索尼 (SONY) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you very much for your patience and welcome to the Sony Corporation consolidated financial results for the third quarter ended December 31, 2007.

My name is Bill and I will be your conference coordinator for today.

At this time, all of our participants are in a listen-only mode.

We will be conducting a question and answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS).

As a reminder, today's conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference call, Mr.

Sam Levenson, Senior Vice President of Investor Relations for Sony Corporation of America.

Please proceed, sir.

Great.

Thanks so much for that introduction, Bill.

And thank you all for joining us today, January 31, 2008, for the discussion of Sony's results for the quarter ended December 31, 2007.

I'm Sam Levenson, Senior VP of Investor Relations for the Sony Corporation of America, and I'm joined this evening in Tokyo by Nobuyuki Oneda, Corporate Executive Officer, EVP and CFO, and by Robert Wiesenthal, Group Executive Corporate Development and M&A for Sony Corporation and EVP and CFO for Sony Corp of America.

Thank you both very much for joining us.

In just a few moments, I'm going to give a brief summary of today's announcement.

Then, Mr.

Oneda and Mr.

Wiesenthal will be available to answer your questions.

Please be aware that statements made during the following remarks and Q&A session with respect to Sony's current plans, estimates, strategies, press release 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 in light of the information currently available to it and therefore you should not place undue reliance 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 other factors that could cause actual results to differ, please refer to today's press release, which can be accessed by visiting www.sony.net/ir.

With that, I'm now going to turn to today's announcement.

I'll begin with a discussion of our consolidated results and segment results for the quarter ended December 31 and then review our revised forecast for the year ended March 31, 2008.

Consolidated sales, income before income taxes and net income all set new quarterly records, as did equity and net income of affiliated companies.

Consolidated sales increased by 10% year on year to JPY2,859b.

Consolidated operating income increased by 6% to JPY189.4b, largely due to the significant improvement in the Game segment.

Other income and expenses improved JPY98.2b.

This was mainly due to the recording of a gain of JPY81b from the global IPO of Sony Financial Holdings.

Equity in net income of affiliated companies increased by 9% year on year to JPY46.9b.

The contributions of the major affiliates are as follows - Sony Ericsson contributed JPY30.4b, Sony BMG contributed JPY11.5b and our joint venture with Samsung, S-LCD, contributed JPY3.1b.

As a result of these factors, net income increased by 25% to JPY200.2b.

Now, I'll take a few moments to discuss the quarterly results on a segment-by-segment basis.

First, Electronics.

Sales in the Electronics segment increased by 10%, setting a record for quarterly sales.

Sales to outside customers increased by 14%.

By product, BRAVIA LCD TVs, VAIO PCs and Cyber-shot digital cameras contributed to the sales increase.

On the other hand, LCD rear-projection televisions, which suffered from a shrinking market, had a decrease in sales.

Operating income in the Electronics segment was the second-highest quarter on record, a decline of 7% from last year's record quarter.

While sales increase in the segment enjoyed a positive impact from the depreciation of the yen against the euro, price declines exceeded cost improvements.

The products which generated the largest amount of profit in the quarter were digital cameras, video cameras, PCs, disc manufacturing and broadcast and professional equipment.

Looking more specifically at the TV and semiconductor categories, overall sales of the television category for the quarter were approximately JPY508b, an increase of 20% year on year.

Operating income was approximately JPY4b, down JPY9b from last year.

Due to the shrinkage of the market for LCD rear-projection TVs, we have decided to exit that business around March of this year and will focus on the fast-growing LCD TV and OLED TV businesses.

In the semiconductor category, sales for the quarter were approximately JPY231b, a decrease of 9%.

Operating income was approximately breakeven, down JPY13b from last year.

Profit decreased because of decreased System LSI sales, as well as bringing forward from the fourth quarter to the third quarter certain one-time charges.

As we said in October, we aim to make the semiconductor business profitable for the full fiscal year ended March 2008.

Next, Sony Ericsson.

For the December quarter, Sony Ericsson posted an 18% year-on-year increase in unit sales to 30.8m units.

Sony Ericsson continues to outpace industry growth and, during calendar 2007, they grew market share around 2 percentage points to reach slightly over 9% market share for the full year, and they continue to pursue their goal of being one of the top three players in the industry.

As a result of strategically increasing the proportion of lower-priced handsets, revenue for the quarter was relatively unchanged at EUR3.771b.

Income before income taxes was also relatively unchanged at EUR501m.

Walkman and Cyber-shot phones continued to contribute to the results.

As I mentioned earlier, the equity and net income recognized by Sony was JPY30.4b.

In the Game segment, sales increased 31%.

Approximately three-quarters of sales came from hardware and accessories and the rest from software.

Overall, hardware sales increased due to the contribution from PS3.

Looking into each of the hardware platforms, first PS2, PS2 has reached its eighth year end selling season.

And, although unit sales decreased year on year, PS2 sales continued to exceed the previous year in Eastern Europe, Middle East and Asia, and we expect the console to continue to contribute to our business.

As a result of the strength in the PS2 business, we are revising our unit forecast upward for the second time this year and we now expect to sell 13m units during the current fiscal year.

This compares with our initial forecast of 10m units and our more recent forecast of 12m.

Next, PSP.

PSP hardware unit sales increased significantly year on year.

The console gained popularity among a wide user base after the introduction of the new model, expansion of the software offering and an enhancement of the mobile entertainment experience through the addition of features such as TV viewing.

Having reached a record for year-end selling season sales, we'll further expand the software offering and features and services associated with the device, accelerating expansion of the platform.

As a result of the strength in the PSP business, we're also revising our PSP unit forecast upward for the second time this year and we now expect to sell 13m units during the current fiscal year.

This compares with our initial forecast of 9m units and our more recent forecast of 10m units.

Finally, PS3.

After the introduction of a new model and the reduction of sales price last fall, the expansion of the PS3 platform reached a new level as sales increased significantly.

The world of PS3 entertainment is expanding, as the cumulative number of disc-based software titles released for PS3 at the end of December exceeded 250 and as a wide variety of downloadable titles have also been distributed.

Although we feel very optimistic about the future of PS3, with unit sales in the third quarter reaching close to 5m and sales increasing since the introduction of the new model, sales in the second half may not reach the level necessary to cover the lag from the first half of the fiscal year.

And we have therefore revised downward our fiscal year unit sales forecast from 11m units to 9.5m units.

Next, turning to software.

Although PS2 and PSP software sales declined due to a decrease in units, overall software sales for the segment increased due to contributions from PS3.

So, turning to operating results for the Game segment, they improved by JPY67.1b year on year to a profit of JPY12.9b, posting the first quarterly profit in two years.

Although PS2 profit decreased year on year, both hardware and software for that platform contributed significantly to the profit of the segment.

Strong sales of the new PSP model contributed to an increase in profit from that platform and, as a result of hardware cost reductions and significant software sales, losses in the PS3 business decreased significantly.

Turning to the Pictures segment, sales decreased by 25% year on year, primarily due to lower revenues from films released in the theatrical and television markets.

Theatrical revenues decreased because there were fewer films released during the current quarter and none of these films were comparable to the highly successful films Casino Royale and Pursuit of Happyness, released during the same quarter of the previous year.

Home entertainment revenues in the quarter were consistent with the strong performance from the same quarter last year.

Spider-Man 3 and Superbad contributed significantly to our home entertainment revenues this quarter.

Operating income for the segment decreased by 50% to JPY13.2b.

This was due to the relative under-performance of films released theatrically in the current quarter as compared to those released in the same quarter last year, as well as the lower revenue from films released in the TV market.

Next, looking at Financial Services, Sony Life recorded an increase in premium revenue, reflecting an increase of insurance in force.

However, the increased insurance premium revenue at Sony Life was more than offset by a deterioration of the net valuation gains from convertible bonds and an impairment loss on equity securities, as well as the deterioration in net gains from investment in the separate account, all brought on by the decline in the Japanese stock market.

As a result, revenue for the segment decreased 21% and an operating loss of JPY4.2b was incurred for the segment.

All Other.

Sales for All Other increased by 2% compared to the same quarter last year, primarily due to the consolidation of the U.S.

music publishing company Famous Music, which was acquired by Sony/ATV Music Publishing, and higher fee revenue from broadband connection services at So-net Entertainment Corporation.

An increase in trademark royalty income from Sony Ericsson also contributed to the increase in sales.

On the other hand, sales of Sony Music Entertainment Japan decreased, mainly as a result of decreased album and animation DVD sales.

Operating income decreased from JPY12.3b to JPY10.3b, primarily due to a decreased income at Sony Music Japan.

Sales of Sony BMG were essentially flat year on year.

Although there was continuing decline of the worldwide physical music market, the favorable sales of several recent releases and the favorable impact of exchange rates on sales outside the U.S.

offset this decline.

Income before income taxes at Sony BMG decreased by 4%.

This was primarily due to the recording of a benefit for an industry-wide settlement in the same quarter last year.

Cost reduction at Sony BMG remained on target during the quarter.

As a result, Sony recorded JPY11.5b in equity and net income from the joint venture.

Next, I'd like to review our forecast for the fiscal year ended March 2008.

Our third quarter consolidated operating income, particularly in Electronics, exceeded our last forecast.

For the full fiscal year, our current forecast is for a nearly six-fold increase in operating income and nearly a tripling of net income year over year.

In fact, we expect this fiscal year's net income to be the highest on record.

More specifically, our forecast has an increase in net income of JPY10b and a decrease in operating income of JPY40b, primarily due to external factors.

The factors leading to the change in operating income were the following.

First, we've revised our foreign exchange rate assumptions to reflect the appreciation of the yen compared with our October assumptions.

Our foreign exchange rate assumptions for the fourth quarter are approximately JPY105 to the dollar and approximately JPY155 to the euro.

This is a JPY10 to the dollar and JPY5 to the euro appreciation of the yen compared with our previous assumptions.

Second, the results of Sony Life during the third quarter deteriorated compared with our October forecast, due to valuation losses recorded as a result of the drop in the Japanese stock market.

Finally, as a result of deterioration in the financial markets, we expect to record lower gains from asset sales in the fourth quarter than originally anticipated in our last forecast.

Regarding other income and expenses, we forecast an increase in the gain from foreign exchange contracts compared to the October forecast, as the yen has been appreciating more than anticipated.

Also, in connection with the IPO of Sony Financial Holdings, the exercise of the greenshoe option, which was not included in our last forecast, occurred after the listing, thereby resulting in a larger gain than originally anticipated.

We also raised our forecast for equity and net income of affiliated companies by JPY10b, due to the stronger performance of Sony Ericsson compared with our October projections.

As a result of these factors, our new forecast is for JPY8,980b in consolidated sales, JPY410b in operating income, JPY490b in income before income taxes and JPY340b in net income.

Before we turn to your questions, I'd like to make an additional comment about the performance of our Financial Services segment.

Our forecast is based on the market price of the portfolio of our Financial Services segment as of December 31, 2007.

As a result, we caution you that risks such as the recent drop in the stock market could cause actual results to differ materially from the forecast.

According to a hypothetical sensitivity analysis based on the portfolio of convertible bonds held at Sony Life on December 31, a fluctuation of 10 percentage points in the TOPIX Index could create an impact on consolidated operating income of approximately JPY16b.

However, actual profit and loss could differ materially from this analysis because of a variety of reasons which we have outlined in the press release.

With respect to CapEx, depreciation and R&D, we've reduced our forecast for capital expenditures by JPY30b, primarily in the semiconductor area.

There is no change from our October forecast for depreciation or R&D expenses.

Before Mr.

Oneda and Mr.

Wiesenthal take your questions, I'd like to summarize the key points discussed today.

Consolidated results for the third quarter outperformed our October forecast.

More specifically, results in the Electronics segment exceeded our October forecast, with particular strength in digital cameras, video cameras, PCs, disc manufacturing and business and professional.

As a result, we achieved the second-highest quarterly result for the Electronics segment in our history, with over 75% of our Electronics sales coming from outside the U.S.

The Game segment posted a profit, as continued strength in PS2 and PSP propelled profits, along with a reduction in the production cost of the PS3.

PS3 software sales were also a significant contributor to the results year over year.

The Pictures segment results continue apace with our expectations for the full year.

And the results of the Financial Services segment were impacted by weakness in the domestic stock market.

However, the performance of the underlying businesses continues to be good.

As I mentioned a moment ago, our current forecast is for a nearly six-fold increase in operating income and three times the net income of last year.

With that, we'd be very pleased to take your questions.

Thank you very much, sir.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line of Evan Wilson of Pacific Crest.

Please proceed.

Hi there.

So, a question on the PS3.

So, you've sold about 6.9m PS3s to date in this fiscal year.

The forecast for the fiscal year is 9.5m units, leaving 2.6m in fiscal Q4.

Last year, with the European launch, you sold 1.9m in fiscal Q4.

Could you gauge the level of confidence around your ability to achieve that 9.5m unit target that you've just set?

And I've got a follow-up.

I think that we are very confident to achieve more than 9m, 9.5m, particularly delivering the third quarter result, which is almost 5m sets within three-month period.

And because of more availability of the game soft, I think that we could achieve that level of the numbers.

And is there any chance that that new 9.5m unit target assumes any changes in the pricing or the SKU plan for the PS3 overall?

At this moment, we cannot comment anything about the price adjustment, but what I can say now is that we could supply the more software available toward the end of this fiscal year.

Great.

And just one final question.

You said that sales in Electronics were up 14% to outside customers.

I was hoping you could give us sales on a constant currency basis.

Thank you.

The --

Can you repeat the question, please?

Sure.

I was hoping for sales in consumer electronics on a constant currency basis.

Local currency basis is 14% up.

This is primarily because of the better than expected sales of the LCD television.

That is one of the big increases compared to our original forecast.

Sam said earlier that sales were up 14% to outside customers.

It's also up 14% in total on a local currency basis?

It's probably, the yen basis and local currency basis, there is no big differences.

Okay.

Thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Jessica Reif Cohen of Merrill Lynch.

Please proceed.

Hi.

I had a couple of entertainment-related questions.

Could you talk about the writers' strike and what effect it -- when -- how long will it -- does it have to go on before it affects your film business?

What are your expectations on [Fab]?

And as a result of the current strike, are there any changes in your cost structure, any fundamental changes in your cost structure, going forward?

All right.

Hi, Jess.

I think, right now, all our divisions continue to operate without substantial interruption.

Obviously, it's devastating for the rank and file in the community.

We're relatively optimistic.

The talks seem to be going well.

I think we probably -- there's probably less impact on us versus other integrated companies because, while TV is very important to Sony Pictures, we're much broader than that and we obviously [own] a network.

But right now, we're not undertaking any type of restructuring related to the strike.

Okay.

And can you talk about expectations on the actors?

And then, a completely separate question, what impact will Warner Brothers moving to Blu-ray have on the overall business, do you think?

Well, in terms -- let me take the -- in terms of Blu-ray, obviously, when Warner's decided to go exclusive to Blu-ray, that coupled with PlayStation 3 really picking up steam with the price cut and also consumers really accepting the PlayStation 3 not only as a game machine but as a home server and a Blu-ray -- a great Blu-ray player, it definitely gave us a lot of momentum on the software side.

In the week ending January 20, post the announcement, 19 out of the top 20 next generation disc sales, in terms of rankings, were Blu-ray.

Only one of the top 20 that week was HD-DVD.

That was from Nielsen.

So there's a lot of tremendous momentum.

In terms of how it impacts the numbers, I think that, clearly, Blu-ray titles, all next generation titles, are enjoying a premium at retail in terms of pricing, because the consumer is really appreciating the -- not only the higher resolution, but the extra content.

These are 50GB discs and there's a lot of value on these discs, not including the interactive features which are starting to trickle out.

So I think, over the long term, you'll see some type of enhanced margin on the home video side on a per-unit basis on Blu-ray versus standard definition.

But overall, a lot of momentum with respect to Blu-ray, and the hardware side seems to be even better.

And can you comment on any payment that Warner may -- or marketing support Warner may have received?

Warner Brothers, I think, recognize the fact that the consumer's really starting to make a choice in terms of which format makes sense.

And I think that the combination of the Boardomatic titles, the PlayStation 3 being part of the installed base and the incredible capacity of Blu-ray, it just started to make sense to the consumer.

And I think Warner's did a good job of getting the industry in the right direction in terms of building momentum for one format, rather than the kind of war that's been going on.

I think retail has been starting to follow suit.

I've been very, very impressed with all the retailers in terms of the focus on Blu-ray as a next generation hardware platform of choice.

Let me add some statistical data that is available now.

The hardware sales this year, before Warner Brothers' announcement, was 50/50 in U.S.

market.

Recently, the ratio is 66% versus 34% roughly speaking, two-thirds and one-third type ratio.

And in the case of software, before Warner announcement, Blu-ray was 65% and HD was 35%.

Now, it's the over 80% and 20% ratio.

Right, and (multiple speakers).

And you're looking at 4m players, Blu-ray players, including PS3, in the U.S.

alone.

A question on music, Rob.

Can you give us an update on your thoughts on what the music industry will look like in '08 and your focus on music publishing, if you can comment both on the recorded music side and also music publishing?

Can you repeat the last part of that question?

If you could comment on your outlook for music for '08.

And then, also, your focus on music publishing, will there be more -- would you like to make more acquisitions?

How will you grow that business?

Yes.

I think that, looking at Sony Music right now, we had a pretty solid quarter.

While the industry was down 10%, our revenues were flat, due to the weaker dollar and -- we had a lot of success with Alicia Keys and Leona Lewis, which was only in the U.K., but is now coming in March.

I think, looking forward, right now, we've Natasha Bedingfield hitting stores.

The new Michael Jackson Thriller twenty-fifth anniversary edition is starting to gather steam and there are a lot of great artists who've contributed to that album.

Listen, I think it's a tough business.

Our operating income was up year over year.

I don't think EMI and Warner's can say that.

So I think the combination of a lot of restructuring, a very strong focus on digital, the top line is declining slightly but I think there's more EBIT to squeeze out of this business.

I don't see much in the way of real progress going forward as an industry in terms of really impacting numbers, because the revenue line is so big.

Digital continues to grow.

I think over the next couple of years it's going to be challenging.

There's no question.

So I think we'll continue to watch our cost structure.

We're going to keep redeploying our capital to more of an A&R functions, as well as the other parts of the business, and focus on digital.

And hopefully we can keep increasing that EBIT but it's a very difficult business.

It will continue being difficult for the next couple of business -- next couple of years.

In terms of publishing, in many ways, a music publishing company is better equipped to be a music company in the future than a record label is.

And I think there's a lot of cross-fertilization between both publishing and the recorded music side.

There's a lot of cooperation.

And on the publishing side, we're being very smart in terms of digital.

A lot of deals have been done there.

Acquisitions are expensive.

As you know, we bought Famous Music.

That integration's been going well.

Lieber Stoller, which had the Elvis catalog, very strong acquisition.

I don't see a lot out there on the acquisition side.

Obviously, we're going to keep looking.

We'll be opportunistic.

But the prices are still expensive.

Hopefully, because of the difficulty in the financing market, we won't be competing with private equities much.

So if something comes up, we'll be taking a look at it.

I think we got a great management team in there with Marty Bandier and others and Jody Gerson, who just came in.

So I think it's a good -- it's a very good business and I think we're going to continue to invest in it in the future.

Thank you.

Can we have our next question, please?

Next question comes from the line of Daniel Ernst of Hudson Square Research.

Please proceed.

Yes, good evening or good morning, depending on your perspective here.

Thanks for taking the call.

Three questions, if I might.

On the TV operating profit, can you give me a sense of what the magnitude of the rear-projection loss component within that was?

And then, on the PS3, can you discuss where the cost-down reduction has gone?

If I took production cost at launch to where it is today, what's been the per-unit reduction you've been able to achieve?

And then, last question, you discussed on the Tokyo call this morning a 5.2% target for the current fiscal year if you backed out the external factors.

And they walked through that math quickly in the translation.

It was a little rough.

I wonder if you could just walk me through that math again.

Thanks.

The TV operating profit from rear-projection is -- within this fiscal year, could be over $100m below.

But as you know that we already announced to stop these businesses.

So starting from now on, the loss will be quickly reduced.

To take your second question, PS3 cost-down update.

PS3 introduction, the cost is drastically decreased.

How much, I cannot disclose it.

However, we can expecting that some time in late fiscal year '08 the costs are going to be equal to the selling price.

Currently, the cost is higher than the price but toward the second half of the fiscal year '08 we could catch up.

5.2% operating profit is if we exclude the extraordinary negative impact of the stock market, which is about the JPY250b, and drastic appreciation of yen, that will be impact our bottom number about JPY230b, plus the -- because of the sub-prime issues, our expected sales of the -- some of the assets may be deteriorating.

That is over JPY100b.

So overall, the impact of those environment-related issues generated over JPY600b.

But on the other hand, our operation will -- our profit would be increased about JPY200b.

So therefore, if we exclude the extraordinary items, our bottom number would be 5.2%, rather than the 5% we announced at the end of October.

Okay, thanks.

And just two follow-up questions.

The JPY10b from the expected asset sale, is that assets that did not sell?

The -- I couldn't disclose the specific -- the assets we are trying to sell because of the very sensitive timing.

Okay, understood.

And then back to TVs quickly, for a second, you discussed on the call in Tokyo this morning a faster reduction in like-for-like reduction in prices.

But can you give me a sense of what the blended price decline or not was, if you factor the mix of larger screen sizes and mix of Full HD models?

Thanks.

Well, as I explained this morning -- this afternoon, the price deterioration of the big screen size is somewhere around 25% to 30%, and the mid to lower sizes is 20% to 25%, so that the average could be -- mixed, blended average selling decline is probably 25%.

But the point is that price deterioration actually happened earlier than we expected.

The annualized basis is 25%, but that came a little bit earlier than we expected.

Understood, thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Heath Terry of Credit Suisse.

Please proceed.

Great, thank you.

Given what seems like the incredibly positive impact on PS3 sales from the aggressive holiday ad campaign, do you intend to sustain that level of advertising, particularly as we go into a part of the year where you've got a lot of software support?

Yes.

But to strengthen the PS3 platform, we will continue to invest in this platform, either the advertisement, either the increase of the software promotions, yes, we will do it.

And at the same level as what we saw during the holiday season?

Well, as you know, the biggest promotion period is the Christmas season, so that the magnitude of the promotion cost may be smaller than the third quarter -- I mean fourth quarter compared to the third quarter.

But the big expenses could be anywhere invested.

The magnitude is smaller than the third quarter.

Of course.

There's been a lot of anecdotal discussion as we go into the television selling season pre Super Bowl.

I was wondering if you could give us an idea of what -- understanding how initial it would be, what you're seeing within the U.S.

market as far as television and other electronic demand going into this important weekend.

Even though the U.S.

market itself, the consumption is somewhat deteriorating, but in the case of the LCD, probably because of the Super Bowl, because of the Olympic [years], the LCD market is not so much deteriorating.

Great, thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Ben Atkinson of Gagnon Securities.

Please proceed.

Hello.

Thanks for having the call.

First question is could you just clarify, I want to make sure I heard correctly, when you were talking about TV losses of $100m so far this year, in fact is that the number and was that entirely due to the rear projection?

My answer, the previous answer was $100m, yes.

This is over $100m worth of loss was created by the rear projection product lines, yes.

Okay, thank you.

Why was the tax rate up so much and what's a reasonable tax rate to think about for this year, for the full year and for the next (multiple speakers)?

Usually the normal tax rate for the Sony consolidated number is about 41%.

Okay.

But this year, because of the sales of the Sony Financial Holding stock, that was sold by Sony Corporation.

And Sony Corporation's book value of the Sony Financial Holding is lower than the book value of the consolidated book.

In other words, on a consolidation basis, the Sony Financial Holdings, the value of the stock is increased whenever they created the profit (technical difficulty) the operation year by year.

But on the other hand, on the Sony Corporation's book, the profit was not reflected because of the Japanese taxation.

So the tax is imposed based upon the lower book value of Sony Group, Sony Corporation.

But the consolidated accounting basis, the profit is relatively small but the tax is higher because of the Sony Corporation, the book value is lower.

A little bit complicated.

Okay.

Thanks.

I got that.

On the -- sorry, for the next mid-term plan, when do you think we're going to hear what your thoughts are there?

Well, we didn't decide that kind of -- that date yet.

But I'm sure that if there is any -- the mid range, the announcement, it could be sometime the announcement of the 2008 budget numbers.

Okay.

And on inventory, it looks like Electronics inventories are up about 5% year over year.

It looks like they're in pretty good shape.

Could you just give us a little color on Electronics and overall Company inventory?

Yes, certainly.

I think that the inventory level is normal and adequate level, I think, at this moment.

Okay.

And finally, on the gaming division, your target for fiscal year '08, the March '09 year, is to be breakeven or profitable.

Is that correct?

Yes, that we are expecting.

Okay.

Great, thanks so much.

Thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Melissa Otto of American Century.

Please proceed.

Hi.

Yes.

Thank you for the call.

Just a question on software for the games sector.

Would you give us a little bit more color in terms of what games did particularly well and just some details around what you expect for game software going forward?

I think there are a bunch of anticipated titles that are going on sale in Japan, such as Devil May Cry 4, which is going on sale by Capcom.

And then there's another important title by SEGA.

And I think you're going to see a lot of promotion of the platform, emphasizing that software lineup.

And also Metal Gear Solid 4, Guns of the Patriots has been a very big boost for us, which is a Q1 title.

And I think that also, later this spring, you'll see a lot of the online services coming to bear.

The PlayStation 3 Network is already doing a lot of business in terms of downloads, both for games, give you a sense of the games' promotional value, and then also downloads for more quick action games.

Gran Turismo 5 Prologue is another important title that is doing very well.

So I think they're starting to come online.

I think the important part is that the titles that you're seeing now are the first ones that are really taking advantage of the full horsepower of the PlayStation 3.

We've said on these calls in the past that in year one people were just starting to learn the platform.

Some titles weren't in full HD.

A lot of them weren't taking advantage of interactive features.

But right now I think that the number of titles that we're having, 67 in Japan, 105 in the U.S.

and 86 in Europe.

And this is to what period?

By the end of December, those will be the new titles that will be coming on stream.

Great.

Thank you very much.

You're welcome.

Thank you very much, ma'am.

Ladies and gentlemen, your next question comes from the line of Tuna Amobi of Standard & Poor's.

Please proceed.

Thank you very much.

It's Tuna Amobi from S&P Equity Group.

My first question is on Blu-ray.

I'm trying to understand, perhaps, if you can quantify your aggregate marketing and promotional spending on the Blu-ray technology to date, and if you can provide some color on how that's accounted for, whether it's allocated to the various products, what portion of that spending, perhaps, is capitalized as opposed to expensed.

That would be helpful.

We don't give that kind of detail in terms of Blu-ray promotion.

Obviously, Blu-ray promotion is not only in the hardware group, from the player side, also PlayStation and also the picture company.

And we even have the music company participating in Blu-ray for artists.

But you're talking about a level of detail that is way beyond the scope of our disclosure.

Okay.

Let me then rephrase it, perhaps as a general question on that topic.

Can you perhaps, putting all this together, provide some indication of how much of those expenses are -- how much of those costs are capitalized as opposed to expensed?

At least that would be helpful, without getting into the nitty gritty that you mentioned.

I think most of the investment into the Blu-ray is expensed.

There is no -- capitalized the budget.

I'll give you some indication.

We are still losing money from the hardware business because of the still the very early stage of this business and the quantity is not so big.

So therefore our operation from the hardware [BG] business is a negative, let's say, over JPY100b, JPY150b.

But we are also making some profit from the Blu-ray disc itself.

Okay.

The Blu-ray, the software disc itself, we are making money.

But the bare disc itself, we are losing money.

So overall still it's a negative bottom number overall, BG business is concerned.

All right.

Fair enough.

Let me switch gears to the film division.

Can you talk a little bit about your upcoming pipeline?

And in that regard, if you can comment specifically as well on Spider-Man 4, any potential details, timeframe, thoughts, etc., for that title?

In terms of the upcoming titles, for the remainder of the fiscal year Vantage Point, with Forest Whitaker, Dennis Quaid, Matthew Fox.

We're very excited about 21, which was a title that we obtained during the MGM transaction with Kevin Spacey.

That's going to be in March at the end of the fiscal year.

That's about the MIT students who went to Vegas and made a fortune playing blackjack.

And then, going on, our big films for the remainder of this new fiscal year.

Adam Sandler has a great comedy, You Don't Mess With the Zohan.

We have our big summer pic in July, which is Hancock with Will Smith.

And then obviously you've probably seen the announcement for this fall, November, we just named the new Bond 22, Quantum of Solace, with Daniel Craig.

And then Angel & Demons has obviously been pushed to May '09.

In terms of Spider, the next generation Spider-Man, Spider-Man 4, we really haven't given any color on that yet, but obviously it's one of our most valuable franchises.

Spiderman 3 was the biggest of all three so far.

And we're looking forward to a lot more activity with that franchise, both in terms of film and television.

Is it reasonable to expect that 4 could happen by 2010, or 2011 at the furthest?

I sure hope it would happen by then, but we haven't given any dates yet.

All right.

And lastly, if you can provide some color as to which markets that most evidently adversely affected your PS3 sales to leap to this downward shipment revision, that would be helpful, between Europe, North America and Asia, etc.

Roughly speaking, the PS3 sales volume of, let's say, [900 to 10m] units is probably 1 for Japan and 4 in Europe and 4 in United States, or 4.5, something like that ratio.

In terms of sales to date.

Okay.

That's helpful.

Thank you very much.

One just quick follow-up to the gentleman who asked about the PlayStation 3 software.

The two titles we talked about that we're excited about, both the one by SEGA in March and Metal Gear Solid Guns of Patriots, those are exclusive to the PlayStation 3.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Luc Mouzon of Credit Asset Management.

Please proceed.

Yes.

Hi, good afternoon.

It's Luc Mouzon calling from Credit Agricole Asset Management.

A question with regard to your regional exposure, and especially on the negative trend that you are now experiencing in Japan and in the U.S.

So my question is did you see a real turning point in the quarter?

December especially seems to be -- seems to have been a very weak month.

And how do you see the trends for the ongoing quarter?

What I mean is do you anticipate the U.S.

sales to be still very much depressed on the first quarter?

And as well for the Japanese trend that was, from my point of view, a bit weakened in the last quarter.

Okay.

The -- our forecast at the end of October, the yen/dollar was about JPY115 equal to $1.

And in the case of euro, EUR1 is equal to JPY160.

That was our original forecast at the end of the October.

But because of the recent appreciation of the yen, we have now revised the fourth quarter forecast as follows - the $1 equal to JPY150 -- JPY105 and the euro is JPY115.

In other words -- JPY155.

So therefore the -- in the case of euro, the JPY5 stronger, and in the case of the dollar it's JPY10 stronger.

Trend maybe continue for a while, I think.

Okay.

But with regard to the local trends, the trends in local currencies and especially on the Japanese market, do you see the drop that we've experienced in the third quarter to continue on?

Excuse me - I don't understand what that means.

The question he's asking is about current sales trends geographically.

So are you seeing a significant slowdown in the U.S.

market, or are you seeing a significant slowdown in the Japan market?

The sales trend as of this moment, there is no drastic decline in either market yet.

But we are cautiously watching the slowdown, particularly in the United States and in Japan market.

As of this moment, there is no drastic decline for Japan and the U.S.

market.

Okay.

Thank you.

We just have time for one more question.

Certainly, sir.

Your last question comes from the line of Ben Lu of Seligman.

Please proceed.

Hi, guys.

Thanks.

I just have three quick housekeeping questions.

Can you talk about what was the LCD TV profit for this quarter?

I know it was a loss of JPY10b last quarter.

Also, last quarter you took an inventory reserve for your gains for about JPY71b.

Was there any reversal on the inventory side this quarter?

And lastly, if I go through the math in terms of the impact from the stock market decline, the sub-prime and FX, you said it was about JPY58b to the full year.

You guys reduced your full-year OP by JPY40b.

So if we back that out, is that implicitly suggesting that your core business would have actually improved by JPY18b?

The LCD TV profit in quarter -- third quarter is, yes, the profit approximately JPY70b profit in third quarter.

The reversal of the inventory reserve for the PlayStation 3 in this quarter is over JPY900b.

What does it mean, the third question?

The third question he was asking is when you look at the FX decline and the impact of the stock market and a lower assumption on gain of sales, it would appear that the underlying performance of the operating businesses were actually better than expectation.

Is that correct?

Yes.

Did you have any other questions, Ben?

No, that's it.

Thank you so much.

Okay, ladies and gentlemen.

Thank you all for joining us on our call today.

I'd like to remind you of the contact information for our Investor Relations departments.

In Tokyo, IR can be reached at 813-6748-2180.

In New York our team can be reached at 212-833-67-22.

And in London the team can be reached at 44-207-444-9713.

Again, thank you all very much for joining us.

That concludes today's call.

Thank you very much, Mr.

Levenson.

And thank you, ladies and gentlemen, for your participation in today's conference call.

This concludes your presentation for today and you may now disconnect.