Tuesday, August 04, 2020

More about Sony Quarterly Results

SeekingAlpha publishes Sony earnings call transcript with some updates on image sensor business:

"Next is in IS&S, Image Sensing & Solutions. Fiscal '20 quarter one sales decreased 11% year-on-year to ¥206.2 billion, and operating income decreased ¥24.1 billion to ¥25.4 billion.

Fiscal '20 sales are expected to decrease 7% to ¥1 trillion, and operating income is expected to decrease ¥105.6 billion to ¥130 billion. Now I will explain the state of our sensor business. Fiscal '20 sales of image sensors for mobile products are expected to decrease compared to fiscal '19, primarily due to a decrease in end-user product sales by one of our major customers, the deceleration of the smartphone market and a shift to mid-range and moderately priced models in that market resulting from the impact of the spread of COVID-19 and significant reduction in component and finished goods inventory by Chinese customer. Profitability is expected to be impacted by a decrease in gross margins and an increase in depreciation and manufacturing-related costs associated with production equipment we purchased in the previous fiscal year when we expected growth as well as higher research and development costs.

We do not expect to grow sales of mobile sensing products compared to fiscal '19 because adoption by smartphone makers has been slow and sales of flagship models, which already use our products have decreased due to the shift in market conditions. Sales of image sensors to AV have also decreased due to the contraction of the sensor market for digital cameras, resulting from the impact of the spread of COVID-19. We expect the market to contract in 1 year as much as we had previously expected it would contract over the next approximately 3 years.

In order to respond quickly to the changes in the environment, especially for image sensors for mobile products, we will modify our strategy, mainly in the areas of investment, research and development and customer base. We have already significantly reduced investment in capacity to supply demand in the fiscal year ending March 31, 2022, because we can supply that demand by stockpiling strategic inventory through utilization of our excess production capacity this fiscal year.

The forecast for cumulative capital expenditures for the 3 fiscal years began April 1, 2018, which we explained in the past, has been reduced ¥50 billion from approximately ¥700 billion to approximately ¥650 billion. And we are carefully reviewing the timing of planned capital expenditures in fiscal '21 and beyond. We will review the projects and priorities for research and development spending as well to ensure that they fit with the recent trends in the smartphone market and changes in our major customers' needs. However, in order to maintain and increase our future technological competitive advantage, we will not drastically reduce the number of projects or the budget. We intend to more proactively expand and diversify our customer base, which we're cautious to do previously due to production capacity constraints.

Over the mid- to long term, we will work to expand the applications for image sensors and the market overall by introducing edge-sensing products that use senses equipped with AI processing functionality, and we will steadfastly work to grow this business. We plan to complete within approximately 1 year an enhancement of our business model to adapt to the recent changes in the environment, and we expect to return the business to the path of profit growth from the second half of fiscal '21.

....About sensors, changes in the market and how are the changes occurring. For one thing, all over the world, there is poor sense in the market, deterioration of the market, and that is impacting the sensor sales. And also, the higher-priced products, well, it's, you could say, shifting to the moderate -- more moderate-priced models overall. So for our image sensors, especially the high-end image sensors that we sell, the high-end models are decreasing in sales. So that's impacting our business.

But as far as a large trend is concerned, the phones -- smartphones going larger and using multiple lenses, that will continue. The performance of -- for the cameras required for smartphones, for video and the camera photos, the demand for the higher quality will continue. Therefore, we believe the demand should come back sometime in the future.

...regarding image sensor, the capacity and the capacity factor and the second quarter. So the capacity for this quarter, for fiscal 2020 at the end of first quarter, and that's -- that's 133,000 per month at the master price; and also at the end of second -- of the second quarter, 135,000 per month. So we will gradually increase the capacity. That's our plan.

And also, the number of wafers to be input. The first quarter the actual figure is -- the average of 3 months is 126,000 for mobile and also for digital camera, and there were some adjustments made for production. And also for the projection for second quarter for that, the simple average for 3 months is 112,000. So for mobile and digital camera, I think there's going to be more production adjustment.

And then, well, for Sensing segment, the sales is expected to come down, and what is the magnitude of the impact? Well, last year, actual was a little over of ¥230 billion and it's a strong ¥230 billion. So generally, it's like 1/3 of that is the reduction in sensors or sensing products. That's 1/3. So a big point about that is that as of last year, we thought that the growth can be expected. So we made the capital investment and also, we have increased our R&D expenditures. And that has been the impact.

In a separate news, a Twitter post presents CIS market share chart from an unidentified Korean source. It shows a Q2 2020 market share taken away by somebody from both Sony and Samsung:

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