Sony plans to spin off financial division in 2025 due to falling PS5 sales

Bloomberg – Sony Group Corp. (SONY) is preparing to partially spin off its finance division in October 2025 as part of a plan to expand other businesses such as entertainment and imaging.

The company revealed its plans for the spin-off after reporting results and revised guidance for the financial year ending in March. The measure would reverse a US$3.7 billion private takeover deal completed in 2020. Sony shares fell 4.7% Wednesday at 2:21 p.m. New York time. Sony said it plans to distribute just over 80% of its shares in the financial unit, known as SFGI, to Sony shareholders through dividends in kind and retain just under 20% after the spin-off.

Sony has lowered its revenue forecast after sales of its flagship PlayStation 5 the December quarter was about a million units shy of analysts’ average estimates at 8.2 million consoles. The company also said it now expects to sell 21 million units this fiscal year, up from its previous forecast of 25 million units.

“Looking ahead, PS5 will enter the final phase of its life cycle,” said Naomi Matsuoka, senior vice president. “Therefore, we will pay more attention to the balance between profitability and sales. For this reason, we expect the annual pace of PS5 hardware sales to begin to decline starting next fiscal year.”

The Japanese company now expects sales this fiscal year to be 12.3 trillion yen ($81.7 billion), up from 12.4 trillion yen previously. For the quarter ended December, the company posted revenue of 3.75 trillion yen and operating profit of 463.3 billion yen, in line with analysts’ average estimates.

“The result showed that Sony spent a lot of money on promotions to sell PS5 as the device’s profitability deteriorated, but the number of units it shipped during the quarter was much lower than expected,” said Kazunori Ito, director of research at Morningstar.

Disappointing hardware sales came despite a strong software quarter. Released in October as a PS5 exclusive, Marvel’s Spider-Man 2 sold 2.5 million copies in its first 24 hours, becoming the fastest-selling debut from Sony’s in-house studios. Combined with Sony’s record number of users on the PlayStation Network in December, this has heightened expectations that the PS5 is gaining momentum after years of limited supply.

The key for a profitable gaming division will be maintaining the momentum of the $499 machine. On the market since late 2020, the PS5 has struggled to reach Sony’s audience as production issues and pandemic-related traffic jams limit its availability. In October, the company released an updated version of the PS5 console, making it more compact and energy efficient.

Nintendo Co.’s competitors are expected to (NTDOY) and Microsoft Corp. (MSFT) will release new hardware in time for the holiday season, increasing the level of competition Sony will face.

Apart from its gaming division, Sony had to change its strategy in India after the planned merger of the local unit and media group Zee Entertainment Enterprises Ltd. stalled due to disagreements over leadership. The deal was the centerpiece of a Japanese company’s biggest push into a market of 1.4 billion people.

“Negotiations with Zee are not progressing, but we believe India is a promising market with strong long-term growth potential.” said Chief Operating Officer Hiroki Totoki on a follow-up call. “If there is anything that could replace the Zee deal, we would like to actively consider it.”

Read more at Bloomberg.com.