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Sony have released their results for the 3 months ending 31 December 2015. This being their third quarter for the current financial year. Sales for the whole corporation are up just 0.5% from the same period in 2014 but operating income is up 11%. Interim results for the year to date see a rise of 0.1% for sales and a 132.7% rise in operating income.

During this review a thing to note is the change in Yen value with a rise of 5% in the Dollar and fall of 7.5% against the Euro compared with 2014.

Sony is a major technology business who split there results into 10 sectors. The sectors that interest us here are Imaging Products and Solutions (IP&S) and Devices. The IP&S accounts for the Cameras whilst the Devices account for imaging sensors and camera components. The devices are an important part of Sony’s business as they provide many sensors for both own brand cameras, other brand cameras as well as smartphones.

2015 Q3 Facts & Figures

Looking at these sectors the following can be seen:

Sector Sales Q3 2014 Sales Q3 2015 Change
IP&S 201.9 191.9 -5.0%
Devices 285.9 249.9 -12.6%
All Segments 2566.7 2580.8 -0.5%
% of Business 19% 17% -2%

So both sectors have seen a drop in sales against the same period in 2014 and as a proportion of company sales they have dropped from 19% to 17%.

Sector Income Q3 2014 Income Q3 2015 Change
IP&S 19.7 23.7 20.5%
Devices 53.8 -11.7 -118%
All Segments 182.1 201.1 11.0%
% of Earnings 40.5% 0.6% -39.9%

As far as earning go these sectors have fallen from major earners to just break even. Devices have taken a hit with the downturn in smartphone phone production. This may reverse in the next quarter as inventories balance out. Maybe.

Sector Margin Q3 2014 Margin Q3 2015 Change
IP&S 9.8% 12.4% 2.6%
Devices 18.8% -4.7% -23.5%
All Segments 7.1% 7.8% 0.7%

Discounting the problems in the Devices Segment the operating margins have improved. This is especially true in the IP&S segment.

2015 Year so Far

Sector Sales Q1-Q3 2014 Sales Q1-Q3 2015 Change
IP&S 546.5 550.8 0.8%
Devices 702.4 745.9 6.2%
All Segments 6278.2 6281.6 0.1%
% of Business 19.9% 20.6% 0.7%

In terms of the year so far these sectors have produced 20.6% of overall Company Sales, a rise of 0.7% year on year.

Sector Income Q1-Q3 2014 Income Q1-Q3 2015 Change
IP&S 51.4 65.7 27.8%
Devices 93.7 51.4 -54.9%
All Segments 166.3 387.1 133%
% of Earnings 87.3% 30.3% -57%

As for earnings they have plummeted by 57% to just 30.3% of overall earnings. So whilst a growing part of the business they have not produced the earnings they did in previous years which must be a worrying sign.

Sector Margin Q1-Q3 2014 Margin Q1-Q3 2015 Change
IP&S 9.4% 11.9% 2.5%
Devices 13.3% 6.9% -6.4%
All Segments 2.6% 6.2% 3.6%

Forecast for the rest of 2015

Sales in the business as a whole are forecast to reduce 3.8% year on year whilst income raises by a huge 367%. This rise is largely due to stemming loses in the Mobile and Other sectors.

Sales of Imaging Products and Solutions are set to deteriorate slightly and Devices even more so when the full years results come in. This is broadly in line with the current state of the Camera and Smartphone market.

Imaging Products & Solutions Segment

Improvements in Operating Income in this sector is noted as being due to improved product mix in digital cameras. This includes new high value high margin cameras such as A7 range.

Sales are still on a downward trend as the market tries to find the bottom.

Unit sales of Digital cameras fell from 2.6 to 1.8 million for the quarter year on year. Year so far unit sales are down from 7 to 5.1 million cameras. Full year forecast drops to 6.1 million units from 2014 results of 8.5 million.

Devices Segment

The main interest for me is the sales of sensors both for cameras and smartphones. Sales for Q3 were down from 2014 at 148.2 BYen to 122.5 BYen and account for 4.7% of all Company Sales. Predominantly a downturn in mobile sales has caused this drop but camera sales have added to the decline as well.

Operating income for the whole sector has turned negative from 53.8 BYen in 2014 to -11.7 BYen in Q3 2015. Batteries, Sensors and R&D costs weighing down on this.

Conclusions

I am not looking at these figures as an investment guide but rather to determine who among the major manufacturers of camera equipment is making a profit. In a sinking market the company that produces the right products at the right price with the best marketing plan and maintaining a good reputation should win out. Have Sony?

Sony are a company that had made a lot of progress in the digital camera market especially with their interchangeable lens Mirrorless cameras and high end Compact cameras. The latest BCN awards for sales in Japan show that Sony have slipped in the Mirrorless sector from 1st place to 2nd. Sony also don’t have a significant slice of the lucrative DSLR sector that is still the most popular with professionals.

Where Sony have stole a lead is in high end full-frame Mirrorless cameras. The A7 range is well received and starting to give DSLR’s a run for their money. There is probably still room to streamline the product range and especially where interchangeable lenses are concerned.

However from a financial point of view their results show profits are improving despite a large reduction in overall units shipped. This largely due to concentrating on quality not quantity.

From the Sensor production viewpoint, that should sort itself out in the coming months and see a return to profit. Then Sony will have to decide how best to make progress. By making cameras and keeping their sensors away from the competition, or allowing the competition to have the best sensors and inhibit Sony’s own camera sales. We shall have to wait and see.