SONY GROUP CORPORATION

Sony competes with a wide range of rivals, from multinational corporations to specialized companies, across multiple segments including G&NS, ET&S, and I&SS, and faces the risk of margin erosion due to price competition. In particular, even for products currently in an advantageous position, such as image sensors, there is a risk of losing competitive advantage as competitors improve their technological capabilities, and for consumer products, there is a risk that the shortening of product cycles and price declines will outpace reductions in manufacturing costs. Sony is responding through rapid development of differentiated products and competitive pricing, but the success of these efforts remains uncertain.

Sony has been pursuing aggressive M&A activities, including the additional acquisition of KADOKAWA shares, the acquisition of Bandai Namco shares, and the additional acquisition of an equity interest in Peanuts Holdings, but there is a risk that expected benefits may not be realized due to prolonged or unsuccessful antitrust reviews, failure to realize synergies, or integration costs exceeding expectations. In fact, in FY2025 Sony recorded an additional equity-method investment loss of ¥44.9 billion following the decision to scale back the EV business of Sony Honda Mobility. There is also a risk that capital investments in image sensor manufacturing facilities and other assets (¥227.4 billion in FY2024 and ¥246.7 billion in FY2025) may not be recovered as planned due to demand fluctuations or changes in customer decision-making.

The information systems of Sony and its business partners are exposed to cyberattacks by malicious third parties, including state-sponsored organizations, and the increasing sophistication and automation of attack methods using AI is making defense more difficult. If an information security incident occurs, it could result in significant consequences such as substantial recovery costs, loss of revenue, leakage of customer information and proprietary data, damage to brand image, and legal action by regulatory authorities. Sony has been the target of cyberattacks in the past, and insurance coverage may not be sufficient to cover the full amount of losses.

As Sony operates globally, it is subject to numerous laws and regulations in various countries, including tariffs, export controls, data privacy, AI regulation, competition law, and environmental regulation, and there is a risk that strengthened tariffs and export controls in the United States and elsewhere could increase procurement costs or restrict sales of Sony products. Increased costs are also expected from responding to stricter AI regulations in Europe and other regions, as well as from enhanced disclosure requirements related to human rights and labor practices in the supply chain. Violations of laws and regulations could result in fines, legal sanctions, business restrictions, and reputational damage.

Sony's sales are highly dependent on major markets, with Japan accounting for 10.6%, the United States 32.6%, and Europe 22.7%, meaning that economic downturns or weak consumer spending directly affect business performance. Geopolitical risks such as rising crude oil prices due to worsening conditions in the Middle East, disruption of business in Russia due to the situation involving Ukraine and Russia, armed conflicts, deteriorating diplomatic relations, and changes in trade policy could lead to increased component procurement costs, logistics disruptions, and higher transportation costs. Dependence on manufacturing and procurement in China and other parts of Asia also carries the risk of making it difficult to respond quickly to changing consumer demand.

Since Sony's products are developed and manufactured in countries different from those in which they are sold, fluctuations in the yen against the U.S. dollar, the euro, and emerging market currencies affect its business performance and financial condition. In particular, significant yen depreciation against the U.S. dollar, significant yen appreciation against the euro, and U.S. dollar appreciation against emerging market currencies have historically had adverse effects on Sony's performance, and medium- to long-term exchange rate fluctuations may reduce the profitability of research and development, procurement, production, and sales activities. Sony hedges a portion of its short-term foreign currency-denominated receivables and payables, but the effect is limited to a certain period, and it is difficult to completely eliminate foreign exchange risk.

Sony relies heavily on third-party suppliers for semiconductors, LCD panels, chipsets, Android OS, and other components, and from the second half of FY2025, a global surge in demand for semiconductor memory has led to price increases and supply shortages, posing a risk of adverse effects on the performance of G&NS, ET&S, and I&SS. Dependence on a single supplier or limitations in production capacity for custom-made components could lead to supply shortages, shipment delays, or production stoppages, and inaccurate demand forecasting could result in either inventory shortages or excess inventory, leading to lost sales opportunities or inventory write-downs. Sony is working to secure procurement at reasonable prices and to respond through product design and sales strategies, but the impact could be significant if the situation becomes severe or prolonged.

Sony continues to invest in research and development in growth areas such as G&NS and I&SS, but there is a risk that such investments may not yield the expected returns due to failure to identify market trends, insufficient creation of innovative technologies, or competitors advancing technology development ahead of Sony. In the G&NS segment, the success or failure of platform adoption has a significant impact on business performance, and there is no guarantee that external software developers will continue to cooperate. In the Music and Pictures segments, substantial upfront investment is required before consumer reception becomes known, and there is a structural risk that poor performance in a film's initial distribution market can have a cascading effect on future performance.

Sony holds substantial amounts of goodwill, content assets, intangible assets, and tangible fixed assets, and there is a risk of recording impairment losses due to deteriorating business performance, declining market capitalization, or reduced estimates of future cash flows. In fact, in FY2025 Sony recorded an impairment loss of ¥120.1 billion on intangible assets and other assets in response to the deteriorating business environment at Bungie. Intensifying international competition and rapid changes in technology trends can alter the estimates and assumptions used in impairment testing, creating a structural risk that increases the likelihood of recording impairment losses.

In the Music and Pictures segments, the spread of digital streaming has changed consumer behavior, and there is a risk that Sony's pricing power will decline as digital music distribution companies become increasingly concentrated. There is also a possibility that demand for Sony's content could decrease as distribution companies increase their use of generative AI and other technologies to produce more in-house content. In addition, in the G&NS, ET&S, and I&SS segments, the evolution of innovative technologies such as AI could affect existing business models, and if Sony is unable to respond appropriately to these changes, its business performance and financial condition could be adversely affected.