Last week, Sony's stock took a hit, losing around $10 billion in value. The reason? The tech giant from Japan adjusted down its sales forecast for its popular PlayStation 5 console for the fiscal year.
- Analysts, who were already skeptical about Sony's ambitious PS5 sales targets, are now pointing to another concern: the declining profit margins in Sony's gaming business.
- Sony recently announced it expects to sell 21 million units of the PS5 by the end of March, down from the earlier forecast of 25 million units. This news caused a drop in Sony's shares, resulting in the aforementioned value loss.
- But it's not just the sales forecast that's worrying analysts. They're keeping a close eye on another important factor: the operating margin in Sony's gaming division. For the December quarter, this margin hovered just below 6%, a notable decrease compared to over 9% in the same period in 2022.
- Atul Goyal, an equity analyst at Jefferies, expressed disappointment in this low margin, especially considering that margins in the gaming unit were around 12% to 13% in the years prior to the January-to-March quarter of 2022.
- Serkan Toto, CEO of Kantan Games, believes that while hardware production costs may have decreased due to the PS5's age, rising software production costs, like the $300 million budget for "Spiderman 2," are squeezing margins further.
In summary, analysts are concerned about Sony's declining profit margins in its gaming business, despite factors that should have boosted them. This raises questions about the company's strategy and its ability to maintain profitability in the highly competitive gaming industry.
