Sony Records Stock Decline, Chip Supply Issues Persist

Sony’s shares fell by as much as 7 percent following the announcement of reduced revenue this year, reflecting fears of a recession that have affected the video game sector since the beginning of the year. Sony announced on Friday that it expects an operating profit of 1.11 billion yen, or 8.3 billion dollars, this year, a decline from the previous forecast of 1.16 billion yen.

The Tokyo-based corporation conducted a complete revision with a 16 percent reduction, and they also revised costs associated with the acquisition of American video game developer Bungie.

Namely, the video game sector experienced a record decline in the second quarter of this year, as evidenced by the drop in sales of Sony’s PlayStation 4 and 5 from 63.6 million units to 47.1 million sold consoles. Gaming time on consoles has also decreased by 15 percent in the second quarter, which was confirmed by Sony’s Chief Financial Officer Hiroki Totoki, and the number of subscriptions to PlayStation Plus has also fallen.

– While weak sales of PlayStation 5, which have fallen by four percent year-on-year, can be blamed for this, it seems that the real reason is higher development costs due to aggressive developer acquisitions – said Amir Anvarzadeh from Asymmetric Advisors, adding that it is crucial how much the newly launched streaming service will impact software sales.

Many investors have sought indications that Sony can weather the current macroeconomic uncertainty relying on its business without PlayStation, but the company has also lowered forecasts for sales of other products such as image sensors.

However, the company expects higher revenues from its music branch Sony Music, and current business results are supported by revenue from streaming and anime content.

Supply Chain Issues

Sony’s hardware production for PlayStation 5 is limited due to disruptions in supply chains exacerbated by prolonged lockdowns due to the coronavirus pandemic in China over the past three months, but this has helped the company, which sold 2.4 million PlayStation 5 consoles there during the same period, compared to 2.3 million in the same period last year.

– While we remain at our projection of selling 18 million units of PS5 this fiscal year, conditions around PlayStation 5 are improving – said Totoki.

While Sony hopes for better times, Japanese Showa Denko, one of the leading suppliers of chip materials, announced an increase in costs last month.

– This year, the main topic for everyone is how to convince customers to share with us part of the industry’s costs – said Hideki Somemiya, Chief Financial Officer of Showa Denko, which produces chemicals critical for chip production, to Bloomberg earlier.

– The current market situation requires us to seek double the amount previously calculated – he concluded.

Chip manufacturers such as Samsung and TSMC have long announced price increases, with Samsung increasing prices by as much as 20 percent.

The Yen is also a Problem

All of this is, of course, related to the weakening of the Japanese yen, which fell sharply last month after the Japanese central bank maintained low interest rates while policymakers around the world, such as the U.S., are raising borrowing costs to tackle rising prices.

The U.S. dollar rose by as much as 15 percent by mid-July, and the gap between interest rates in Japan and other parts of the world is widening. The value of the yen has, of course, fallen due to the fact that higher interest rates attract foreign investments, increasing demand and the value of currencies in countries with higher interest rates.