SONY Sony Group Corporation

By Jacky Wong 

The next videogame console war is looming. Dragons may or may not be involved, but electronics and gaming conglomerate Sony looks well placed after another solid quarter.

The Japanese entertainment company's results for the quarter ended in September were impressive: its operating profit rose 14% from a year earlier, much better than the 31% decline expected by analysts polled by S&P Global Market Intelligence.

Sony has been cautious about coming quarters. The company's operating profit at its gaming division rose 65% from a year earlier for the six months ended in September, but growth will likely slow without the boost from stay-at-home gamers.

Initial costs for the launch of Sony's next-generation videogame console PlayStation 5, slated for next month, would eat into its margins. Its image-sensor business will also likely hurt by the ban restricting China's Huawei from buying semiconductor chips using U.S. technology. Citi estimates that Sony's sales to Huawei amounted to 290 billion yen, equivalent to $2.8 billion, last fiscal year, around 27% of the company's image-sensor revenue. Sony expected the division's operating profit will drop 66% this fiscal year compared with the last one.

Yet Sony's August guidance still looks too pessimistic after another great quarter: the company raised by 13% its operating profit forecast for the fiscal year ending next March. That sounds like a lot but may still be too cautious. PS5s will likely sell like hot cakes, which could also push game sales higher. More people are also buying games digitally, which means higher margins for Sony. PlayStation Plus, the company's subscription-based service offering gamers discounts and other perks, also saw growth.

Sony will also get a boost from Aniplex, its anime and music production company in Japan. The company's mobile game "Fate/Grand Order" has been doing well. "Demon Slayer," an anime movie it helped distribute, had a record opening in Japan this month.

All this bodes well for Sony in the next stage of the console war. Both Microsoft and Sony will launch their next-generation consoles next month, for the first time in seven years. Other technology giants are also joining the fray: Google, Amazon.com and Facebook have all launched cloud-gaming services, hoping that users will play their games on any device.

That means having exclusive content could become even more important. That is why Microsoft agreed last month to pay $7.5 billion to buy ZeniMax Media, the parent of Bethesda Softworks, which owns popular games such as "Fallout" and "Doom." Sony likewise acquired a stake in Epic Games, the creator of "Fortnite," earlier this year, but it has to keep beefing up its content library.

Sony has played its game well so far. Whatever plot twists lie ahead, the company appears to be in a solid position to capitalize on them.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

October 28, 2020 07:58 ET (11:58 GMT)

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