Sony expects smartphone losses and sales decrease over the next year

Sony said its mobile business will likely record declining sales and operating losses over the next twelve months.

Sony published today its final results for the fiscal year 2014 (ending March 31) and its forecast for fiscal year 2015, and there aren’t many surprises. The 2014 results were in line with the revised estimate published on April 22; the company made an operating profit of 68.5 billion yen ($576 million), but a net loss of 126 billion yen ($1.06 billion), largely due to the impairment charge that the company took over its mobile business.

As expected, Sony’s profit drivers for 2014 were camera sensors (Sony is dominating the market, with its sensors equipping top devices from Samsung, Apple, and more), gaming (PlayStation soundly beat Xbox this generation), and entertainment (despite the high-profile flop of The Interview).

For next year (April 1, 2015 to March 31, 2016), Sony sees a marked improvement, thanks to good performance in the sensors and entertainment units, and costs cutting in segments like mobile.

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Sony thinks its mobile sales will decrease year on year due to “a reduction in mid-range smartphone unit sales in an effort to improve the profit structure of the segment.” In other words, Sony will focus more on high-end devices like the Xperia Z series, and less on phones like the Xperia M4 Aqua.

Sales are expected to decrease year-on-year due to a reduction in mid-range smartphone unit sales in an effort to improve the profit structure of the segment. Operating loss is expected to decrease year-on-year primarily due to the absence of the 176.0 billion yen impairment of goodwill recorded in the fiscal year ended March 31, 2015, an improvement in product mix, and a decrease in costs due to the benefit of restructuring. This improvement is expected to be partially offset by the unfavorable impact of the appreciation of the U.S. dollar, reflecting the high ratio of U.S. dollar-denominated costs in the segment, the impact of the above-mentioned decrease in sales as well as an increase in restructuring charges.

Sony forecasts 1,310 billion yen ($11 billion) in mobile revenue for 2015, 7.1 percent lower than in 2014. However, the operating loss will be much smaller: 39 billion yen ($328 million) compared to 217.6 billion yen ($1.8 billion). The smaller loss is thanks to smaller costs and the absence of the impairment charge from 2014.

Despite the poor mobile outlook, Sony’s estimates for its entire business are very much positive. The company expects 320 billion yen ($2.7 billion) in operating profit, four times as much as last year. And, for the first time in three years, Sony hopes to record a net income of 140 billion yen ($1.17 billion). It’s worth noting that these estimates are considered to be conservative by analysts, so the actual results may be even better.

Sony has acted decisively to cut costs and free itself of the burden of unprofitable businesses over the past couple of years. The company said it has no “sacred cows,” so the future of the loss-generating mobile business is unclear. It remains to be seen whether Sony will throw the towel in early or stomach the losses for another year in hope of a turnaround.