Weak demand of iPhone X to hurt Sony — JPMorgan

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iPhone X
This file photo taken on Sept. 12, 2017 shows an iPhone X during a media event at Apple’s new headquarters in Cupertino, California. -- AFP

SONY CORP.’s lucrative smartphone camera business may be heading for a slowdown.

The Tokyo-based company’s image sensor business is likely to weaken amid slowing momentum for Apple, Inc.’s iPhones, an analyst at JPMorgan Chase & Co. wrote as he downgraded the company to neutral from overweight. IPhone X production will probably fall 50% quarter over quarter and the weakness is likely to continue for the first half of the year as demand for high-end smartphones plateaus, according to J.J. Park. Sony shares fell as much as 5.2% by midday in Tokyo.

Sony is the global leader in the production of image sensors, camera chips which convert light into digital pictures and videos. Despite a cooling in the smartphone industry, it has benefited from a trend to include multiple image sensors in each phone — a technique used to create better-looking pictures and to power simple augmented-reality functions. In October, Sony raised its profit forecast for the current fiscal year in part because of sensor demand, and shares have rallied more than 60% over the last year.

Weak demand for the new iPhone X will hurt Sony, which gets half of its image sensor revenue from Apple, Mr. Park wrote. He also said the trend for adopting dual cameras is not as strong as first believed, including among Chinese phone makers, which will further hit Sony’s sales.

“Given high market expectation, in our view any shortfall in the semiconductor operation will put pressure on the share price,” Mr. Park wrote. Sony declined to comment on JPMorgan’s report.

Customers seemed to be opting for cheaper models of the iPhone, according to Cowen & Co., which suggested that Apple failed to cram enough new technology into the iPhone X to justify its $999 price tag.

Phone makers such as Apple and Xiaomi Corp. have been outfitting their latest models with two cameras on the back of each device, and in some cases on the front. That lets software compare two pictures to improve photo quality and gauge depth to perform basic AR functions.

But JPMorgan’s Mr. Park suggested consumers are shunning better picture quality for a cheaper price, saying that “high-end smartphones are clearly hitting a plateau along with higher product prices.” He said Sony has a 70% market share for high-end image sensors and is one of the few Apple suppliers whose shares have yet to adjust to waning demand for iPhone X.

“Despite a correction in Apple supply chain names, Sony has massively outperformed its global peers thanks to the structural trend of dual-cam,” Mr. Park. — Bloomberg