From "bankruptcy" to turnaround, what did this company go through?

Is Sony bankrupt today?

This is probably one of the most famous messages and jokes in the technology circle.

Sony, this amazing company, has become a meme. After all, its mobile phones are not as good as Samsung's, and its computers are not as good as Apple's. The era when everyone had a Sony product is gone. Sony has been losing money in the past few years. The president changed from Stringer to Kazuo Hirai. Sony has been losing money since the 2008 fiscal year until the 2014 fiscal year.

But this problem is not just Sony, but the entire Japanese civilian consumer electronics field is facing a downward trend. Whether it is mobile phones, televisions, or various home appliances, the once invincible Japanese products have gradually become history.

Sony was once glorious.

When Sony was at its peak, it was far from what Apple can achieve today. Laptops, Walkman, home audio and video... Sony's products were far ahead of their contemporaries. To consumers at that time, Sony was all about black technology + industrial design. You can imagine how incredible the imagination that broke through the limitations of the times was.

As the former leader of the consumer electronics industry, Sony is facing a series of major challenges in the major consumer sectors that it relied on in the past, namely, audio-visual hardware, home appliances, etc., triggered by the release of the iPhone. In fact, since the release of the iPhone, the Apple spirit led by Steve Jobs has been influencing changes in consumer behavior in all aspects. This change has not only affected the imitation and advancement of emerging companies, but also the impact and destruction of old giants.

Success is due to Xiao He, and failure is also due to Xiao He. The Japanese's chronic illness and obsession with technology have made Sony one of the best companies in the world. At the same time, it is also the Japanese's chronic illness and obsession with technology that has caused Sony to decline all the way, until "Is Sony bankrupt?" has become a popular meme.

But this kind of talk is moving further and further away from Sony.

Thanks to strong demand for smartphone camera chips, its well-run music business and rapid growth in sales of PlayStation 4 consoles and supporting games, Sony's quarterly profits have maintained a good growth trend in recent quarters, even exceeding analysts' expectations.

Let’s first take a look at Sony’s financial reports for fiscal year 2016 and the first quarter of fiscal year 2017:

On April 28, 2017, Sony announced its overall performance figures for the 2016 fiscal year (April 1, 2016 to March 31, 2017). In fiscal 2016, Sony Group achieved sales revenue of 7603.3 billion yen (67.886 billion U.S. dollars), a decrease of 6.2% from the previous fiscal year. This decline was mainly affected by exchange rates. Excluding the impact of exchange rates, the overall sales revenue remained basically flat due to the significant growth in sales revenue of the game and network service business and the semiconductor business, while the sales revenue of the mobile communication business department decreased.

On August 2, Sony's first quarter financial report for fiscal year 2017 (April 1 to June 30, 2017) showed that both sales and operating profits increased significantly. Revenue increased by 180.5% to $1.43 billion; net profit increased by 282.1% to $734 million; the growth in revenue and net profit was mainly due to the return of Sony's image sensors to stability. As a branch of the Sony Group, Sony Pictures' losses also decreased to $86.2 million.

There is no doubt that Sony's financial statements are gradually looking better, but the question is whether this situation is a real revival or just a stop loss? After all, Sony has been losing money for many years.

Then we need to start from Sony's fastest growing business in detail to analyze whether Sony can continue to maintain this development trend in the future.

In the era of smartphones, Sony can be regarded as a brand with relatively unique designs. It has always been different from the convergent styles of other brands and has its own insights and design style. However, its uniqueness has resulted in Sony's mobile phone sales not being ideal, but it still has a group of relatively loyal fans.

However, the performance of Sony mobile phones in recent years has been really intoxicating: insufficient product innovation, frequent negative news, and plummeting sales... There were even rumors that Sony Group was going to sell its mobile phone business, which shocked many Sony fans.

However, what is unexpected is that Sony's mobile business, which has been a long-time drag, has actually staged a great comeback.

In the first quarter financial report of fiscal year 2017, the most eye-catching part is the mobile business. Sony's mobile business sales reached 181.2 billion yen, and operating profit was 3.6 billion yen, a huge increase of 771.3%!

Although the profit of 3.6 billion yen is not eye-catching, the increase is really amazing. The increase of 771.3% is unprecedented and will never be repeated.

Specifically, the sales revenue of the mobile communications business was basically the same as the same period last year. The sales growth of this business depends on the optimization of product structure, while the increase in operating profit is mainly due to the reduction of operating costs and R&D expenses.

Sony shipped a total of 3.4 million smartphones this quarter, up 10% from 3.1 million in the same period last year. Sony said it still aims to sell 16.5 million smartphones this year.

Sony's semiconductor business sales revenue increased 4.6% year-on-year (15% excluding the impact of exchange rates) to 773.1 billion yen (6.903 billion U.S. dollars) in the first quarter. The increase in sales revenue was mainly due to a significant increase in the sales volume of image sensors for mobile products, which was partially offset by the impact of foreign exchange rates, the decline in sales due to the reduction in the scale of the camera module business, and the impact of the Kumamoto earthquake on production in 2016. Sales revenue to external customers increased by 10.1% year-on-year.

Recorded an operating loss of 7.8 billion yen (US$70 million), compared to an operating profit of 14.5 billion yen in the previous fiscal year. The decrease in profit was mainly caused by the negative impact of foreign exchange rates, the above-mentioned expenses incurred from the Kumamoto earthquake in 2016, and a 6.5 billion yen (US$58 million) inventory write-down of image sensors for mobile products. Partially offset by the above-mentioned year-on-year sales growth and the reduction in the impairment of long-lived assets related to the camera module business. In the current fiscal year, exchange rate fluctuations had a negative impact of 43.7 billion yen.

The semiconductor business (mainly camera CMOS sensors) is Sony's profit pillar, with sales of 204.3 billion yen and profits of 55.4 billion yen. The most popular mobile communications business also achieved profitability, with sales of 181.2 billion yen and operating profit of 3.6 billion yen, an increase of 771.3%.

As early as 2010, Sony's image sensor business was still unknown, with a market share of only 7%, ranking sixth. After Sony made image sensors the main business of its revitalized group, it began to develop by leaps and bounds.

In 2012, Sony achieved a technological leap in image sensors.

The system developed by Sony stacks two chips together, each about the size of a small fingernail. One chip captures the image pixels, while the other contains the sensor's circuitry. Stacking the two chips together could help smartphone makers produce thinner devices than previous devices. Previously, mobile phones used image sensors that placed two chips on the same layer.

Therefore, the growth in 2012 was very rapid, and the market share reached 21.4%. In 2013, Sony was very successful in the Chinese market, with 13M accounting for about 70% of the market share and 8M accounting for about 30%. Since the second half of last year, Sony's sensors have even been in short supply, including IMX214, IMX135, IMX179, IMX219, etc., which are out of stock, especially 13M's high-end chip IMX214, which is even more difficult to find. From these, Sony has undoubtedly secured the top spot.

Sony now sees the reorganized image sensor business as an important part of its business. Sony produces image sensors at four factories in Japan, including one in Kumamoto City, where robots are used to transport silicon wafers to chip-making machines.

However, over the past two years, Sony's semiconductor business has been plagued by negative news such as the impairment of camera module assets and depreciation of battery equipment, and has failed to reproduce the profit of over 100 billion in fiscal 2014 for two consecutive years.

In fiscal 2016, Sony decisively adjusted the production scale of camera modules, focusing its efforts on the research and development of high-end image sensors, and at the same time transferred its battery business to Murata Manufacturing.

The chip business posted an operating profit of 55.4 billion yen in the first quarter of fiscal 2017, a turnaround from a year earlier, as the growing popularity of multi-sensor products led to growing demand from mobile phone makers. Sony holds about half of the market share for imaging sensors, which convert light particles into pictures and videos.

At the same time, as previously disclosed, Sony will continue to work hard in the following key areas to expand its leading edge in image sensors: seize the market opportunities brought by dual-lens in mobile devices, rapidly promote high-pixelization of front cameras, and lead video shooting functions; explore broad business opportunities in sports cameras, factory automation, security, 360-degree VR shooting, and Internet cars.

Sony sensors are of great significance to Sony. According to foreign media reports, Sony sensors have a global market share of more than 50%, making it the largest supplier and manufacturer in this field. According to previous news, Sony has previously stated that it will increase investment in semiconductor business, reduce production costs, and increase the output of new products.

Currently, the main business is sensors for mobile phones and cameras, and in the future, the sales of image sensors for automobiles will be increased. These businesses are to protect Sony's sensor department from being affected by unstable factors (some departments of Sony are good at making losses). In addition, the current second place is Samsung, and the competition between Sony and Samsung is becoming increasingly fierce. However, Samsung's camera sensor business has basically stagnated, mainly sensors for mobile phones and other products.

The growth of mobile phones has been the main driving force for the growth of CIS unit shipments in the past five years.

The latest data from Digitimes Research shows that global CMOS image sensor (CIS) shipments are expected to grow to nearly US$13.8 billion by 2020.

Global CIS shipments will grow from $10.4 billion in 2016 to $11.2 billion in 2017, with Sony accounting for almost 50% of the market share.

At the same time, with the popularization and promotion of new technologies such as dual cameras, the ASP of CIS will be further pushed up.

In addition, according to the latest data from IC Insights, CMOS image sensor sales will continue to grow in 2017, setting a record high.

IC Insights predicts that CMOS image sensor sales will grow by 9% in 2017 to $11.5 billion. From 2016 to 2021, the compound annual growth rate of CMOS image sensor sales will be around 8.7%, and it will grow to $15.9 billion in 2021.

After the first wave of strong growth from digital cameras and smartphones, image sensor sales began to decline. However, applications such as automotive, medical, machine vision, security, wearables, virtual displays and augmented reality, as well as embedded cameras and digital imaging in user recognition interfaces, are once again driving CMOS image sensor sales.

According to IC Insights' forecast, automotive systems will become the biggest driving force for the growth of CMOS image sensors. Until 2021, sales of CMOS image sensors in this field will maintain a compound annual growth rate of 48%. In 2021, sales of CMOS image sensors for automotive systems will reach US$2.3 billion, accounting for 14% of the market share. In 2021, sales of CMOS image sensors for mobile phone cameras are expected to reach US$7.6 billion, accounting for about 47% of the market share.

The roadmap for future CIS technology adoption is driven by three constraints or drivers: size (3 dimensions, X, Y and Z of the camera module), image quality (resolution, low-light performance, focus (AF) and stabilization (OIS)), and functionality (slow-motion imaging, image analysis, motion control).

The competitive landscape of the CIS market has changed a lot over the years. Sony is the market, production, and technology leader. Omnivision and Samsung have remained strong, and new players such as Galaxycore and Pixelplus are also emerging. Meanwhile, the integrated device manufacturing (IDM) model has been a strong source of power for Canon and Nikon, both of which have withstood the slow development of digital cameras. As for Panasonic, it has formed a joint venture with Tower Jazz to assist its exploration in high-end imaging applications.

Today, the CIS industry is driven by mobile and automotive applications. Innovation in smartphone cameras will continue, although competition for this high-volume application is fierce. To remain competitive, CIS manufacturers are being forced to integrate more and more features into mobile cameras.

Smartphone applications are leading the CIS market share, but many other applications will be part of the future growth of CIS. Many IDMs and fabless companies are developing chips for emerging higher-margin imaging applications such as automotive, security, medical and other fields. Huge opportunities are emerging in these applications, driving market and technology efforts of emerging and existing suppliers. These emerging opportunities are pushing mobile imaging technology into other growth areas, and we may see a shift from visual imaging to visual perception and other interactive applications.

The mobile market is key to the CIS industry.

In fact, despite the saturation of mobile phones, the CIS market has been able to continue to grow steadily due to the introduction of dual lenses, apertures and 3D cameras. These new technologies are rewriting the driving force of the CIS market, from the previous emphasis on appearance and image quality to a greater emphasis on interactivity.

Due to its extremely high image quality and advanced functions, almost all manufacturers are flocking to Sony's camera chips, including the flagship models of terminal brands such as Apple, Samsung, Huawei, Xiaomi, OPPO, and vivo.

However, due to the limited supply of Sony's camera chips, it was unable to supply its secondary customers. Benefiting from the advantage of controlling about 50% of the mobile phone imaging sensor market, Sony's overall performance in fiscal 2016 was much better than expected.

Compared with the high-end market, the low-end camera chip market is almost divided up by domestic chip manufacturers, among which GalaxyCore is the only one with a market share of about 70%. However, as the profit of low-end products is declining, GalaxyCore, SuperPix and other manufacturers have also had to expand into the mid-to-high-end market in recent years.

However, for domestic manufacturers with relatively weak technical accumulation, it is not easy to enter the relatively stable mid-to-high-end market! (Text/Liu Yi)

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