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Sony shifts strategy to VR and gaming as smartphone slowdown hits image sensors

Sony has revised up its earnings forecast for it gaming and virtual reality (VR) divisions in its latest corporate strategy meeting while cutting its expectations for its image sensor business as the smartphone markets dwindle.

The Japanese tech giant released the revised full-year targets early on Wednesday. The company revised down the targets for its semi-conductor business (which creates image sensors for smartphones) from 1,100 billion yen–1,250 billion yen ($10.7 billion – $12.2 billion) down to 780 billion – 830 billion yen.

Sony blamed the lower-than-expected sales on a slowdown in the smartphone market. This drop-off was due to an increased competition at the top and bottom ends of the market, according to Ian Fogg, senior director of mobile & telecoms at market researchers IHS Technology.

"Sony's component business, for example their camera sensor business, is more exposed to the overall smartphone market volumes," he added "Sony supplies many of its handset competitors such as Apple and Xiaomi, and if those vendors see a slowdown it also impacts Sony's sensor business."

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Nonetheless, the Japanese electronics giant was confident in its gaming division, announcing it had sold 40 million units of the PlayStation 4 since launch in November 2013. Sales targets were revised up from 1,400 billion yen – 1,600 billion yen to 1,800 – 1,900 billion yen.

According to the company, gaming was now one of its largest drivers of growth, with profits exceeding expectations. Sony's new PlayStation VR gaming system will launch in October and the company said it had identified virtual reality technology as a future driver of revenue.

"Virtual reality is an application in which Sony believes it can leverage its technological strengths in areas such as digital imaging, content acquisition and production, as well as its entertainment assets. The company is accordingly engaging with virtual reality across the Sony Group," the firm said in a press release.

People try the new Sony VR headset at the Sony PlayStation E3 event at the Shrine Auditorium in Los Angeles, California, June 13, 2016.
Robyn Beck | AFP | Getty Images
People try the new Sony VR headset at the Sony PlayStation E3 event at the Shrine Auditorium in Los Angeles, California, June 13, 2016.

Virtual reality is expected to shake up the consumer technology sector. Market research firm Forrester predicts there will be 52 million VR units sold in the U.S. by 2020 in a report released in May.

However, Sony faces significant competition from other VR providers, such as the Oculus Rift and HTC Vive, both released this year.

"Sony is well positioned in the high-end VR headset market as it prepares to launch the PlayStation VR targeted at 40 million PS4 users, which represents a bigger addressable market than VR ready PCs. It is also cheaper than the PC-based headsets," Piers Harding-Rolls, head of games research at IHS Technology, told CNBC via email.

"However, the market is increasingly competitive with headsets entering the market across all device categories and with all the leading technology companies making a play for VR, Sony's positioning advantage will become less pronounced over time."

Sony also announced several new initiatives in its strategy meeting. For instance, the company intends to develop "a robot capable of forming an emotional bond with customers, and able to grow to inspire love and affection," according to the press release.

Sony's stocks closed up 4.83 percent on Wednesday in Asia trading, priced at 2,962 yen per share.

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