Sony (NYSE: SONY) the 80-year old Japanese conglomerate that made a name for itself in consumer electronics, has the same profile as many companies its age: moderate but steady growth.
That shows in the stock, which has returned an annualized 7% over the past three years, but has dropped 18% year to date.
Sony cemented its reputation with the introduction of the Trinitron TV in 1968 and the mobile cassette player Sony Walkman in 1979. The company now consists of six divisions: games, music, pictures, entertainment, imaging & sensing and other.
Games and network services include PlayStation, the world’s top-selling video-game platform. The music division is the No. 1 music publisher in the world and the No. 2 record label, after Universal Music (CBOE: UMG). Sony Pictures Entertainment encompasses the company’s film and TV studio.
The entertainment, technology & services unit houses Sony’s consumer electronics products, including TVs, headphones and digital cameras. The imaging & sensing division earns more than 80% of its revenue from image sensors for smartphones.
Revenue breakdown
Games account for 38% of Sony’s continuing operations revenue, entertainment for 18%, imaging for 17%, music for 17%, and pictures for 12%.
The numbers add up to more than 100 because Sony’s revenue includes a subtraction for “corporate and elimination.” That makes the total revenue smaller than the sum of these individual operating units.
As for the games division, “since its launch in 1994, PlayStation has consistently been the bestselling game console in each generation,” Morningstar analyst Kazunori Ito wrote in a commentary. “It has established its brand as a platform for playing cutting-edge games.”
The PS5, begun in November 2020, has shipped about twice as many units as its main competitor, Microsoft’s (NASDAQ: MSFT) Xbox S/X series, he said. PS5 “dominates market share for the most advanced game consoles.”
Looking at entertainment, Ito isn’t too impressed with the consumer electronics business in general. But he likes Sony’s interchangeable lens cameras, which account for more than 80% of the unit’s profits.
Digital cameras, imaging, sensors
Sony’s 26.1% share of the digital camera market is second behind Canon’s 46.5%. However, Ito maintains that Sony is the global leader in the latest product category, mirrorless interchangeable lens cameras. That focus on premium products puts Sony’s operating margin for its entire digital camera business near 30%, well above the high teens level for Canon and Nikon, he estimates.
Turning to imaging, over 80% of the unit’s revenue comes from image sensors for smartphones. Sony tops that market with a 48% share, easily beating No. 2 Samsung Electronics at 18%, according to Omdia research firm.
Sony’s sensors have earned a reputation for superior image quality, Ito points out. They have stood as the exclusive supplier to Apple (NASDAQ: AAPL) iPhones since 2011 and are used in other brands’ smartphones too.
On the music front, explosive listening on the Internet has helped Sony’s music group grow revenue at a compound annual rate of 14.8% over the past four years, Ito noted. And its operating margin of 19% is the highest of any full Sony segment, close to its biggest competitors.
Sony is producing solid earnings growth for a mature company. Continuing operations sales rose 3.7% in the year ended March 31, with operating income gaining 13%.
So it looks like Sony can keep on keeping on.
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