索尼 (SONY) 2002 Q3 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator today. At this time I would like to welcome everyone to the Sony Corporation third quarter fiscal year 2002 conference call. During the opening remarks, all lines are placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. To queue up to ask a question please press star then the number one on your telephone keypad. Thank you. The conference will now begin.

Thank you very much, Crystal. From Sony investor relations in Tokyo this is Justin Hill. I have the pleasure of welcoming you to today's conference call to discuss our financial results for the third quarter ended December 31st, 2002. In just a moment I will turn things over to our speaker, Teruhisa Tokunaka, Executive Deputy President here at Sony and chief financial officer. Mr. Tokunaka will discuss our third quarter results announced at three p.m. today, Wednesday, Tokyo time. We will then have a question and answer session. In total the call should last about an hour. You can access the press release by choosing investor relations at the bottom of the page at www.sony.com. Please do be aware that statements made during the following presentations in Q&A session with respect to Sony's current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony.

These statements are based on management's assumptions and beliefs in light of the information currently available to it and therefore you should not place undue reliance on them. Sony cautions you a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. For additional information as to such risks and uncertainties, as well as factors that could cause actual results to differ, please refer to today's press release With that I'd like to turn things over to Mr. Tokunaka.

Thank you. Hello everyone. Let me start with our results of the third quarter. Despite prior concern that the year-end selling season especially in the United States is slow, Sony's consolidated results were relatively good. Consolidated sales decreased year on year in the electronics and music segment, but due to the significant (inaudible) increase in (inaudible) picture segment, consolidated sales increased 1.2 percent year on year to two trillion 3007.7 billion yen. This was a quarterly record for Sony. Due to an increase in operating income in the picture, electronics and game segments, consolidated operating income increased 40.9 billion yen, year on year, to 199.5 billion yen.

This was a second largest quarterly operating income we have ever recorded. Following this 222.2 billion yen we earned in the same quarter of fiscal year 1997. This income increased 61.4 billion yen to 125.4 billion yen year on year. This was the largest net income we have ever recorded in a quarter. Regarding other income and expenses, 2.4 billion yen of other income was recorded. A 41.7 billion yen improvement year on year. The reason why other income was recorded were , one, the recording of a profit from foreign exchange hedging and two a decrease in interest expense. Equity in net losses of affiliated companies decreased 6.9 million yen year on year, resulting in the 10 million yen loss recorded by Sony. Sony recorded a 4.2 billion yen loss for our portion of the loss that Sony Ericsson mobile communication, an improvement of 3.2 million yen year on year. Cash Flow for the nine month program between April and December 2001 improved significantly over the same period of the previous year. And significant positive net cash was achieved..

As a result, net debt decreased 240 billion yen from the end of March to the end of December. The significant improvement in cash flow was due to tight control over inventories in the electronic segment and an increase in operating income in electronics, games and picture segment. Now I would like to touch on the results of each of our segments. First, electronics. Sales in electronics decreased five percent year on year. On a geographic basis, sales decreased in Japan and the United States where market conditions were severe. Sales increased in Other area where Asia was particularly strong and in Europe. On the product basis, plasma televisions, projections televisions, digital still cameras and Clies all had large increases in sales. In the component and semiconductor categories, almost all products also increased.

On the other hand, VAIOs had a large drop in cash due to a worsening market conditions and other factors. Sales of CRT-type computer displays and CRT-type televisions also decreased.. Operating income increased 10.1 billion yen year on year to 82.1 billion yen. The first reason for the increase in operating income was a 1 point improvement year on year in the cost of goods sold ratio, which is the 12.4 billion yen improvement. This was due to a strengthening of our profit generating (structure and improvements in our business portfolio through the down sizing and withdrawals of businesses. And the improvement in the product line-up and aggressive material cost cutting.

The second reason for the increase in operating income was a positive impact over the depreciation of the yen against Euro of 17.1 billion yen. Components and semiconductors had a significant increase in operating income. Audio had an increase in operating income, and information and communications recorded a loss. In terms of profitability on category basis, the operating margins of consumer AV, which is the sum of the audio televisions and video categories improved 1.4 from its position of 10.1 percent in the previous year to 11.5 percent, due to an increase in operating income in the audio category, primarily because of the strength of Home Theaters and an increase in operating income of the television categories where Plasma Wega made a contribution - was a consideration.

Was really a contribution. In the information and communication category, the operating performance deteriorated in an (inaudible) created an extremely difficult operating market. The operating margin changed from 2.2 percent in the third quarter of the previous year to minus 2.0 percent in the quarter just ended. That's a 4.3 decrease. The operating performance of semiconductors improved dramatically with an increase in demand for AV related semiconductors, particularly CCD for digital still cameras leading the way. The operating margin moved from minus 6.6 percent in the same quarter of the previous year to 4.3 percent in the third quarter.

A significant improvement of 10.9 points. Profitability in the components category improved as a result of down sizing and withdrawal from businesses and other benefits of restructuring. The operating margin improved 5.5 points from 3.2 percent to 8.7 percent. The CRT, recording media, batteries and optical pickup businesses among others contributed to the improvement. Inventory on December 31st, 2002, amounted to 506.5 billion yen, a decrease of approximately 120 billion yen, compared with the same time as last year. Days to sales was 34, seven day improvement compared with last year. Through the strengthening of our operating management, mainly through EMCS, we have become able to keep our inventories at an appropriate level.

Next I would like to talk about our game segment. Sales in the game business were 384.1 billion yen, flat year on year. Hardware sales declined due to strategic price reductions, even though hardware unit sales of both Playstation2 and PS1 increased significantly in the United States and Europe. Software sales increased as unit sales of PS2 software increased, largely due to the further market penetration of the PS2 console. Operating income increased 5.3 billion yen year on year to 71.7 billion yen. Strong software sales worldwide led to an increase in operating income. Although the strategic price cut of hardware with downward pressure on profits, ongoing hardware cost cutting initiative, and positive effect of the depreciation of the yen against the Euro (inaudible) caused only a small decline in hardware operating income year on year. Inventory on December 31st, 2002 amounted to 144.7 million yen, an increase of 4.4 billion yen year on year, plus a 7.1 billion yen decrease from the end of September.

Inventory levels vary from market and products.. But since sales are strong in the United States and Europe, the overall game segment level of inventory is within our expectations. Now regarding our hardware and software unit forecast for the fiscal year. Our PlayStation2 hardware production shipment forecast for the fiscal year remained unchanged at 22.5 million unit. Regarding PS1, however, due to the strength of sales in the United States and Europe, we have revised upward our hardware forecast from the former level five million unit to 6.5 million unit. As for software production shipment, which is the total number for software units for both PS1 and PS2 software, the strength of sales in the United States and Europe have led us to an increase our forecast from the previous level of 236 million unit to 260 million units. Our next segment is music. Sales in the music segment decreased three percent year on year.

Sales from U.S.-based Sony music entertainment Inc, which accounted for 74 percent of the segment sales on the U.S. dollar basis decreased one percent. This was due to a decrease in album sales brought on by the continuing contraction of the music industry. On the other hand, sales of CD and DVD software, manufactured for the pictures and game segments, increased. Sales of Sony music entertainment Japan which accounted for 26 percent of the segment sales decreased eight percent. This was due to a reduction in album and single sales as a result of the industry decline. Operating income was 20.9 billion yen, a decrease of 2.2 billion yen year on year. Sony music entertainment Inc the United States had a 10 percent decrease in operating income on a U.S. dollar basis.

The primary reason for the decrease were, one, decrease in album sales; two, an increase in our artist-related expenses and three the recording of ongoing restructuring expenses. Operating income at Sony music entertainment Japan decreased six percent year on year. Although cuts in advertising and marketing expenses led to a reduction in selling, general and administrative expenses. the drop in album and single sales caused a decline in operating income. After music now is picture.

Sales in this segment decreased 62 percent year on year. This was mainly due to record sales of the DVD and VHS related to SpiderMan, Men in Black 2, xXx, Stuart Little 2 and Mr. Deeds. In 2002, Sony pictures entertainment broke the industry record for the most worldwide box office revenues of any motion picture distributor in that calendar year. Operating income increased a significant 31.4 billion yen year on year to reach 31.7 billion yen. The primary reasons for the increase in the income were, one, the increased sales in the home entertainment revenue and, two, an increase in the operating income of the TV business. Primarily due to the positive impact of restructuring undertaken in the previous year. Next is the financial services segment.

Financial services revenue increased five percent year on year. The increase was primarily due to the past Sony Life recorded an 8.4 billion yen valuation loss on Argentine government bonds in the same quarter of the previous year. And because there was an increase in insurance revenue brought on by an increase in insurance in-force. Operating income increased 1.5 billion yen to 3.6 billion yen. Despite the negative effect of the difficult asset management environment, operating income at Sony Life increased year on year, because insurance revenues increased and valuation losses on Argentine bonds were recorded in the same quarter of the previous year.

The amount of the loss at Sony assurance decreased as a result of an increased insurance revenue and decline in insurance benefit payment. So the last segment is other. Sales increased 21 percent year on year. This was mainly due to an increase in sales at advertising agencies, subsidiary in Japan and at Sony communications network operations. Operating loss in the other segment expanded 3.2 billion yen compared with the same quarter of the previous year to 6.6 billion yen. Losses were generated as a result of the increase investment in the network application and content service sector. I would now like to discuss the results of Sony Ericsson mobile communications from October of 2002 to December of 2002. Sales increased 18.1 percent year on year to one billion 235 million Euro. Net income improved 70 million Euro to a loss of 69 million Euro.

Shipments increased 3 hundred thousand units to 7.1 million units. The loss to Sony using the equity method was 4.2 billion yen, an improvement of 3.2 billion yen year on year. Sony and Ericsson jointly decided to make a capital injection to SEMC of 300 million Euro. The injection will take place during Sony's fourth quarter. Each Company will invest 150 million Euro and will continue to support SEMC. The purpose of this injection is to strengthen the capital structure of the joint venture and support the expansion of this business. Finally, I would like to discuss our forecast for the fiscal year 2003. We have made no change to the fiscal year forecast we announced in October. We did make some changes to our exchange rate assumption for the fourth quarter. Changing the Euro/yen from 116 yen to the Euro to 125 yen to the Euro.

This should have a positive impact on our results. But due to the uncertain economic culture and waning consumer confidence combined with the improved operations to restructuring and further reduction in the inventory during the fourth quarter, we have not changed the forecast for the fiscal year ending this month. We believe that the fourth quarter will be a difficult one. As a result, we have not changed our forecast announced in October for the fiscal year. We have also made no changes to our forecast for capital expenditures and depreciation and amortization. During the fourth quarter, we will work to improve our operating structure to positive restructuring and improvement in operations and we will work to make sure that those efforts create a strong foundation from which profits can be earned in the coming fiscal year. Thank you

Thank you, very much, Mr. Tokunaka. I think we'll move now directly into the Q&A portion of the conference call this evening. Crystal

At this time I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. We'll pause a moment to compile the Q&A roster. Your first question comes from Stewart Halpern from RBC Capital Markets. Your line is open proceed with your question

Thank you for taking the question. Recognizing that it's premature for you to make specific forecasts about next year, based on the trend you foresee in the PlayStation business, would you expect hardware and software shipments to increase next year over this year?

Yes. Actually, we'll be working on the budget for the next year, but based on the performance of the games segment through the third quarter, I think I can forecast that the -- I can say that it's very difficult for me to estimate a forecast that appears to hardware sales in the next fiscal period will be less than that which we're expecting for this fiscal. My feeling is based upon the very strong performance in the U.S.A. market and European market. Also, based on the past -- the current price level for the console is still significantly higher as compared to the current level of the PlayStation 1 generation. As for the software, if the penetration of the console will be increasing we can assume that the -- based on the increase in the tie ratio, we can expect the higher number of (inaudible) for the PlayStation next fiscal.

For clarification did you also say that you expect the T i.e. ratio to be moving higher

Yes the hardware-software tie ratio (inaudible) is improving. I think we have numbers.

You would expect hardware, software and tie ratio to improve next year as a general trend?

The ratio for the PlayStation2 format has been increasing significantly as the introduction. And reaching very close to that level of the -- the level which we experienced in the PlayStation 1 product.

Thank you very much

Your next question comes from Sue Eaton (ph) from Bank of Investment.

I would like to know what business unit is most exposed to Europe, preferably the sub unit then I would like to know the prospects for your information and communication segment if you've done any strategic decisions to turn it around and secondly how does it fit into the overall vision of Sony? Is it a necessary division, strategically? Thank you.

In our Electronics sales, the sales for television, video and audio, which we call consumer audio visual, has the largest, very significant sales in European market. And in that sense, I think we have a very large exposure in Europe. And out side of the electronics, game segment sales in Europe is very large.

You also had a question, I think, about information and communication?

Yes. I mean the prospects for the division, both I mean how are the operations doing but also how does it fit into your overall strategy of the group and how does it -- is it necessary to carry the loss because of it fits into kind of and helps the other divisions. Is it a (inaudible) part of your overall division and strategy.

The information and communication segment consists of our VAIO computers, our professional products, primarily for the broadcasting and contents creating area, and also Clie, our PDA and computer display. The decrease in this segment primarily come from VAIO decrease in sale and also in the computer display monitors.

I believe that this is very important segment for the Sony strategy in the electronics business, because the segment of, the concept of VAIO computers, if we combine the PC technology with the audio visual technology and the other group, Sony's working to make the consumer electronics product to connect to a network and at the same time we're working very hard to make the VAIO PC to be very close to our audio visual hardware product.

So in that sense the VAIO product remains to be very important. And therefore it's very important for us to improve the performance of VAIO computer. I think I can add that up to the second quarter of this fiscal, the VAIO business has relatively been working very well. And with this forecast we have some difficulty in VAIO, but we are working on to improve the performance of VAIO's category. And I think that we should be able to make it a profitable business.

Thank you

Your next question comes from Edward Williams with GKM. Please press star then the number 1 on your telephone keypad. Your line is open. Please proceed with your question.

Yes, just a couple quick questions for you. Could you let us know how much of the games inventory is hardware and how much is software? And additionally, could you provide any comments as to recent markets that the PlayStation 2 hardware has been launched into or is expected to be launched into in the near future?. Thank you.

I'm sorry to say that we are not disclosing the content of the, the difference between hardware and software in our inventory. So that may contain some competitive information. As for the new markets, we started our business in Korea this year, and for the next fiscal period, we are studying how we can start business in mainland China.

Okay. Thank you

Your next question comes from Rusty Johnson from HLM and Company. Mr. Johnson, please press star then the number 1 on your telephone keypad. Your line is open. Please proceed with your question

I have three questions. First one regards to cash flow. And if you could give us some insight in terms of how much cash you're generating from the operating businesses reduction working capital margins and how much is coming from your banking financial services side that would come in through deposits and insurance policy sales that may not be reflected on the counter side of the balance sheet. Second one is how much did Sony actually pay for their stake in the InterTrust acquisition in November. And thirdly if you could give us some metrics in terms of the restructuring progress which is showing through on the financials, how much has this rolled out Company wide in terms of factories and implementation as an indication of how much more to go in terms of increasing sustainable profitability. Thank you.

Could you hold on one moment, please. Thank you for waiting. As for the cash flow statement, I think I can say that most of the cash flow improvement comes from the business, not financial business.. And the electronics business, game business and picture business contribute almost equally to the improvement in the cash flow.

Okay.

As for the InterTrust, the total acquisition price for this Company, it will be about 450 million yen. And Sony will be paying a bit less than one half of the amount.

The press release is 450 million U.S. dollars. You said yen. Which is it?

U.S. dollars. Sorry. U.S. dollars.

Right.

We'll be paying about one half of that.

Okay. Could you repeat

Could you repeat your third question about the restructuring

Milestones and the restructuring progress, for example how many factories actually implemented these changes and to what degree the structural improvement profitability could be expected to continue across time.

I'm going to ask you to hold again for just a couple more minutes.

Thank you for waiting. We are executing various restructuring efforts. one of the examples is that in 1999 we announced that we'll be decreasing our plant from 70 in 99 but we'll be decreasing significantly to 55 or six factories. We perceive that and today we have 54 factories worldwide for electronics. That's one of the areas of the restructuring. As for the cost of those restructuring, in the fiscal year '01 we spent 90 billion yen for both Sony electronics and Aiwa and this year we expect to increase spending about 70 billion yen.

As for the effects of the restructuring efforts, based on our restructuring investment over 90 billion yen in '01, we are assuming that in this fiscal period we are having the effect of the restructuring efforts of about 100 billion yen. And next year, based on restructuring expenses of about 70 billion yen, I think we can expect a similar amount as an effect of those restructuring. In the music segment, in our fiscal year 2001, we spend 68 million dollars. And we are assuming that the positive effect based on those restructuring to be in excess of 100 million dollars this year. And this year we are, Sony music is trying to spend about 100 million dollars for the restructuring and I think we can assume the similar effects in the coming fiscal period.

Okay. Thank you very much

Your next question comes from Sean Milne from SoundView Technology. Please press star then the number 1 on your telephone keypad. Your line is open please proceed with your question.

Thank you for taking my question. Two questions on the gaming segment. One, can you just aggregate the inventory level. You talked about it being up a little bit year-over-year and down from September. I would expect it down from September is related to the dock strike. But if you could just aggregate the inventory between software and hardware. And the second question is, your forecast for the PS2 remained unchanged at 22.5 million units. We counted shipments year-to-date, fiscal year-to-date are roughly 21.3, 21.2. that would imply March is only 1.3 units down, pretty significantly from a year ago. Is that related to, one, Japan, two, inventory or, three, any kind of possible moves with the channel ahead of E 3 or destination PlayStation? Thanks.

Okay, as I said, we are not disclosing the breakdown of hardware and software in our inventory. But I think I can say that last year, last fiscal, for the Christmas sales, we had to use a lot of airplain (ph) because our production capability at that time was not sufficient and we have to have, last year, production, trip to the market using the air, In this fiscal or last year's Christmas sales, since we have established production capability. We didn't have to use airplain (ph) (inaudible) and we shipped everything by sea to the markets.

And so the last fiscal, because of the situation, our inventory levels at the end of December, it was very tight. And despite the fact that usually we use the January to March period to make various adjustments in our production, the last fiscal we have a very significant number of production in those quarters. But this year, because of those situations, I think we will be adjusting our production and shipment level in the last quarter to prepare ourselves for the next fiscal. So I think the fourth quarter for the PlayStation this year, this fiscal, will be kind of an adjustment period for the hardware.

Thank you

Your next question comes from John Taylor. Mr. Taylor from Arcadia Investments. Press star then the number 1 on your telephone keypad. Your line is open. Please proceed with your question.

Good morning. I have two questions related to inventory on the PlayStation. The first is, in your disclosures, you note that there's a difference between units that are produced production units and units that are shipped. I'm wondering if you could give us a sense of what the typical difference is between those two numbers. And the second question is related to what Shawn just asked, and that is, can you give us a sense of perhaps how much inventory is at retail in the major markets around the world, how much PS2 inventory in units might still be in the stores after the holidays. Thank you.

Thank you for waiting. We are disclosing the production shipment numbers which is very close to our (inaudible) factory numbers. And therefore from the consolidated standpoint, the production shipments are actually you can take it as the production level of numbers. And the difference between the production and the actual sales in the inventories and we have been discussing our numbers only with respect to the production shipment numbers, which is the production numbers. And we are not disclosing the actual number of the inventory for the hardware.

Could I follow-up on that? Is there much variability by quarter on that? Or is the percentage roughly similar each quarter regardless of the season?

I think there are a few significant differences. And this is a function between the production and actual sales. And as we reach the Christmas sales, we significantly increased our inventory to prepare for the Christmas sales. And after Christmas, we usually use the January-March time period to make the necessary adjustments. Certainly the annual business cycle for the game division, because of the fact that our sales heavily depends on, on the third quarter.

Okay. And then do you have any information on what kind of retail inventories there might be?

I'm sorry. I do not at the moment have that inventory level detail.

Okay. Let me just follow up. I think you mentioned this in your prepared remarks. But could you clarify what you said again about the margin on PS2 hardware that you booked in the December quarter versus the previous year, even though prices came down?

We're going to take a couple minutes.

I think I can say that we are making appropriate activity for the PlayStation 2 Hardware this year. And also we made appropriate from the hardware sales, PlayStation hardware sales previous fiscal period. But because of the decrease in prices, the total hardware related profitability decreased in this year as compared to the previous fiscal year. That's the message I wanted to convey.

Okay. Thank you.

Your next question comes from Peter Boardman (ph) from MWQ. Press star then the number 1 on your telephone keypad. Your line is open. Please proceed with your question.

Hi. Good morning. How are you doing? I wanted to ask two questions. First of all, I noticed on the equity and net losses of affiliate companies, that line that, in the third quarter that there's a reduction of six billion yen from 16 billion to 10 billion, even though there was an improvement from SCMC of about three million. Could you go over the details of these equity in affiliate companies. The second question had to do with your Sony Ericsson joint venture. Basically I see that you're infusing more capital into that Company, and I'm wondering how much longer will you be investing in this Company? How much is enough in the joint venture and are you finding it very difficult to restructure bus it's a joint venture with Ericsson? And so you might not have complete control over that operation.

Give us one moment. Thank you for waiting. Let me clarify that the equity method profitability improved from the loss of 16.9 billion yen to 10 billion yen. The improvement comes from basically two factors. One is Ericsson, which is improvement of 3.2 billion yen. And also the 1.9 billion yen comes from improvement in losses in the companies which we call American Video Glass, which produces glasses for the CRTs. So those two factors explain improvement in equity and net losses. conservative changes in the improvement equity and net losses.

Okay.

The next question is about the SEMC capital injection. We decided to make the additional capital because, first of all, those joint ventures are very important from Sony's standpoint. And of course we are trying to create a very connected market, connected hardware. And in that sense the technology will become more and more important for Sony's business in the future. We did experience the losses in this fiscal period. But our management at the joint venture is working very hard to make it profitable and we are expecting that the joint venture will become profitable next year.

In the next fiscal period, I think we can expect that the delays in introduction of the new products which is one of the major cause for problems for the joint venture this year, will be very small. Because there's new models which we are starting for the next fiscal will be using the technology basically has been tested in this fiscal period. And therefore we believe that this related to delays in introduction of new products is significantly reduced in the next period.. And also the product has been designed after the formation of the joint venture will be coming out in the next fiscal, for this calendar year. And that should contribute to the performance of the joint venture Company. So we support for the joint venture and based upon that thinking we made decision to make capital investment.

All right. Thank you

Your next question comes from Connor O'Mara (ph). Please proceed with your question

We've seen in recent retailer results that a lot of retailers are now talking about the excess inventory that overestimated at electronics demand for Christmas. I'm just wondering whether that's a trend you have seen elsewhere in the world and so is there excess inventory that needs to be worked out over the next few quarters? And also related to that, is there promotional pricing moving from the states into other regions, too? Thanks.

One moment, please. Thank you for waiting. As for the electronics business area, our inventory control efforts have not only our inventory on hand, but we are watching the inventory levels at the retailers. And we understand that as of this moment, as for the Sony products, we do not have the problem relating to the inventory levels, including the retailers. And our efforts is , the worldwide efforts and therefore it's covered not only the United States but also the other territory worldwide. As for the pricing pressure you talked about, for example, in the United States, we decreased our price for digital still camera Because there was a significant decline in price there.

But we are not competing with prices either. And our price level are still higher than competitors. But because of those moves we were successfully significantly increased our sales of the digital camera in the United States. And also the profitability of the digital still camera was very good on a consolidated basis. And as for the general comparisons between the markets, the price pressures in the United States is the most severe . As compared to the U.S.A. market, the pricing pressures are not significant in other markets.

That's great. Thanks so much.

We'll take one more question before we end the call.

Your final question comes from Doug Fisk from Southwest Securities. Press star then the number 1 on your telephone keypad. Your line is open. Please proceed with your question.

Thank you. Can you talk about your product shipment goal for calendar '03 by market for PS2 and PS1? Thanks.

Two things: We have yet to decide as to the number of PlayStation2 shipments for the next fiscal because we haven't finalized our budget. But my feeling is that as I said I've not foreseen that the PlayStation2 numbers for the next fiscal period to be less than that of this fiscal. As for the PS1, although we made upwards adjusted the number of the products for the PS1 this year, I am not so sure about the next year, because if you look at the current pricing in the United States of about $50 for the console unit for the PS1, I think the pricing level is reaching very close to the bottom. So I need to come up with the actual planning for the next year to answer your question.

But my personal feeling is that I cannot expect the level of the PS1 calendar year (inaudible). We are not discussing about the geographic breakdown of the hardware number, but I think the challenge is in the Japanese market. The market for the PlayStation2 in the United States and also in Europe is very good. And our target market and the users segment is expanding. Therefore, it is safe to say that we can expect good sales for the U.S.A. and European markets. But in Japan, we are experiencing some not growth or some decline in PlayStation2 hardware.. Where we can -- I think we should be able to do something next fiscal to make it revitalized. The pricing level of PlayStation 2 in Japanese is still at the market is still at the level of 25,000 yen level. This is really high for the last number. I think with those elements, I think there are room for the pricing improving the performance in the Japanese market.

Great. Thanks very much Mr. Tokunaka.

I would like to take the opportunity to remind everyone of our investor relations contact information in Tokyo Mr. Pseudo and other staff can be reached at zero three four five four eight eight one two eight zero. In New York couple could I can be reached at 212-933-6820 and 212-833-5011. In London, Hawaiian knack co-mute tow are available at 44-207-426-8760 or seven four two six eight si74268606. Again. Thank you very much for joining us today. Have a good day.

Thank you for participating in today's conference call. You may now disconnect.