Sony Group Corp (SONY) reported earnings that beat Wall Street's expectations on Thursday, yet shares still slid in premarket trading as investors digested warnings about memory supply costs that could impact PlayStation 5 profitability.

Beating Expectations Across the Board

Sony's consolidated sales climbed 0.5% year-over-year to $24.11 billion (3.71 trillion yen), topping analyst expectations of $23.88 billion. Earnings landed at 41 cents per share for the third quarter, comfortably above the consensus forecast of 33 cents.

The real story lies in how different parts of Sony's empire performed. Consolidated operating income jumped 22% to 515 billion yen, powered largely by the company's image sensor business. Net income rose 11% to 377.3 billion yen, and Sony closed December with 2.09 trillion yen in cash and equivalents.

Gaming Division Shows Mixed Signals

Sony's Game & Network Services division generated 1.61 trillion yen in revenue, down 4% from last year. The culprit? Hardware sales declined due to lower PS5 unit sales. The company moved 8.0 million PS5 consoles during the quarter, down from 9.5 million a year earlier, though up sequentially from 3.9 million in the previous quarter.

But here's where it gets interesting: operating income in gaming actually increased 19% to 140.8 billion yen. The boost came from network services and first-party game software titles, showing that Sony's recurring revenue streams are doing the heavy lifting even as hardware sales soften.

The Memory Problem Nobody Wants

CFO Lin Tao addressed the elephant in the room during the analyst call, according to Bloomberg. While Sony has secured enough memory supply for the PlayStation 5 through the next fiscal year, rising memory costs could still bite into PS5 sales. The company is working closely with suppliers to ensure adequate supply meets demand, but the cost pressure is real.

Despite global memory shortages, Tao expects minimal impact on Sony's sensor-making division, which focuses on high-end smartphones.

Winners and Losers Across Segments

Sony's Music segment delivered robust momentum, with revenue climbing 13% to 542.4 billion yen and operating income rising 9% to 106.4 billion yen.

The Pictures business had a rougher quarter, posting an 11% revenue decline to 353.3 billion yen due to lower theatrical release revenues. Operating income fell 9% to 30.9 billion yen.

Entertainment, Technology & Services saw revenue drop 7% to 658.1 billion yen, driven by decreased unit sales in displays. Operating income declined 23% to 59.4 billion yen.

The star performer? Imaging & Sensing Solutions, where revenue surged 21% to 604.3 billion yen thanks to higher sales of image sensors for mobile products. Operating income in this division jumped 35% to 132.0 billion yen, essentially carrying the entire company's operating income growth.

Looking Ahead

Sony raised its fiscal 2025 revenue forecast to 12.3 trillion yen from the prior outlook of 12.0 trillion yen. The company also lifted its operating income expectations to 1.54 trillion yen from 1.43 trillion yen.

One wrinkle remains: Sony still expects additional U.S. tariffs to reduce operating income by 50 billion yen.

Sony shares were down 1.87% at $21.50 during premarket trading on Thursday.