Sony Earnings, Lenovo Earnings: What to Watch

Sony CEO Kazuo Hirai speaks at the company’s headquarters in Tokyo.

Sony is scheduled to announce its fiscal third-quarter earnings after the market closes on Wednesday in Tokyo. Here’s what you need to know:

EARNINGS FORECAST: The entertainment and electronics giant is expected to report a net profit of ¥31.91 billion ($269.54 million) for the three months ended December, according to a poll of analysts surveyed by financial data provider Quick. A year earlier, it reported a net profit of ¥27 billion.

REVENUE FORECAST: Revenue is expected to stay flat at ¥2.36 trillion ($20.1 billion) from ¥2.41 trillion a year earlier.


Preliminary data from Sony Pictures: Sony has said that figures from its Los Angeles-based subsidiary, Sony Pictures Entertainment, will be provisional, but investors will still keep an eye on them following the recent hacking attack, which forced the studio to shut down its intranet system, making it unable to finalize its books before the earnings reporting deadline. Sony’s electronics and financial units will report their final numbers, though Sony’s earnings as a whole will be subject to a revision at the end of March.

Financial impact from hacking: Despite the attention the hacking incident got globally, analysts say the financial damage won’t be severe to its earnings. “The Interview” ended up being one of the most-purchased content via video- on-demand services in the U.S. Sony Chief Executive Kazuo Hirai also said in an interview in January that the financial impact from the incident will be limited, though it won’t likely provide upside potential either.

Is the TV business turning the corner? Sony’s TV business is expected to record an operating profit in the third-quarter, buoyed by ultra-high-definition sets called 4K. That would mark the third straight quarter of profit — the first time the TV business has had a profit streak of that length since the period ended March 2004. Analysts say the TV segment will turn to the black for the full-year ending in March, after a decade of losses. Still, analysts are divided over whether Sony should keep the TV unit in house because the segment is expected to remain a low-margin business due to stiff competition.

Mobile-phone plans: Its Xperia smartphone unit was the only unprofitable business during the July-September quarter, and Sony says overhauling the segment is an urgent task. It hasn’t been able to present how it would revive the unit partly because the segment named a new chief, Hiroki Totoki, only a few months ago. Some analysts say Sony should shrink the smartphone business drastically—as well as the TV unit—to focus more on promising projects including the PlayStation videogame platforms. Analysts will be paying attention to any updates.

Completing Restructuring Efforts: Mr. Hirai has repeatedly said the company would finish its large-scale restructuring efforts during this fiscal year ending in March and shift its focus to growth areas from April. Chief Financial Officer Kenichiro Yoshida says the progress is on schedule, and analysts will be confirming the latest update. While it’s very unlikely, many analysts say Sony should cut jobs more drastically than it had announced, to be more profitable in the longer-term.

Chinese PC maker Lenovo Group will announce its fiscal third-quarter earnings after the U.S. market closes on Monday. It will be Lenovo’s first quarterly earnings to reflect its acquisitions of Motorola Mobility and IBM’s x86 server business. Analysts expect Lenovo to post strong revenue growth due to the acquisitions and its PC market share expansion, while profit will drop due to the addition of unprofitable Motorola. Investors will likely focus on Lenovo’s plans for its smartphone business as it tries to turn around Motorola and win out against tough competition in China’s mobile sector.

EARNINGS FORECAST: Lenovo is expected to post net income of $184.6 million for the three months ended Dec. 31, down 30% from a year earlier, according to 17 analysts polled by Thomson One Analytics.

REVENUE FORECAST: Revenue is estimated to have risen 26% from a year earlier to $13.6 billion, according to 18 analysts polled by Thomson One Analytics.


Integration: Lenovo’s big challenge this year will be integrating Motorola and IBM’s x86 server business into its operations. The company has said that it expects economies of scale as it integrates the new units’ manufacturing with its own factories and combines sales forces. Investors will be interested in details on how Lenovo will accomplish this
Smartphone plans: While Lenovo still makes most of its money from PCs, smartphones will be a focus for the company this year as it integrates Motorola. The company reintroduced the Motorola brand to China last month but faces stiff competition in the market, where it trails Apple and Xiaomi. Lenovo has stated plans to make Motorola profitable in four to six quarters.

PC Industry decline: The PC industry has contracted for several years, as consumers increasingly shift to mobile devices. Lenovo makes most of its revenue from PC sales, and it had so far managed to grow by soaking up market share as weaker rivals drop out of the sector. Investors will be interested to know if Lenovo can continue to grow its core business in a shrinking market.

Internet marketing: In China, Xiaomi has become the company to beat due to its savvy online marketing strategy that costs little but drives sales through social media. Lenovo is giving that business model a shot this year. The company plans to use an online marketing strategy for Motorola to target younger Chinese consumers this year, and has also announced plans for an online electronics brand Shenqi. Lenovo will likely discuss these plans further on an earnings conference call with analysts.