* Q2 profit 317.76 bln yen vs 197.55 bln yen consensus estimate

* Raises annual profit forecast to 700 bln yen

* Cuts outlook for image sensor biz after U.S. curbs on Huawei

* Targets PlayStation 5 sales of 7.6 mln units or more

TOKYO, Oct 28 (Reuters) - Sony Corp raised its annual profit outlook on Wednesday after posting a record second-quarter profit, as its gaming business continued to capture "nesting" demand ahead of the launch of the next-generation PlayStation 5 (PS5) console next month.

The upward revision also reflects a robust start for Japanese animated film "Demon Slayer", co-distributed by Sony's music unit, which has been shattering box-office records in Japan since its Oct. 16 release.

Higher revenue from gaming and entertainment content gives validation to Chief Executive Kenichiro Yoshida's strategy to increase recurring revenue streams that cushion the impact of volatile hardware sales cycles.

Sony is targeting PS5 console sales of 7.6 million units or more in the year through March, chief financial officer Hiroki Totoki said at a briefing, citing the sales achieved for the PS4 when it was launched seven years ago.

But Totoki also warned of major damage to its prized image sensor business from tighter U.S. curbs on Huawei Technologies Co Ltd, which banned global suppliers from selling it chips - such as Sony's - made using U.S. technology without a special licence.

The Chinese smartphone maker was Sony's second-largest image sensor customer after Apple Inc, accounting for about 20% of its $10 billion in sensor revenue, according to analyst estimates.

Despite efforts to diversify customers, a full recovery in profitability at the image sensor business would come only in the year through March 2023, Totoki said.

"It will take considerable time until other customers adopt the trend of high-performance, large-sized sensors led by the Chinese customer," he said.

Sony raised its annual profit forecast by 13% to 700 billion yen ($6.7 billion), after reporting a surprise increase in July-September profit to 317.76 billion yen, a second-quarter record.

The outlook is above the 672.33 billion yen consensus of 24 analysts compiled by Refinitiv.

The firm now forecasts its gaming division will post an annual profit of 300 billion yen, up from the previously estimated 240 billion yen.

Consumers' shift to gaming software downloads and online subscription services during coronavirus lockdowns boosted profits despite the PlayStation 4 console coming to the end of its lifecycle.

Such high-margin online revenue is likely to help Sony's gaming business stay profitable this year, outweighing massive marketing and production costs associated with the new console launch.

Sony pre-sold as many PS5 consoles in the first 12 hours in the United States as in the first 12 weeks for its predecessor PlayStation 4 device, Jim Ryan, CEO of Sony Interactive Entertainment, said in an interview.

"The demand as expressed by the level of pre-order has been very, very considerable," Ryan told Reuters.

For its sensor business, Sony cut the profit outlook by 38% to 81 billion yen, further trimmed its three-year investment through March next year by 40 billion yen to 650 billion yen, and said it may slow a production ramp-up at a new plant in Nagasaki, southern Japan. ($1 = 104.7000 yen) (Reporting by Makiko Yamazaki; Editing by Christopher Cushing and Kim Coghill)