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Sony's profit up, despite ongoing troubles in mobile

The mobile division had an operating loss of $188 million in the last quarter, causing its games division's $160 million profit to go unnoticed.

Sony chief Kazuo Hirai was once high on smartphones. Now, he wants to focus efforts elsewhere. CBS Interactive

Sony's troubles in mobile are cutting deeply into the company's pockets, a second-quarter earnings release shows.

Sony's Mobile & Communications division, which includes the sale of smartphones, saw revenue decline by 16.3 percent year-over-year to $2.3 billion (PDF). The division's operating loss, a measure of sales and direct expenses before other items like taxes and interest are factored in, hit $188 million during the company's fiscal first quarter ended June 30, Sony announced on Thursday. The company's issues in mobile wiped out its gains in gaming, where Sony's PlayStation business generated sales of $2.4 billion and an operating income of $160 million. Sony's operating income during the period was up 350.5 percent compared to the same period a year ago.

Sony didn't shy away from acknowledging its troubles in mobile, saying that the issues were a direct result of a "significant decrease in smartphone unit sales" tied to a decision from CEO Kazuo Hirai not to expand its smartphone business. In contrast, Sony's gaming division was boosted by booming sales of PlayStation 4 games.

The vastly different performance between the mobile and gaming division is one that Sony has watched build over the last couple of years. When Hirai took over Sony in 2012, he announced the "One Sony" initiative aimed at improving his company's financial performance. The idea was to focus on three core divisions: digital imaging, gaming, and mobile. However, as Apple's iPhone has increased in popularity and competition in the Android space has soared, Sony has failed to make a dent.

In a last-ditch attempt to fix its mobile woes, Sony in October tried to shake up the division by appointing a new executive. The effort, which proved to be fruitless, came after Sony slashed its full-year smartphone sales forecast from 50 million units to 43 million. To put that into perspective, Apple sold over 47.5 million iPhones in its last-reported quarter, alone.

In February, Sony came close to giving up on the mobile division, announcing a new profitability initiative aimed at focusing on gaming, its Sony Pictures movie division, the Sony Music record label, and a sensors business that provides components for smartphones and digital cameras.

In the same statement announcing its strategy change, Sony acknowledged the challenges it faces in mobile, describing that market as "characterized by high volatility and challenging competitive landscapes" and adding that it "will place the highest priority on curtailing risk and securing profits." The company said it would only focus its mobile efforts on certain territories and will create a new "business structure capable of securing profits." Sony also hasn't ruled out the possibility of selling the mobile division, though so far it is indicating that it wants to return the unit to profitability.

Sony's renewed focus on gaming is due in large part to the company's successful PlayStation 4. The console, which has tallied over 25 million unit sales worldwide, according to Sony, is leading a market that includes Microsoft's Xbox One and Nintendo's Wii U. Sony's gaming division is also boosted by the company's PlayStation Network, which in addition to allowing users to play games with each other online, offers them the ability to buy titles and other entertainment content. Sony said on Thursday that its gaming division was also up from the sale of peripherals, including controllers and cameras, that connect to its PlayStation 4.

Like the gaming division, Sony's Devices business, which includes its highly profitable sensors operation, was up significantly in its fiscal first quarter, as sales rose 35 percent to $2 billion and operating income rose 164 percent to $249 million. Sony Music's revenue jumped 8.5 percent to $1.1 billion and operating profit was up 173 percent to $260 million. Sony Pictures was the one downer in the company's turnaround efforts, as revenue fell 11.9 percent year-over-year to $1.4 billion. The Sony Pictures business lost $96 million.

Still, Sony believes that by focusing on gaming, devices, movies, and music, it can make billions of dollars in profit each year. In February, the company said that by the end of its 2017 fiscal year ending in March 2018, it anticipates an operating profit of 500 billion yen (about $4.2 billion).

Sony so far appears to be on track. Company-wide, Sony's revenue during this year's first fiscal quarter was down just 0.1 percent to $14.8 billion, while its operating income ticked up 38.8 percent to $794 million. Sony was able to post a net profit of $676 million, up over 200 percent compared to the same period last year.

Sony did not immediately respond to a request for comment.