索尼 (SONY) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Sony Corporation's fiscal year 2008 first quarter earnings results. My name is Lauren and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's call, Mr. Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America.

Thank you, Lauren, and thank you all for joining us today, July 29, 2008 for the discussion of Sony's results for the quarter ended June 30, 2008.

I'm Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America. I'm joined this evening in Tokyo by Nobuyuki Oneda, Corporate Executive Officer, EVP and CFO of Sony Corporation, and by Robert Wiesenthal, Group Executive Corporate Development and M&A for Sony Corporation, as well as EVP and CFO of Sony Corporation of America. Thank you both very much for joining us.

In just a few moments, I'll 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 June 30 and then review our forecast for the year ended March 31, 2009.

Consolidated sales for the quarter were flat, compared to the same quarter the previous fiscal year. On a local currency basis, sales increased by 8%.

Regarding operating income, beginning with this fiscal year, we're reporting equity in net income, or losses, of affiliated companies as a component of operating income, because we believe Sony Ericsson, S-LCD and Sony BMG are integral to Sony's operations.

For the first quarter of the current fiscal year, however, equity in net income of affiliated companies decreased by 90% to JPY2.2b, primarily due to continuing challenges at Sony Ericsson. For this and other reasons, operating income, including equity in net income of affiliated companies, decreased by 39% compared with the same quarter of last year. Excluding equity in net income of affiliated companies, operating income decreased by 28%.

Other matters of note, on a consolidated basis for the quarter, are income taxes and minority interest. Income taxes were JPY19.0b, for an effective tax rate of 30.2%. This rate was lower than the Japanese statutory tax rate, due to the reversal of valuation allowances at certain subsidiaries for tax benefits which are now expected to be realized.

Minority interest in income of consolidated subsidiaries, which is deducted from Sony's consolidated income, rose to JPY8.9b in the current year period, as compared with a JPY0.4b benefit in the same quarter of the previous fiscal year. The increase in minority interest deducted from Sony's earnings resulted from the SFH IPO, as 40% of SFH's earnings are now allocable to the minority shareholders.

As a result of all these factors, consolidated net income for the quarter was JPY35b, as compared with JPY66.5b in the prior year period.

I would now like to explain the results for each of our business segments. First, electronics. Sales in the Electronics segment increased by 1% and sales to outside customers increased by 3%, despite the negative impact of the appreciation of the yen against the US dollar. By product category, LCD TVs had a significant increase in sales, as unit sales in all regions expanded.

Operating income in Electronics decreased by 57% year on year, due primarily to increased price competition in digital camera and PC categories and the decrease in equity in net income for Sony Ericsson, which along with S-LCD is now reflected in the Electronics segment. Foreign exchange rates also had a negative impact.

The largest profit-generating product categories were, in order of magnitude, video cameras, digital cameras, imaging sensors and broadcast and professional equipment. Although it had a significant improvement in profitability year on year, the largest loss-making product category was LCD TV.

Throughout this fiscal year, we'll continue to disclose the sales and operating profit of the TV category because a loss was recorded last year and we're aiming to bring that category to profit this year. Sales for the TV category during the quarter increased by 33% year on year, to JPY313.0b, and operating profit improved by JPY18b, to a loss of JPY19b.

Next, Sony Ericsson. Sony Ericsson's sales decreased 9% year on year due to unfavorable exchange rate fluctuations, continued slowing market growth in mid to high-end phones and increased competition.

Income before income taxes decreased significantly year on year due to a less favorable product mix, as mid to high-end phones faced difficulty in Europe, where Sony Ericsson has been particularly strong, and due to overall price competition and higher R&D investments, reflecting platform development investments for future growth. As a result, Sony recorded equity in net income of JPY0.6b for Sony Ericsson.

Next, Game. Sales in the Game segment increased 17%. On a local currency basis, sales increased 25%. About three-fourths of the sales came from hardware and accessories and the balance came from software.

Looking at hardware, overall hardware sales increased due to a significant year-on-year increase in PS3 and PSP unit sales. As expected, sales of PS2 decreased, but the business continues to be strong in Europe, the Americas and Asia.

PS3 unit sales were 1.56m for the quarter, 2.3 times what we recorded in the same quarter last year. With hit titles being released all around the world, these games are helping to propel penetration of the platform and it is accelerating. We'll continue to strengthen our game software lineup, as well as expand our offering of non-game content and services.

The PSP has maintained its momentum, with unit sales up 75% year on year to 3.72m units. Due to an enhancement of the software lineup, add-on hardware features and color variations, as well as the introduction of network services, user acceptance of the platform continues to grow. Through continued marketing efforts tailored to each market, we are working to further expand penetration.

Looking at software, overall software unit sales increased, due to strong sales of PS3 and PSP. However, on a value basis, overall sales -- software sales decreased, as PS2 software has decreased significantly.

Next, Network Services. With the number of registered accounts on the PlayStation Network now exceeding 10m and the number of pieces of content having been downloaded approaching 200m, our business is expanding smoothly. Moreover, we recently expanded our Network Services with the launch of a video download service on July 15 in the United States.

We're pleased to report that the Game segment reported an operating profit of JPY5.4b for the quarter, an improvement of JPY34.6b from the loss recorded in the prior fiscal year. This was primarily due to an improvement in the operating performance of the PS3 business, as a result of PS3 hardware cost reductions, and increased sales of PS3 software, as well as strong sales of PSP hardware. Although profit from the PS2 business decreased year on year, it continues to contribute to profit for the segment.

Next, Pictures. As is typical in the Pictures business, the timing of key theatrical releases makes quarter-versus-quarter comparisons difficult. In the first quarter of last year, the blockbuster, Spiderman 3, was released, which drove revenues and profit. In the current year period, we did not have a blockbuster release on the scale of Spiderman 3. In addition, in the first quarter of this year, we recorded significant marketing costs for the pending release of upcoming films, including Hancock, which has posted US box office revenue of over 200m thus far in the second quarter.

As a result of last year's success with Spiderman 3, sales decreased by 31% year on year. Although motion picture revenue decreased, television revenues increased, due to higher advertising revenues from several international channels. The film that contributed the most to motion picture revenue during the quarter was You Don't Mess with the Zohan.

An operating loss of JPY8.3b was recorded during the quarter, compared with operating profit of JPY4.6b in the same quarter of last year. This change was due to the decrease in motion picture revenue and the recording of significantly higher theatrical marketing expenses for upcoming film releases. Television operating income increased due to the higher advertising revenues.

Next, Financial Services. Revenue decreased by 1%, due to a decrease in revenue at Sony Life. Although insurance premium revenue increased, revenue at Sony Life decreased by 4% to JPY155.2b, due to a decrease in net valuation gains from convertible bonds in the general account and lower net gains from investments in the separate account.

Due to a decrease in operating income at Sony Life, segment operating income decreased by 9%. Although the increase in insurance premium revenue contributed positively to results, the decline in net valuation gains from convertible bonds caused operating income at Sony Life to decrease by 20% to JPY27.6b.

Business is going smoothly at Sony Insurance and Sony Bank. And if we were to exclude the impact of the decrease in net valuation gains, Sony Life and the segment as a whole would have seen an increase in operating income year on year.

All Other. Sales in All Other increased by 10% year on year, primarily due to the recognition of revenue from a settlement payment related to copyright infringement claims in the music business, higher fee revenue from broadband connection services at So-net and an increase in sales of Sony Music Entertainment Japan. Sales at Sony Music Entertainment Japan increased year on year, mainly due to an increase in music download sales and animation DVD sales.

Operating income increased by 24% year on year, primarily due to deterioration in equity in net income for -- sorry, operating income decreased by 24%, primarily due to deterioration in equity in net income for Sony BMG, which is now reflected in All Other. Partially offsetting this decrease was the recognition of revenue from the settlement payment that I just mentioned.

Next, Sony BMG. Sales of Sony BMG decreased by 6% year on year, due to the continued decline in the physical music market worldwide not being fully offset by growth in digital product sales. A loss before income taxes of $42m was recorded, compared to income before income taxes of $31m in the same quarter of the previous fiscal year.

The decrease in profitability reflects the continuing decline in revenue resulting from the shrinkage in the physical music market, a year-on-year increase in restructuring costs of $46m and the non-recurrence of a prior year gain on sale of an interest in a joint venture of Sony BMG. As a result, Sony recorded equity in net loss of JPY2.5b.

Best-selling releases during the quarter included Usher's Here I Stand, Leona Lewis' Spirit and Neil Diamond's Home Before Dark. Those of you with a more contemporary taste in music will have noticed that it was the Usher album you were listening to at the beginning of this call.

Next, I'd like to explain our revised forecast for the March 2009 fiscal year. There are a number of factors impacting our revised forecast for the balance of this year. First, with respect to exchange rates, our forecast from the second quarter onward assumes a rate of approximately JPY105 to the US dollar and approximately JPY162 to the euro. This compares with our prior forecast, which was JPY100 to the dollar and JPY158 to the euro. So the change has a positive effect on our forecast.

Second, operating income for the first quarter slightly exceeded our previous forecast, due to the yen exchange rate depreciating against the dollar and euro and favorable results in the Game segment. These positive impacts have also now been factored into our revised forecast.

Third, we've revised our outlook for equity in net income of affiliated companies downward, from JPY70b to JPY10b, as the operating results for Sony Ericsson are expected to be significantly lower than the May forecast.

And finally, we have adopted a more cautious outlook about the business environment for the Electronics segment, compared to the May forecast.

As a result of these factors, we've raised our consolidated sales forecast by JPY200b, to JPY9.200 trillion. The forecast for operating income, including equity in net income of affiliated companies, income before income taxes and net income have each decreased by JPY50b. Our forecast for CapEx, depreciation and amortization and R&D is unchanged from the previous forecast.

Before Mr. Oneda and Mr. Wiesenthal take your questions, I'd like to conclude with a few key points.

During the first quarter, we made substantial progress on our key initiative to achieve profitability in the TV and Game businesses this year. The TV business substantially reduced losses year over year. The Game business recorded a profit in the quarter. Both businesses remain on track for full year profitability.

Another milestone achieved just subsequent to the quarter end was the launch of the PlayStation Network video download service in the US. This is an important first step in our mission to leverage content and become the leading global provider of network consumer electronics and entertainment.

We're pleased with the progress achieved during the quarter. And while many challenges remain in the markets in which we compete, we remain cautiously optimistic about the current fiscal year.

With that, we would be pleased to take your questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Evan Wilson with Pacific Crest.

Hi, guys. Thanks for taking the questions. I have two. First, you saw a 7.5% decline in sales year over year in the US, which was the most of any region. Could you talk about what portion of that decline you think is from any weakness in the US economy and what portion you think is the impact of product mix?

And second, you cited an increase on price competition on digital cameras in your statement as a negative driver to your OI in Electronics. Last conference call, you said your expectation was for a 10% decline in pricing this year. Could you update what your current expectations are and if there's any change in that 10% decline expectation?

I think that even though you said that the 7.5% sales went down in the US year-on-year basis, this is based upon, I think, a yen basis. In local currency basis, in other words, a dollar basis, our sales is not down compared to the last year.

So have you seen any weakness relative to the US economy on your business so far and can you (multiple speakers)?

As of this moment, overall, the consumer electronics business is not so much deteriorating because of the television business, particularly for the LCD businesses. So therefore, at this moment, we don't see any drastic downturn for the Electronics business in the United States.

And on price competition in digital cameras?

Yes. The price competition in digital camera is becoming severe, not only in the US but also in Europe, the operation, too. But that was already included into our budget.

In the last call you said (multiple speakers).

But like we said, the quantity will be increased over 6% but the price deterioration is more than that, so that dollar basis the industry of the digital camera in the US will be deteriorating 5%, 6%.

Thank you.

And your next question comes from the line of Jessica Reif Cohen with Merrill Lynch.

Okay. I have a couple of questions, entertainment-related. First, on the film side, can you talk about what actions you've taken regarding the strike or potential strike? Is there an effective strike? How are you operating the film business right now?

And also, on the film side, could you talk about current trends in both home video and Blu-ray market, what your expectations are through the balance of calendar '08?

Sure. With respect to the strike issues, we're trying to get closure on this final deal with SAG. We have obviously successfully concluded our four previous agreements over the past year. We're prepared for a possibility of a work stoppage but we're also proceeding with production the best we can. And so we're -- in all our work with the studio, we're making preparations but we're still cautiously optimistic and hope that both sides get to an agreement.

In terms of on the home video side, why don't we spend just a second talking about Blu-ray, which has been doing extremely well. If you take a look at just the year to date, January to June, we're about -- a little bit under five times the amount of Blu-ray sales for this half of the year versus the previous year. We're running about, I would say, 8% of the total DVD business but on certain new releases it's close to 15%. Remember, last year Blu-ray sales were only 2% of the total DVD business and we now have about 15m BD-capable players out there, worldwide. We've sold about 12m Blu-ray discs to date, just in the US. All the studios are making discs right now and I think there are about 1,700 titles worldwide.

In terms of what we're seeing, new releases seem to continue to be doing well in both formats. However, I would say catalog titles remain pressured from a pricing perspective at retail. That has a bit to do with the amount of space that retailers are giving catalog and just the general age of most of the film libraries.

Was there anything else you had, Jess?

Actually, I just wanted to switch gears a little bit, to music, if we can. Could you talk about -- obviously the market is still -- the physical market is still under a lot of pressure. I'm just wondering if you can give a little bit more color in terms of what you think -- or what your expectations are for the balance of the year, physical and digital.

And also, how is the speculation that you're about buy out Bertelsmann? Can you talk about the -- what's the strategic value to you, as a company, of owning all of Music?

And then, from an economic standpoint, when do you internally expect the market to bottom and start to -- when would you expect it to bottom?

The music business in the physical, in the United States from January to June, during the last six months, the physical market is declining about 25%. And the digital area is now improving about 6%. So, overall, the declining is about 15% to 16%, basically, in the United States. But global basis, the physical market is declining about 17% and digital is up by 15%, so the net is the minus 2%. That's the last year on the six-month result. So that's the kind of trend that will probably continue the rest of the fiscal year.

And right now, kind of globally for this year, I think we're looking about 25% total sales being digital. That's increasing all the time. I think, in terms of the trends that we're seeing, that should create value for all the music companies. We're really looking to paid-up subscriptions, both for portable devices and mobile phones, as being an important driver of economics going forward.

With respect to the importance of the Music company, going forward, we think deeper integration with our devices is going to be critical to creating value throughout Sony. Music continues to be a strong driver of economic value and innovation. If you look at the top TV shows worldwide, in the US or elsewhere, they're music-related shows like Pop Idol, American Idol, America's Got Talent. If you look at the top video games right now, in terms of software sales, you've got Guitar Hero, SingStar and Rockstar. And then, needless to say, obviously, MP3 players and mobile phones with music capability are important CE devices.

So we see music driving value everywhere, not to mention out-of-home entertainment, and I think we're very well-positioned to harness that. The more integration we can get, the better. You mentioned the speculation in the press. Right now, there's nothing for us to discuss. If, at such time, we have something announce, we'll obviously announce it.

In terms of when the music industry will have bottomed --

This year will be the bottom.

I hope you're right, Nick. I think that over the next couple of years -- in terms of our business, I think we're -- Nick is right, we're in pretty good shape. We've done -- most of our restructuring is behind us. But as an industry, the next couple of years are really going to be transition years.

And just one last question on an absolutely different topic, but can you comment on -- given your consumer -- all your consumer products, how much savings would you expect from marketing this year, given the weakness in advertising in the US and we're hearing the UK is starting to really decline. Is that an area of savings?

It depends on the kind of media. It's a mix. And I think we're so broad as a company, both geographically and in terms of types of media, I can't really look towards a specific weakness in the advertising market driving us any savings in advertising spending. Obviously, we hope to get the best deals we can to get as much bang for our buck but we have not factored into our forecast any kind of real dollar decrease in our cost of advertising.

Okay. Thank you.

And your next question comes from the line of Jason Mauricio with Arete.

Yes. Hi there. Just a couple of quick questions. Did you take any accelerated depreciation in Pictures this quarter, given the losses you took there?

And also, on the Game business, I know there were some puts and takes in terms of reserves that you were running through the business. Were there any material reserve reversals in the last quarter?

And finally, just a clarification on one of the earlier questions. Can you talk about constant currency sales growth in the US for the entire Sony Group? I know you gave it for Electronics but I was curious if you could provide it for all of the business units in the US. Thank you.

One second, Jason.

Sure.

We didn't take accelerated depreciation in the Pictures business in Q1. The losses that you see in Q1, again, you have to look at the Pictures business holistically over the course of the year. We have a lot of marketing costs in this quarter related to the bigger summer films. And the comparisons are obviously difficult, given that we had Spiderman which was a May release versus spending this year and Hancock which was a July 4 release and a lot of upfront spending for our upcoming summer films.

Okay.

The previously related write-downs or write-ups, the past quarter the write-down is positively reflected into our bottom number. About JPY148b is included in that. But the second quarter, because of the timing issues, in other words that is the time that we will increase the inventory level PS3, there might be some negative write-down impact into our bottom number.

And your last question is the local currency sales growth in the US?

Yes, for the business, for the entire business, rather than just Electronics.

We will just check it, so please wait.

Okay. Can I ask a quick follow-up on the PS, on the Game group? You mentioned there was a gain this quarter and there may be some charges next quarter for reserves. Can you talk about what your expectation for the entire fiscal year might be, in terms of the magnitude of either net reversals or net charges for PS3 costs?

The annualized basis, it would be a positive impact to the bottom number. The magnitude of this impact is about $300m to $400m.

Okay. Thank you very much.

We'll come back with the other answer after we take the next question.

Great. Thanks, Sam.

And your next quarter comes from the line of Daniel Ernst with Hudson Square Research.

Yes. Good evening and good morning. Thanks for taking my call. A few questions, if I might. First, on the TV business, continued to report a loss in LCD but yet maintain a goal of operating profit for the full year. Was the loss in the quarter in plan, above plan, below plan on the loss side? You talked, related to that, about pricing trends with LCD units up double year on year but revenues up 30%. I guess the offset there is you're not selling CRTs, so maybe you can give us a sense of LCD revenue growth as opposed to unit growth.

And then, on the net income guidance changes, you effectively reduced the equity affiliate line by JPY60b but reduced the overall by JPY50b, so that implies a JPY10b actual improvement in core Sony. Can you talk about the driver side? Is the bulk of that just coming from FX or are there other positive contributing factors to that? Thanks.

The LCD business for the past quarter, this is still negative but -- which is within our original expectations. And the annualized basis, our performance with TV would be a profitable operation, as originally expected.

The pricing of the LCD, we are expecting that -- we expect that price deterioration for the smaller inch side would be 20% year-on-year basis and the large screen size is probably 25%. That is slightly slower declining compared to the last year.

Your last question is excluding the equity income, the profit of other businesses, in terms of operating profit, is improved by about JPY100b. That is primarily because of the falling currency related -- you know the problem. Compared to the original plan, our falling currency device was more toward the weaker yen for both dollar and euro. That is the main reason that we revised the operating profit basis, excluding the equity income [ratio].

Understood. Thanks for the answer.

And your next question comes from the line of Ben Williams with GAM.

Hi, hello. I have a question. Can I firstly ask a question on the Game business and then could I ask a question on digital still cameras? On the Game business, can you give us a bit more detail in terms of the profit drivers? A couple of questions ago, I think you gave some detail about inventory-related gains. But could you possibly go into a bit more detail about sales decline in software despite unit sales growth? Because it seems a bit misleading because you suggested PS2-related sales were down but we can see that software for PS3 increased significantly. So it's not really clear why overall sales are down, unless it includes a large amount of bundling.

Also, I guess allied to that, could you give us a bit more flavor in terms of profit growth, given the fact that overall sales revenue for the software was down? Can you give us a breakdown in terms of profit between hardware and software?

Okay. We have the three platform - PS2, PSP, PS3. And both PS2 and PS3 software, both in quantity and dollar basis, is improving substantially compared to the last year and ahead of our last May forecast. For the PS2, because of the ninth year of this platform, both in hardware and the sales of the software businesses is now declining.

But overall, the sales of the software is deteriorating, primarily because two reasons. One is the mixture of the first-party and third-party mix-related issues. And another main issue is the PS2, the software these days is very relatively cheap software sold compared to a couple of years ago. So it's basically the mixture of the platform itself and the mixture of the first party and third party. And also, within the PS2 category, the software itself, depending upon the content itself, some of the content is much cheaper than the usual Game businesses, like the Karaoke pack and what is called, the (inaudible). Things like the software is cheaper is cheaper than the regular Game business. So it's a mixture of those two.

Okay. So from that, we can really deduce that the profit growth really came through cost cutting rather than revenue generation?

Yes.

Can you give us an idea of SG&A to sales, in terms of software and hardware?

We are not disclosing the SG&A into the hardware and software itself. But we can say that the hardware businesses for Playstation 3 is still losing. In other words, the cost is higher than the sales price. But the other -- the hardware business is making money. And of course all the software businesses, also the platform, are making money.

Okay. Can you give us an idea how many people have signed up for movie downloads on the PS3 in the last couple of weeks, since you announced that?

No. We don't have that data at our fingertips. Bear in mind that we just launched that service in some of the other studios we signed in the three days leading up to the launch date, so we're actually still populating it with a lot of content.

I think right now we have all the studios signed up except Universal. There's a full Breakfast Television film available for download. I think the take-up rate has been fairly good, considering there hasn't been much publicity. And the service, I'm happy to report, has been completely stable. So I would look forward to much greater promotion going forward about it, now that we know that it's working right.

And also, an interesting point on that is that there's a very interesting mix of skewing towards paid purchases as opposed to rentals, and also a lot of people using the functionality of moving films from their PS3 to their PSPs.

Just a slightly different question. In London here, there's been a few stores that I've been into and they've had -- the PSP have been sold out, PS3 have been sold out, which seems quite unusual. I'm just wondering whether that's showing -- either it's showing that sales are good or production issues at Sony, I'm not quite sure. But there seems to be a lack of channel inventory, particularly in the UK, or maybe I'm just going to the wrong shops.

A year ago, you talked about how the shelves were full and you were worried about no one buying them. Now the shelves are empty and you think there are production problems.

Well, no, I'm not sure. I'm asking you.

No, it's all right. The glass is half full or half empty. Specifically in the UK, I don't know of any real issues. We're exceeding expectations on PSP everywhere. And obviously, in the UK and in Europe in general, PS3 really doesn't have much competition in terms of Xbox or anything like it, so I think we're doing pretty well over there.

Okay. So the 10m unit forecast for the year is conservative?

Well, we want to be very cautious about the Christmas season, so therefore you may say we are reasonably conservative.

Okay. Can I ask just one more question on digital still cameras? What were your unit sales year on year for digital still cameras in the first quarter? And how does that tie in with your forecast for the full year of, I think it's about 10%, 11% unit growth for the full year?

The full year basis, still the quantity is -- industry service, up by -- about 11% up, the annual basis. I mean the year-to-year basis. We didn't disclose the quarter-by-quarter basis?

No. Our target for the full year stands at 26m units.

Okay. But were your unit sales up year on year in the first quarter?

The quantity is up but the dollar basis, because of the decline of the unit price, I think it's down compared to the last year.

Okay. Thank you very much.

Laura, let's just take one more question, please. We're running out of time.

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

Hi. Thanks, guys, for squeezing me in. I just have three quick questions. One, can you comment a little bit further on the PS3 inventory situation? You talk about how you may have to add a little bit more on PS3 inventory in Q2. But can you talk specifically about the PS3 chip inventory, where you are today and whether the inventory is very low and you need to replenish that?

The second question is initially you talked about how you are turning a little bit more cautious on Electronics versus your May forecast. Can you elaborate a little bit more in terms of which specific product lines you're being more cautious? And when you talk about cautiousness, are you referring to unit growth, ASPs or margins?

And then my last question is on inventory. If I look at your inventory, it's up to 57 days. It seems like North America is up year on year and Q on Q, whereas the other regions are down. Can you talk about where you are in terms of your inventory situations, both geographically and by product? Thank you.

We're not disclosing the inventory level by regional basis. But overall, I can say it this way, we have a little bit of excess inventory for some titles and some Flash memories, because of the strategic reasons. There was the -- last year we had some shortage of the 32-inch panels and this could happen for this fiscal year too. So, therefore, we have some excess inventory to prepare those unit situations for the [clients]. But overall, excluding those, our inventory level is very healthy.

And in terms of the PS3 inventory, we have not specifically explained the platform basis inventory level. However, I can say that the PS3 inventory is the adequate level. By region-by-region basis, maybe England maybe would have some shortage, but overall inventory level is a reasonable level.

The other question is can you elaborate a little bit more on your cautiousness for Electronics versus your May forecast? If you can talk to it --?

Even though I said that because of the MTV Television is still very healthy and a growing category, but other categories may be affected negatively because -- depending upon the economic trend coming the rest of the fiscal year. So, that's the main reason why we're taking a little bit cautious way.

And when you use the word cautiousness, are you referring to units, pricing or margins or all three?

Particularly both quantity and margin.

Okay. Thank you. And congrats again for turning Games into a profit this quarter.

Great. Thanks, Ben. And with that, I'd like to conclude today's call and remind everyone that the contact numbers for the IR offices in Tokyo, New York and London are available in the earnings release and on our websites at sony.com and sony.net. Again, thanks very much for joining us and that concludes today's call.