索尼 (SONY) 2002 Q4 法說會逐字稿

Good morning. My name Leticia and I will be your conference facilitator today. At this time I would like to welcome everyone to the Sony Corporation’s 4th quarter fiscal year 2002 conference call. During the call all lines are played on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. To queue up please press star one on your telephone key pad. Thank you. The conference will now begin.

Thank you very much. I would like to apologize to everyone out there for the late start of this conference call. I am Justin Hill with Sony investor relations in Tokyo. I have the pleasure of welcoming you to today’s conference call for the financial results for the fiscal year ended March 31, 2003. In just a moment I will turn us over to our speaker, Teruhisa Tokunaka, an executive deputy president here at Sony and our chief strategy officer. Mr.Tokunaka will discuss our fiscal year results which we announced at 3p.m. today, Thursday 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 that we issued today by choosing investor relations at the bottom of the page at www.Sony.com. Please be aware that statements made during the following presentation 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 assumptions and beliefs, in light of the information currently available to it and, therefore you should not place undue relies 0reliance on them. Sony cautions you that 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 risks and uncertainties as well as factors that could cause actual results to differ, please do go ahead and refer to our press release of today. With that I would like to turn things over to Mr. Tokunaka. Mr. Tokunaka?

Thank you. Although we achieved a year on year increase in consolidated operating income over the 2002 fiscal year, our results for the 4th quarter were well below the level of our January forecasts. After explaining our operating performance over the year, I will comment on the gaps between our forecasts and actual results for the fourth quarter. Looking back over the year just ended, the pictures segment enjoyed the significant increase in sales, but due to a decline in consumer spending and intense pricing pressure, the electronics segment had a drop in sales. And our consolidated sales decreased slightly year on year to 7.4736 trillion yen. Operating income was 185.4 billion yen, an increase of 50.8 billion yen year on year that resulted from an increase in operating income in electronics, games, and pictures segments. As to income before income taxes due to recording of a gain on Sony's equity interests in Telemundo and a net foreign exchange gain, non-operating performance improved considerably and income before income taxes increased 154.8 billion yen to 247.6 billion yen.

As to net income, although we recorded a minority interest in the income of consolidated subsidiaries and equity in net losses of affiliated companies increased, the significant increase in income before income taxes caused net income to increase 100.2 billion yen year on year to 115.5 billion yen. Cash flow excluding financial services improved significantly year on year due to the contribution of the electronics, game and pictures segments and a large positive cash flow was achieved. As a result, our interest bearing debt decreased. I would now like to make some remarks about the actual results for each segment.

First Electronics. Electronics sales decreased 7% year on year to 4 trillion 940.5 billion yen. On a geographic basis, sales decreased in the U.S. and Japan where market conditions were severe. Sales increased in other areas, where East Asia was particularly strong, and in Europe. On a product basis, sales increased significantly in digital still cameras, and plasma televisions and Clie. Semiconductors and components also increased. On the other hand, sales of Aiwa, VAIO PCs, and CRTs for computer displays decreased significantly. Operating income increased 42.5 billion yen year on year to 41.4 billion yen. The increase was mainly due to a 43.4 billion yen improvement in the cost of sales ratio and a 37.6 billion yen benefit from the depreciation of the yen. Inventory at the end of the fiscal year was 432.4 billion yen, a decrease of 80 billion yen from the end of the previous year. We believe that our inventory is at an appropriate level.

Next Games. Sales decreased 5% year on year to 955 billion yen. Due in part to strategic price reductions on PlayStation 2 hardware, sales revenue decreased in Japan and the U.S. In Europe, however, due in part to the depreciation of the yen against the Euro, hardware sales revenue increased. Although unit sales of PS2 decreased in Japan, they increased in Europe and the U.S. Software sales increased and a record high was reached for the number of combined PS2 and PS software units sold. Operating income for the segment increased 29.7 billion yen to 112.7 billion yen. In terms of hardware, the size of our profit increased year on year due in part to continuing reductions in the manufacturing cost of the PS2, including the result of our investment in semiconductors, and the benefit of the depreciation of the yen versus the Euro. In terms of software, operating income increased due to the strength of sales in Europe and the U.S. Inventory at the end of March was 143.4 billion yen, an increase year on year of 24.4 billion yen, and a decrease of 1.3 billion yen from the end of December. Because PS2 has captured a commanding position in the global market for game consoles and we expect strong demand to continue, we do not think this is a level requiring concern.

Now Music. Sales decreased 1% year on year to 636.3 billion yen. Sales of SMEI, our U.S. subsidiary which comprises 72% of segment sales, increased 5% on a U.S. dollar basis. Manufacturing sales of DVD software to the pictures and game segments increased. Sales of SMEJ, our Japan-based subsidiary which comprises 28% of segment sales, decreased 10% due to the continued contraction of the market. An operating loss of 8.7 billion yen was recorded compared with operating income of 20.2 billion yen in the previous year, a deterioration of 28.8 billion yen. SMEI recorded an operating loss compared with operating income in the previous year. The loss resulted from an increase in restructuring expenses and a decrease in record sales. SMEJ’s operating income decreased 81% year on year due to its decrease in record sales and the recording of restructuring expenses.

Now we move to Pictures. Sales increased 26% year on year to 802.8 billion yen. This represented the highest sales ever recorded in our pictures segment. The theatrical and home entertainment performance of Spider-man, Men In Black 2, Triple X, and Mr. Deeds were very strong. Operating income increased 27.7 billion yen year on year to 59 billion yen. The primary reasons for the increase in operating income were (1) the strength of the theatrical and home entertainment performance of the films I just mentioned and (2) an increase in the operating income of the television business due to the recording of restructuring expenses in the previous fiscal year and a decrease in losses on new network television shows and pilots due to that restructuring.

Now Financial Services. Financial services revenue increased 6% year on year to 540.5 billion yen. Revenue at Sony Life Insurance increased due to an increase in insurance in force. There was also an improvement in gains and losses from investments in the general account because, even though a slight loss was recorded due to the devaluation of Argentina’s government bonds this fiscal year, that loss was smaller than the loss recorded in the previous year. Operating income increased 1.2 billion yen to 23.3 billion yen. The increase in operating income resulted from the increase in insurance in force and improvement in gains and losses in the general account at Sony Life.

The other segment is last. Sales in this segment increased 23% year on year to 250.3 billion yen. This was due to an increase in sales at an advertising agency in Japan and at NACS related businesses. Operating loss increased 15.3 billion yen year on year to 32 billion yen. This was due to an increase in expenses associated with the creation of platforms in the NACS sector and an impairment on professional-use imaging software. I would now like to touch on Sony Ericsson Mobile Communications which we account for under the equity method. For Sony’s fiscal year, that is the year ending March 31, 2003, sales were 3.86 billion euro, loss before income taxes was 404 million euro, and net losses were 348 million euro. 22.49 million units were shipped during the year. The effect to Sony, for the year, of our portion of the joint venture was a loss 20.8 billion yen. For the January to March quarter that is, Sony’s 4th quarter, sales at Sony Ericsson were 805 million euro, loss before income taxes was 113 million euro, and net losses were 104 million euro. 5.4 million units were shipped during the quarter. The effect to Sony, for the quarter, of our portion of the loss was a loss of 6.5 billion yen.

Now I would like to explain the difference between our actual results and our forecast issued in January. The electronics and music businesses were the primary causes for our operating income to be lower than our forecast. In electronics, operating income was lower than our forecast primarily due to (1) an acceleration of reductions in inventory to bring inventory down to a level appropriate given the uncertain operating environment. (2) an increase in patent related expenses, and (3) a decrease in gross margins as a result of a decrease in sales. In the music segment, restructuring expenses increased due to an acceleration of restructuring at SMEI.

Today CEO Idei made a speech in which he announced his target for a 10% operating margin in our businesses other than financial services. He also made some other announcements which are within the CEO remark section of the press release. I encourage you to read that section of the release.

I will now conclude my remarks with a description of our forecast for the 2003 fiscal year. Consolidated sales for the 2003 fiscal year are expected to be 7.4 trillion yen, operating income 130 billion yen, income before income taxes 130 billion yen, and net income 50 billion yen. Our exchange rate assumptions for the fiscal year are approximately 115 yen to the dollar and approximately 125 yen to the euro. We expect the current uncertain business environment to continue in fiscal year 2003. The total restructuring expenses we plan to incur for the 2003 year is approximately 140 billion yen. This is part of what we expect to be 300 billion yen in restructuring charges to be incurred over the next 3 years. The bulk of that expense will be incurred in the electronics business.

Over the next three years, we will invest 200 billion yen in semiconductor facilities in our game segment for next generation broadband processors and LSI. 73 billion yen of that figure will be invested in fiscal year 2003. Capital expenditures for all of Sony during the 2003 fiscal year are expected to be 310 billion yen, an increase of 48 billion yen from fiscal year 2002, and depreciation and amortization is expected to be 390 billion yen, an increase of 38 billion yen over the previous year. Thank you very much.

Thank you very much Mr. Tokunaka. I think we would now like to move on to the Q&A part of the conference call. I would actually like to begin the Q&A session with a question we received by email. The email comes from Mr. Michael McNaught-Davis (ph) with Martin Curry and Mr. McNaught-Davis comments that there was a much worse than expected loss in the 4th quarter in the electronics division and he would like to know what the reasons are for the loss in the electronics division for that quarter.

The reasons for the decrease of sales in the 4th quarter and the result of the -- our efforts to reduce the inventory including the reduction in production level and also there were patent-related expenses which we incurred during the 4th quarter. The effect of the inventory related factors and the factors relating to the sales decrease is about a bit less than one-half of all of the effects on the operating profits for this quarter.

Okay. Actually, now I would like to go to a question on the phones, if you wouldn't mind, Leticia.

At this time I would like to remind everyone to ask a question please press star and the number one on your telephone key pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Taizo Ishida (ph) with Wellington Management. Please press star one on your telephone key pad.

Hello?

Your line is now open, please proceed.

Hi, Mr. Tokunaka. The question is, the restructuring and charges for the next 3 years, 300 billion yen. Why you are allocating each year 100 billion yen -- I mean, this year, 140 billion yen instead of just doing 300 billion at once? If you know the -- what you’re going to use for the money for the next 3 years, I don’t know for what you are going to use, but why not do it now instead of wait for the next 3 years?

It may be -- of course, it is a -- possible to do it --not possible. It is a judgment -- management judgment do it but our target is to improve our performance by year --- fiscal year ’06. And this is the commitment of the quarter number of the restructuring charges we will be spending over the next three years. The -- this is the amount of money which we -- we thought we would be spending but this is -- we are -- resources --- it could take about three years to (inaudible). As for the restructuring charges of 140 billion yen which we will be spending this year. The actual elements of the restructuring and actual plans will be reviewed and decided in this fiscal year.

Just to confirm, I guess the impression I have is Sony doesn’t want to report losses this year, that’s reason why you don't do this once or just something else, like labor issues maybe takes time over the next few years. I just don't know, you know, the real reason why, you know, you’re not taking this charge at once.

We thought that it would be difficult to do all of those things in such a short time period.

Okay. Thank you.

Thank you. Go with another call.

Your next question comes from Jordan Wan (ph) of Metric Capital. Please press star one on your touchtone key pad. Your line is open. Please proceed with your question.

Hi. I just wanted to get your thoughts on cash flow for next year and how you're thinking about spending between the capital expenditures on, you know, the semi division which you have already announced and talked about but also as it relates to the potential share buy-back.

In this fiscal year we're certain we will be spending for the year restructuring expenses and for the semiconductor investments, but we are -- we are expecting that the cash flow for this year will be close to break-even.

Is there anyway you could clarify just with a little more detail, operating cash flow, expected pay down of debt, restructuring charges, and potential share buy-back and CAPEX, is there anyway you could break out those numbers?

Could you hold on for just one second?

Sure. Thank you.

Can we actually respond to that question later on in the call?

Sure.

I'll make sure that we give you a response. We'd like to move to the next caller, but we'll give you an answer later on.

Great. I guess but thank you.

Great. Thank you.

Your next question comes from Shawn Milne from SoundView Technology. Please press star one on your telephone key pad. The line is now open. Please proceed with your question.

Thank you. I wanted to ask a little bit about the game business in the forecast for next year. On the prior conference call, you had guided that PS2 units would be up next fiscal year, without quantifying it. This morning you’ve guided down to 20 million units, from 22.5 million down about 10%. Can you break that out geographically and talk about, you know, any color behind that change in forecast and possibly inventory rebalancing in that forecast? And secondly if you could talk about this software unit forecast and maybe break it out between PS2 and PS1. Thank you very much.

We are not disclosing the geographical breakdown, but in the Japanese market we are expecting that it will continue to be slow, the US and European potentials are still very high. As for the number of units which is less than the number of units for the last fiscal is the current plan for the company. They are -- and this number may be -- may turn out to be conservative, but that is the current plan for this year.

Does that take into account a hardware price cut?

We are not discussing the price -- future pricing strategies but the history is that the -- the cost of the products come down we expect the price to increase (inaudible) basically doing.

Okay .

I would like to address another Email question if we can from -- again from Mr. McNaught-Davis at Martin Curry. He asks what the plans are to the life insurance business, the Sony Life business. Is Sony still looking for a buyer or a partner in the Sony Life business?

The position about the Sony life insurance does not change. That is that we are still talking but there is no specific decisions made and there is no --- therefore we are not in a position to discuss the details about it. We will advise you when we will be in a position to say something different.

Thank you very much. And now we'll take another call.

Your next question comes from Edward Williams from Gerard Klauer Mattison & Company, Inc. Please proceed with your question.

Just a couple quick questions for you. Could you discuss the most recent trends that you have been seeing for the games business in the Japanese, North American, and European market and could you also elaborate a little bit on when the new fab will be up and running and producing chips at a mass market rate for the Playstation 3?

Hold one second.

Yeah, market trend. The USA market increased significantly last year. The Playstation 2, we shipped 11.16 million units of Playstation 2 and they were good software titles, so we are expecting that the -- our sales will be increasing in the United States. For Europe also increased last year and we shipped 7.85 million units of Playstation 2 last year and we expecting the market to grow for Playstation 2. As for Japan, the sales is not good in Japanese market and we’ll be introducing the new modem for this market which is similar to the one we sold about 1 million units in the United States and there will be more software titles coming out for the Japanese market so we are hoping that the Japanese market will be revitalized this year.

Okay, thanks. And then what about the new fab, when do you expect the chips and the fab to be up and producing at a mass market level?

We are not discussing the timing for the operational level of the plant because that may indicate the introduction of the next generation product. So I'm sorry but I cannot discuss that.

Okay. Thank you.

Thank you. We'll take another call.

Your next question comes from John Taylor of Arcadia, please press star one on your telephone key pad. Your line is open, Please proceed with your question.

Hi. I have a question about the inventory in the game segment, and then I didn't give another question but if you will let me I would like to ask it after this one. You mentioned the yen value of inventory in the game segment. I wonder if you could give us a sense of what the hardware and software units are underneath that value amount and/or maybe give us a geographic breakdown percentage wise? And then if you'll let me I've got a question after that.

Yeah. I'm sorry, but because of the -- the competitive reasons we are not discussing that breakdown of the inventory. We are disclosing the total amounts, but we are not disclosing the hardware/software ratio and so forth so -- but this is the level of the inventory at which we are not concerned.

Okay. Okay. And then I don't know if you can deliver this on the fly or not but there's, the discussion about the PS3 technology seems to revolve around a thing called cell technology and there's been a little confusion I think in the press lately about whether cell technology is likely to be in PS3 or whether there's likely to be something else, maybe a middle step between the emotion engine or the current technology and the PS3. Could you help us understand whether cell is likely to be the technology within the PS3?

Sony computer entertainment is not discussing about the Playstation 3 yet. They are discussing about the new semiconductor technology and development of the network capable processor which they call cell. This processor can be used in the entertainment areas as well as the consumer electronics areas, so that is the nature of (inaudible). This is a totally new type of processor which they are developing in cooperation with other companies.

So for those of us who are assuming that cell is the basis of PS3, can you give us a -- is that -- is it premature to assume that?

Yeah. They are saying that they are doing this development but they are not discussing about the Playstation 3 or the timing or whatever because the Playstation 2 business is at the level where we can expect the good--businesses over the next few years and discussion about the possibilities of the next generation products may affect the market. So as a matter of policy, we are not discussing that. We are discussing about technologies but we are not discussing about the product.

Okay. All right. Thank you.

Thank you.

Thank you. Again we'll go to another call.

Your next question comes from Peter Bordman (ph) of NWQ. Please press star one on your telephone key pad. Your line is open. Please proceed with your question.

Hi. I had a couple questions. First of all, could you give us a little bit of clarity on this restructuring charges in the 4th quarter and for next year? What specifically are you doing here? Which factories are being affected, which products are being affected here? And I guess in terms of strategy, instead of just closing factory, why don't you sell it, or is that possibility available? That's my first question. The second one was regarding the Playstation, I noticed the profitability, the margins have been coming down quite a bit in the 4th quarter and I assume, but given the strong sales of software, I would have expected more profit margin from the Playstation and also for next year, and I was wondering are we looking now at peak profits here? Is this the – is it that compared to last cycle, the margins for Playstation or for the games or not, not possible to be increased?

Could you hold one moment, please? Thank you for waiting. In the 4th quarter our expected charges in the electronics business was in line with what we expected, that is, the -- about 30 -- 30.5 billion yen. The breakdown of that number is -- that we expect -- we are expecting a higher number of Aiwa-related restructuring in the 4th quarter but the bulk of the restructuring charges was in the Sony electronics business.

Which area, which product?

Which product?

I mean, which -- which area, audiovisual, television, semiconductors?

Hold again for just a moment.

Yeah.

About one-third of the amount was relating to the personnel related expenses and the other related to the many businesses of the Sony electronics business but spreading over many areas.

Okay. What about next year for restructuring?

The specifics of the restructuring for this fiscal, the planning for the amount I mentioned is yet to be decided. We will be studying those possibilities and making decisions but we do not have specific plans for the amount which I mentioned which is a fairly significant amount of money.

You have mentioned in the past you have 55 factories. How many factories -- you're going to close one factory I know in Texas. Any other factories that you have been planning on?

No, we don't have the business plans for those things today. We've been studying the possibilities and making decisions in the future for this year.

And then regarding Playstation?

One moment. 4th quarter is slow in any year for the game business because after the Christmas sales season the retailers will be -- and customers are slow and, therefore, in the 4th quarter we usually decrease production to prepare for the next year. That is what we usually do in the game business.

Given the cycle, do you think that this cycle, that the potential for profit margins from your games division is --are we -- have we peaked out here? Is this the best it’s going to get or can it get better?

We are expecting a little bit lower profitability for the game division for this year as compared to what we -- what we had last year fiscal.

Okay.

But we are expecting that month to -- it's not -- our expectation for the Playstation 2 is that because of the very strong trends in USA and Europe the sales for Playstation 2 hardware and software will continue at (inaudible) level. That is our expectation at this moment.

There's one other thing I forgot to ask about this patent -- what was this patent charge that you mentioned?

This is a delicate thing because there are some areas where we -- there is investigations or in negotiations and so forth, so we -- I will have to decline the details about the patent-related charges.

Okay. All right.

I'm sorry that I cannot answer that question. It is a very delicate area.

Okay. All right.

You're talking about 4th Quarter, right.

I mean it seems like a big surprise for me but -- okay. All right. Thank you.

All right. At this time I would actually try to get --I would like to go back to the question that was asked earlier about cash flow. I believe the question was regarding where we see projections for our cash flow for this fiscal, where we expect to see amounts spent on capital expenditures, amounts spent on a potential, if possible, share buy back, et cetera.

Okay. Luckily, we are expecting the -- the break-even. The details for that are, let's say, about 50 billion yen net income after tax and plus depreciations of 390 billion yen. So the operating cash flow will be approximately 440 billion yen. And they -- capital investments will be about 300 billion yen and therefore -- and there are some other investments. And, therefore, our cash flow will be just about break-even. That is our current expectation.

Do you have any comment about the share buy-back?

As of this moment, we do not have any fixed plans to buy back the -- our shares.

Great. I think we'll move now to another question.

Your next question comes from James Bulford (ph) with Deutche Asset Management (ph). Please press star one on your telephone key pad.

Good evening, I have two questions. On the first one, I was wondering would it be possible to give some sort of guidance for the divisional profit split behind this year’s forecast of 130 billion yen, if not precise numbers, some indication of which division is being particularly hard hit?

Yes. I take your second option. We expect that the --the picture business will have the largest decrease in the profitability this year and next year the game and the electronics business will be similar level of decrease from the previous years. That is the best I can -- we are not disclosing the segment forecast so --

Okay. A subsequent question: Your forecasting rather low profit margins in the current year impacted by restructuring costs, if you look out, sort of four years after the restructuring process you hope to achieve 10% operating margins but would you broadly expect the next three years operating profits to be relatively depressed, staying at rather a low level during this -- during the whole restructuring process or would you hope that they would rise quite sharply as the effects start to be felt, for example, next year or the year after.

It is difficult to, you know, discuss the operating profitability for the next three years obviously but if you take out the charges for this year, the operating profits for our current year is better than what we had the previous year. If we do the -- the restructuring that we discussed today, our target is to have the annualized savings of 170 billion yen, and that will be including our operating margins.

Thank you. That 170 billion yen is what you hope to achieve after the three years of restructuring, yeah?

After the restructuring.

After.

That is our target, and we -- we will be studying the details for those elements, so that is apparent target for -- what we want to achieve by this restructuring initiative.

Thank you. I've got one other question. Where is the restructuring of AIWA last year, you talked about this 300 billion yen of restructuring charges over the next year is very much a new initiative, I think. And I wonder, should we see that really as response to -- response to a very difficult sales environment in the 4th quarter and a difficult outlook or is this something that you had been thinking about for some time would be necessary because you’re gradually losing competitiveness?

Mr. Idei --- discuss that today with this initiative, would like to reduce the -- our fixed costs to make Sony more profitable operation. He said that his targets of the operating profits of 10% and with this -- this would certainly help the -- to increase the operating profit but this is not enough, obviously, to achieve the 10% level so we need some additional efforts to try to reach that target of Mr. Idei and we must come up with a plan.

Okay. Thank you very much.

Thank you.

Okay, again, I think we'll take another call.

Your next question comes from Charles McQuaker (ph) from Walter Scott and Partners. Please press star one on your telephone key pad. Your line is now open. Please proceed with your question.

I'm joining the series of questions on restructuring, but I'm just starting to get more detail on this 300 billion yen that you're planning, a very large number, and we’ve already heard, you know, the plan was to reduce the number of plants from 70 to 55. Headcount has been reduced by 15%. Electronics product categories have been reduced, you come out at 48 product categories--- a lot of this seems to have focused on the electronics division. Are we looking at more of the same within the electronics division, or are you looking -- perhaps -- some of the fundamentally weak areas such as shutting down or exiting your music business? You know, are you looking at sort of really grasping the nettle which are fundamentally weak and losing money on and off over a long period of time?

We were primarily discussing about the electronics business when we were talking about this 30 billion yen target, but we -- we have yet to come up with the specifics as to how in such area we would actually do this.

Right. Can I ask as a separate question then, if you’re not going to answer that detail on that, one way of improving the profitability is raising your sales and new product, launches product where you have an element of placing control. Can you give us an idea as to what you’re doing to generate sales growth?

Yes. The growth is one of the important things that obviously restructuring as I said will certainly not be enough to achieve the goal in the as an example, in the short time period, timeframe, what I see in the DVD recorders which is -- the market for which is just starting in Japanese, in Japan, for the computer and the computer-related product so that is the -- we are expecting significant growth in the next few years and that is where we are putting our efforts this year, to come up with the -- our product. And that is one of the promising areas. The digital camera---the market is expanding in Europe very quickly and we are having a leading position in that business and we certainly would like to strengthen our sales in those areas. And our plan is to have the more value chain within the Sony group so that those, you know, products will be using as much Sony originated components to make sure that we have the higher gross margin for the Sony group. And the flat panel display is something that is just beginning and that is also a growth area. Those are the type of things for that timeframe, and over the longer timeframe obviously we would like to connect all of those, you know, function of products to communicate with each other either through the physical media or through the wire or wireless communication including internet so that we can come out with a totally new product line. That is what Mr. Ando says by Ubiquitous Value Network and we would actually be strong in the home and mobile and that is the -- our playing ground, so home and mobile and that is the -- our playing ground, so that is the area where we see growth for the electronics business.

All right. Thank you.

Thank you.

Okay. We'll go with another question now.

Your next question comes from Fred Barker (ph) of Lazard, please press star one on your telephone key pad. Your line is open. Please press star one on your telephone key pad.

My question has been somewhat answered by previous individuals but if you can give me a little more color as to the gap between your guidance and what actually happened in terms of sales and inventories, whether this was primarily related to Aiwa or some other aspect of the business, any kind of color you could provide would be helpful. Also in terms of restructuring, if you can't give us the specifics can you give us some sort of time frame as to when you will be able to let investors know about the specifics?

As for your first question, because of the slow sales in the 4th quarter, we have a fairly high inventory, end of February, and this inventory level was -- significantly reduced towards the end of March and that resulted in the significantly lower production quantity and that increased the production costs. That is the -- that is the primary reason for the -- the inventory-related losses that happened in the -- in the March time frame. After --the factors relating to Aiwa is not significant in this time frame.

And also in terms of the patent-related charges, do you expect this to be a one-time charge that we won't -- will not be repeated or is this something that we have to keep in mind going forward?

There were tax results relating to --

Patent related --

Oh, patent. Oh. patent-related charges, I think I mentioned, is the -- there are various patent-related issues, and in some cases they are in litigations or in the negotiations, and those have several -- they are not single things. There are a number of those cases, and we incurred expenses related to those issues. Because this is something that we have the counter-party we need to be very careful as to the handling of this, so I would like to -- not to answer the specifics about the patent-related issues. The company like Sony is always having patent related issues. Some of them -- I cannot say that this is something that would not happen next year. I just cannot say that. But in this case, this happened in the 4th quarter and this affected our 4th quarter results.

And in terms of restructuring, can you give us some sort of time frame as to when we might learn more about the specifics, the restructuring charges will be --

Yeah, we certainly would like to come up with the specific plan about -- what we will be doing for this year. I cannot say when we will be in a position to discuss that with you but -- we would certainly like to -- identify the -- this year.

Okay. I think we have taken quite a deal of time for this call we'll take one more call and then I think we’ll end the session.

Your next question comes from John Lichse with Loomis Sales. Your line is open, please proceed with your question.

Yes, I was just curious, could you give us some color on depreciation? If I'm looking at depreciation, you’re projecting a 40 billion yen increase for this fiscal year that we're in right now. That seems to me as quite a big jump even given the increase in CAPEX that you're --could you provide any color on that?

Could you hold one moment, please? Hello?

Yeah.

The depreciation of the tangible assets is decreasing but the number that you mentioned increased the -- the amortization of the life insurance related depreciation.

Okay.

What we call it, attack.

Okay.

So as for the tangible assets, the numbers decrease.

Okay. And a quick follow up if I may. Given the pricing pressure that you saw to some degree because of you having to reduce inventory, could you give any color or any thoughts as to whether your competitors, perhaps, stay the same sort of miscalculations to how much inventory was needed so, you know, over the next quarter or so or even after this past quarter, as inventories have worked down, would you expect pricing pressures to ease or do you expect them to sort of continue in the consumer electronics sector given that maybe some of your competitors seem to be more focused on market share of late? Thanks.

Well, I cannot can say what the other companies will be doing but in general we are expecting that the price competitions will continue. That is the nature of -- of it.

Do you expect it to get worse or better? I mean, was4th Quarter, because of inventory adjustment, probably for yourselves as well as all of your competitors, do you think that your 4th quarter, the price competition might have been abnormally high, as people were trying to rationalize inventory? Or do you think it was more market share so --you know, market-share focused so that pricing pressure will remain as high as it has been, if that makes sense?

Yeah, it's a difficult question but -- in the Japanese company, the yen is (inaudible) and the natural trend for everybody to keep the inventory level at the appropriate level, but in that case, in our case, this is a kind of a special, very unusual occasion where we have a higher than we expected and we significantly reduced it by the end of March. I cannot say that will happen to other company, I cannot.

Okay. Thank you very much.

Okay. Thank you very much. I think we're out of time. It's been quite a long call. I appreciate everyone’s patience and I know there were some of you out there who wanted to ask additional questions and I'm sorry we’re going to end the call here. We would like to take this opportunity to remind everyone of our investor relations contact information in Tokyo. Our IR staff can be reached at 813-5448-2180. In New York we can be reached at (212) 833-6820, in London, In London, staff there are available at 442074268760 or 74268606. Again thank you very much for joining us today and we appreciate your participation.--- 0