Tokyo: Sony Corp.’s turnaround is right on track.

The Japanese electronics and entertainment company posted quarterly profit that topped analyst estimates, thanks to demand for smartphone camera chips, a healthy music business and brisk sales of PlayStation 4 consoles and games. Operating profit was 157.6 billion yen ($1.4 billion) in the fiscal first quarter that ended in June, beating analysts’ average projection for 133.3 billion yen. Sales rose 15% to 1.86 trillion yen, topping predictions.

After a tumultuous year that included an earthquake that crippled camera-chip production and a $1 billion write-down in films, the latest quarter is a return to stability for chief executive officer (CEO) Kazuo Hirai. The increasing number of PlayStation 4 owners is driving sales of software and online services, while smartphone makers adopt more camera chips per device and more people pay to stream music. Still, Sony appears to be playing it safe, keeping its full-year profit guidance of 500 billion yen, even though it lifted its sales forecast by 3.8% to 8.3 trillion yen.

“Results are good," said David Dai, an analyst at Sanford C. Bernstein & Co. “But they’re still low-balling their profit outlook, so I would expect to see them continue to beat consensus as well as their own guidance going forward."

Chief financial officer (CFO) Kenichiro Yoshida defended the conservative outlook, saying “for one thing, we only had three months in this fiscal year", Sony decided not to raise its guidance due to “variations of the macro-economic environment, and also cost and demand factors", he said.

The shares of Sony fell 1.8% ahead of the results, leaving them up 36% this year. The Germany-listed shares were down by a similar margin in early Tuesday trading.

During the quarter, Sony finalized the sale of a Chinese subsidiary that produced camera-modules, resulting in a one-time profit of 27.5 billion yen. Declining insurance and recovery costs related to the April 2016 earthquake in Kumamoto also provided a one-time benefit of 9.3 billion yen. Net income was 80.9 billion yen, exceeding the prediction for 66.5 billion yen.

Games, the biggest division by revenue, saw operating profit decline 60% to 17.7 billion yen, while sales rose 5.4% to 348.1 billion yen. The company blamed the sharp profit drop on inflated profits a year ago, when adventure game Uncharted 4 was released. The flagship title went on to become the second-best selling title of the year, according to

Despite the profit drop this quarter, Sony upgraded its games profit guidance for the full year by 5.9% and sales by 4.8%. It sold 3.3 million PlayStation 4 units during the quarter, slightly down from 3.5 million last year. The company kept its forecast to sell 18 million units this year unchanged.

“Games business was revised up because PS4 sales are still strong and Xbox One X, with its high price, is seen less of a threat," Dai said, referring to Microsoft Corp.’s recently unveiled new console.

The PlayStation 4 is heading into a late-stage life cycle, usually the most profitable period for consoles as new titles are sold to an increasing installed base of owners. But this cycle is even more lucrative due to Sony’s online gaming service PlayStation Network, which charges users subscription fees to play with others and lets them download games, generating higher margins than selling physical copies.

Operating profit in chips was 55.4 billion yen, recovering from a loss a year earlier, as the company recovered from last year’s earthquake and demand from phone makers increased due to the rising popularity of multiple-sensor models. Sony controls about half of the market for image sensors, the chips that convert light particles into digital photos and videos. Chip division revenue rose 41% to 204.3 billion yen.

“Demand for Sony’s imaging sensors has been rising further, principally for smartphone use in China," Deutsche Bank AG analyst Mio Shikanai wrote in a report to clients last month.

The company increased its annual profit guidance for semiconductors by 8.3%, but lowered its sales forecast by 2.3%. That drop is probably due to the expected delay in Apple Inc.’s upcoming OLED iPhone version, which will push Sony’s sales out to the next period, according to Dai.

In music, where operating profit grew to 25 billion yen, Sony benefited from its partnership with Spotify Ltd., which has tripled paying subscribers to 60 million in the past two years. The two companies struck a new licensing deal which will see more of Sony’s music available only to paying Spotify users, the Financial Times reported last month.

“Hirai’s background is in the entertainment divisions, and we’re seeing him begin to successfully manage the music and films businesses," Kiyoto Utsumi, an analyst at Tachibana Securities Co., said prior to the release. Bloomberg

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