's proposed Activision Blizzard buy was what will become of Sony's access to Activision Blizzard's third-party content support for the PS5 after the transaction closes in about a year or more. “It is difficult for us to say anything,” said Totoki. “They have announced the intention to purchase, but that has not been completed yet,” said Totoki, avoiding mention of Microsoft by name.

What kind of “business model change will take place” after the deal is complete is something on which “we don't have a clear picture yet,” said Totoki. “So for the competitor’s large-scale M&A, we do not want to speculate, and rather, we want to pursue and execute our strategy at the right timing, and we want to focus on that.” The preliminary signals Microsoft put out for public consumption suggested Sony would experience business as usual in Activision PS5 support after the deal is done.

Totoki conceded in Q&A he's “quite concerned” about the U.S. economic outlook amid possible federal interest rate policy changes, and that “geopolitical risks are now increasing” with Russia. “I'm getting the latest information updating that understanding from different business segments, but for the time being, there's no clear trend over this deceleration in the North American market. That's my frank perspective right now.”

Sony shipped 2.6 million TVs in fiscal Q3, 19% fewer than in the holiday quarter a year earlier, reported the company. Q3 sales in Sony’s Electronics Products & Solutions segment, which includes the TV business, declined 2% year-on-year to 686.9 billion yen ($6 billion) from diminished “stay-at-home demand and a shortage in the supply of components,” said Totoki.

The impact of the rapid decline in TV panel prices on “consumer market” prices for TVs in Q3 “was more limited than we originally anticipated,” said Totoki. “The shift to large-sized TVs increased primarily in the U.S., Europe and China. As a result, we were able to maintain the average selling price of our TVs at essentially the same level as the second quarter.”

Sony continues “to be unable to fully meet market demand in multiple categories due to severe limitations on the supply of components,” said Totoki. The situation will “continue to impact us” in Q4 ending March 31, he said. “We will continue to exert every effort to procure components as that will be one of the highest priorities for this segment next fiscal year.”

The severe “limitations” on component supplies, especially semiconductors, forced Sony to downgrade its fiscal-year forecast for PS5 unit sales to 11.5 million consoles, down 22% from its Oct. 28 projection (see 2110280017), said Totoki. PS5 unit shipments reached 3.9 million in Q3, 13% fewer than in the year-earlier quarter when the console launched in November 2021.

An increase in delivery lead times “resulting from disruption of the global distribution supply chain” also contributed to the Q3 sales decline and the downgraded fiscal year forecast, said Totoki. “Limitations on the supply of components are expected to continue going forward, but we are continuing to exert every effort to meet the strong demand for PS5.”

PlayStation users devoted 20% fewer hours to “gameplay” engagement in December than in the same month a year earlier, just after the PS5's launch, “but gameplay time increased approximately 7% from December 2019,” he said. “For a quarter in which there were only a few major titles released, we think this was solid performance.” Sony similarly experienced a large "drop in engagement" when it moved "from one console generation to the next" with the PS4, said Totoki. Sony sees the PS5 "situation" as "rather limited in terms of the impact," hoping for a quick "recovery" in user engagement, he said.