(Bloomberg Opinion) -- Sony Corp. just raised its full-year profit forecasts by single digits. That looks like good news, but it’s not. It’s the lowest mid-year update for the Japanese electronics giant since at least 2016, and there could be more to come throughout the sector.
Operating income for the year to March 31 will be 4% higher than its July estimate at 840 billion yen ($7.7 billion), while net income will also be 4% better, the Japanese electronics maker said Wednesday in its September-quarter earnings statement. By contrast, its updates at this time for 2017 and 2018 were for increases of at least 26%.
Like many Japanese companies, Sony regularly starts out the year with a conservative view. By managing investor expectations, it then gives itself room to raise hopes and deliver good news as the months march past. Not this time.
In addition to the lackluster profit outlook, Sony for the first time since at least 2013 cut its 12-month revenue guidance. With little upside to offer, Sony is telling the world that things are getting worse, not better. Also Wednesday, South Korea’s LG Electronics Inc. reported quarterly sales and operating income below analyst estimates. Taiwan’s Mediatek Inc., which sells chips used in smartphones and other electronics, published profit figures that missed.
Each company has its own individual areas of weakness, which collectively point to a worsening picture for the sector. At Sony, the games, consumer electronics, and movies businesses are all to blame for revenue expectations of just 8.4 trillion yen, 2% lower than its July estimate.
One consolation is that Sony’s image sensors, used in high-end smartphones, will help the components division bring in 5% more revenue for the year than previously expected. Sony raised its profit outlook for the image sensor business by 38%, helping drive the stock to its biggest gain in three months.
Sony’s games unit is the major culprit for the poor sales outlook. September-quarter revenue in this division dropped 17% due to a fall in demand for both PlayStation 4 hardware and software. The subscription PS Plus business was its only bright spot.
Similarly, worsening smartphone and TV sales hurt the consumer electronics division and are expected to persist through the next six months. Delayed movie releases are crimping that business.
At LG Electronics, the smartphone division was the major weakness yet the company also said that “uncertainties of overseas markets” would weigh on its home appliances and air solutions unit — which accounts for a third of revenue. Auto electronics components demand will also decline, it said.
We’re only at the start of earnings season and many big names are yet to report. A few will provide a rosy picture, and others will be merely putting the proverbial lipstick on a pig. The global economy is slowing and consumer spending will tighten as a result. It’s worth remembering that some companies start off the year being conservative for good reason.
(Adds the gain in Sony shares in the sixth paragraph.)
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Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.
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