Sony released the first half results for the FY2016 a day after lowering its full-year profit forecast by 10% percent to ¥270b. Given todays results for the first half that turns out to be positive news. Operating Income or profit for H1 FY2016 has fallen by -44.9% from the same period the previous year. It will take a major recovery in the second half to claw back to the new forecast for full-year profits.
It has been difficult for Sony to maintain their profit margins in recent years but at least they can look forward to Q3 that has been their best historically. The problems of earthquakes and rising ¥en appear to be behind them now, for the moment.
How the sales and profits are made.
The best segments in Q2 have been the Game & Network Services along with Financial Services, whilst Semiconductors and Components have had the production issues to deal with. The second half of the year will be a better indication of where the strengths and weaknesses lay.
Given the interest here is mainly the Imaging Products and Solutions (IP&S) segment, Revenues are well down by -25.5% and Operating Income by a disappointing -45%. Much of the problem this first half has been laid at the door of the Kumamoto Earthquakes in April 2016. The current estimate for the effect on Operating Income due to lost business for the IP&S segment in the first half of the year is -¥10b. This is much better than the May 2016 forecast, just after the event, of -¥45b. The other major reason for the steep decline is the strengthening value of the ¥en. The effect on Operating Income of the forex is -¥15.2b in the first half of the year.
We have heard much about the effects to camera production of the damage to the Sony sensor factory that produces image sensors for not only Sony cameras but many other top brands. Many cameras have been and still are in short supply. Lost sales from the summer peak season have been seen across the board. So in Q2 the sales of sensors has been down just -5% by value. How can a 5% drop cause so many problems? Of course there may not be a correlation between sales and shipments, but still it does not add up.
The effects of the exchange rate on both the cameras and sensors market is also important. In the Imaging segment the effect is -10% of the -25% fall in sales and the majority of the fall on Operating Income. In the semiconductor segment where sensors accounted for 69% of sales there was only a -5.5% drop in the value of sensor sales. Whereas the impact of the rising ¥en had a -17% impact on sales.
The exchange rate for the Q2 has been averaging ¥102.4 per $ and ¥114.3 per €. Given todays rate it looks like a more favorable situation going forward. This could be a little volatile due to the upcoming US Presidential elections.
Total unit sales for digital cameras have been 1.6M units in the first half of FY2016. This is down 52% from the 3.3M units sold in the same period the previous year. Sales by value of still and video cameras with lenses are down from ¥226b in 2015 to ¥157b for the same period, a drop of -30.6%.
Inventories for the Imaging segment are improving back toward last years figures.
Full year forecast for the imaging segment are to improve camera unit sales up to 3.8M units but down from 6.1M units the previous year. The whole segment will improve current sales by value to ¥560b but down from ¥684b in 2015.
Sony as a company have a great brand with much goodwill around the world. However, it will need to continue to seek products and market outside its normal domain if it is to make progress. I wish them well.
On the point of Digital Cameras and Lenses, it is very unclear if any progress has been made to challenge the top brands of Canon and Nikon. As luck would have it, it has made a large dint in both companies by virtue of the earthquakes that hit its sensor production. Canon must be wondering why they ever decided to source other sensors and Nikon must be wondering how on earth they can ever extract themselves from Sony.
The latest figures coming out of CIPA show an improvement in camera shipments starting in September but will it be in time for the end of year rush. Maybe, but not for the seasonal Black Friday, Cyber Monday sales. The camera industry still has some way to go before it hits the bottom.