索尼 (SONY) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sony Corporation's financial results announcement for the fiscal year ended March 31, 2009 conference call.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

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

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

Please proceed, sir.

Thank you very much for that introduction, Dan.

Thank you all for joining us today, May 14, 2009 for the discussion of Sony's fiscal year results.

I'm Sam Levinson, Senior Vice President, Investor Relations at Sony Corporation of America, and with me on the conference call here in Tokyo tonight is Nobuyuki Oneda, Corporate Executive Officer, EVP and CFO Sony Corporation, Robert Wiesenthal, Group Executive, Corporate Development and M&A for Sony Corporation and EVP and CFO Sony Corporation of America and, Gen Tsuchikawa, Senior General Manager of the Investor Relations division.

Thank you all very much for joining us.

Please be aware that statements made during the following remarks and Q&A session with respect to Sony's current plans, estimates, strategies, press releases 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 announcements.

Consolidated sales for the fiscal year decreased 13% year-on-year, to JPY7,730b.

85% of the decrease can be attributed to exchange rate shifts and, on a local currency basis, the decrease in sales was 2%.

Operating loss of JPY227.8b was recorded; a deterioration of JPY703.1b year-on-year.

There was a JPY126b impact from lower results of equity affiliates, including Sony Ericsson, and an approximately JPY28b increase in restructuring charges year-over-year.

Excluding the impact of equity affiliates and restructuring charges, our operating loss on an adjusted basis was JPY127.3b; a decrease of JPY549b year-on-year.

The reasons for the JPY549b deterioration include approximately JPY279b from the appreciation of the yen, approximately JPY191b from a decrease in sales and deterioration of the cost/sales ratio in the Electronics segment, and approximately JPY54b from the expansion and loss in the Financial Services segment, brought on by the significant decline in the Japanese stock market.

Non-operating income decreased 43% to JPY52.8b.

Although net foreign exchange gain increased significantly year-on-year, an JPY81b gain on change in ownership interest in subsidiaries and investees was recorded in the prior fiscal year as a result of the listing of Sony Financial Holdings.

Due to all these factors, loss before income taxes for the year was JPY175.0b, compared to income before income taxes of JPY567.1b in the prior fiscal year.

With respect to income taxes, Sony recorded an income tax benefit amounting to JPY72.7b.

This was mainly due to the recording of a loss before income taxes during the fiscal year, and the reversal of JPY55.5b in deferred tax liabilities on undistributed earnings at foreign subsidiaries and affiliates, made possible by the introduction of a measure in Japan to treat the dividends for overseas subsidiaries as non-taxable income.

However, mainly due to the reversal of certain deferred tax assets for foreign tax credits at Sony Corporation, and an increase in valuation allowances recorded on deferred tax assets for net operating loss carry-forwards at certain subsidiaries, the effective tax rate was 42%.

As a result of these factors, net loss was JPY98.9b, compared with net income of JPY369.4b in the prior fiscal year.

Next, I'd like to briefly explain the results on a segment basis, first, Electronics.

Sales in the Electronics segment decreased 17% year-on-year, to JPY5,488b.

On a local currency basis sales decreased 6%.

This decrease was primarily due to the global downturn in the economy in the second half of the fiscal year.

On a product category basis, sales of LCD TVs increased, due to an increase in unit sales, but sales of Video Cameras, Compact Digital Cameras and PCs decreased significantly.

The fact that we've completely exited the rear projection LCD TV business and the CRT TV business, the sales of which were contained in the prior fiscal year, contributed to the decrease in sales.

An operating loss of JPY168b was recorded in the Electronics segment, compared to an operating profit of JPY441.8b in the prior fiscal year.

The largest loss-making product category was LCD TVs.

The largest profit-generating product categories were, in order of magnitude, Video Cameras, System LSI and Compact Digital Cameras.

Operating income decreased because of unfavorable exchange rates, a deterioration in net income of affiliated companies, primarily Sony Ericsson, a deterioration in the cost to sales ratio resulting from price declines on LCD TVs, PCs and other products, decreased sales and an increase in SG&A.

I'll now discuss the change in operating income on a product category basis.

The categories which had the largest decrease in profit were Compact Digital Cameras, PCs, LCD TVs and Video Cameras.

Price declines, unfavorable exchange rates and a slowdown in market growth caused sales of Compact Digital Cameras to decline in all regions.

While unit sales of PCs and LCD TVs increased, operating income decreased due to the impact of price declines, unfavorable exchange rates and other factors.

Operating income of Video Cameras decreased mainly due to decreased unit sales in all regions, price declines and unfavorable exchange rates.

Looking at the TV business, for the first half of the fiscal year sales in the TV business increased, and loss decreased, due to a significant increase in unit sales, but from the middle of September the rapid deterioration in the economic environment, an intensification of price competition, and the impact of unfavorable exchange rates caused a 7% decrease year-on-year in full fiscal year sales, to JPY1,274b, and a deterioration in profitability, excluding restructuring charges, of JPY62b, resulting in a JPY127b loss for the fiscal year.

Full-year unit sales of LCD TVs increased 43% year-on-year, or 4.6m units, to 15.2m units, achieving the unit sales goal we had set for ourselves.

Inventory in Electronics at the end of March was JPY629b, a significant decrease of 24% compared to the same time last year; we adjusted production in nearly every product category as a result of the downturn in the market from the middle of September.

Next, Sony Ericsson.

Sony Ericsson's sales decreased 19% year-on-year, primarily due to lower unit sales as a result of the global economic slowdown.

Loss before taxes of EUR633m was recorded mainly due to the lower unit sales, a less favorable product mix, pricing pressure, unfavorable exchange rates and the recording of restructuring expenses.

Equity net loss recorded by Sony for the fiscal year was JPY30.3b, compared to equity and net income of JPY79.5b during the prior fiscal year.

Next, the Game segment.

Sales in the Game segment decreased 18% year-on-year, or 8% on a local currency basis.

Of the JPY231.1b decrease, JPY132.3b was from exchange rates.

Approximately 75% of sales came from hardware and accessories, and the rest was software.

Looking at hardware, overall hardware sales decreased due to unfavorable exchange rates and a year-on-year decrease in unit sales for PS2.

This decrease was partially offset by an increase in unit sales of PS3 and PSP.

Despite the severe market environment PS3 unit sales reached our original target of 10m, by offering a comprehensive value to the consumer through introduction of the 80 gigabyte model, and enhancement of the software lineup.

Network services for the PS3 have also expanded, contributing greatly to the expansion of the PlayStation network user base.

Unit sales of PSP trended well in the first half of the fiscal year but, due to the slowdown in the economy, unfortunately, did not meet our goal.

While the 14.11m units sold during the year were less than our original target of 15m units, they were higher than the previous fiscal year.

Sales of the PS2, which has entered its tenth year in the market, have passed the peak, but are still going strong in places like the Middle East and certain parts of Asia.

Unit sales of PS2 decreased approximately 5.8m units, to 7.91m units for the fiscal year.

Looking at software, overall software sales decreased due to unfavorable exchange rates and a decrease in sales of PS2 software, although the sales of PS3 software increased.

Network services.

The foundation of our network business is expanding as the PlayStation network is used, not only for games, but for new content and services such as the video download service, Life With PlayStation and PlayStation Home.

Users of the PlayStation network are steadily expanding, as the cumulative number of registered PlayStation network accounts has exceeded 23m since the service began approximately two and a half years ago.

Operating loss in Game improved JPY66.1b year-on-year, to JPY58.5b.

This was mainly due to an improvement in the operating performance of the PS3 business, brought on by the PS3 hardware cost reductions and increased sales of PS3 software.

Inventory in the Game segment at the end of March was JPY145.5b; a decrease of 20% year-on-year.

Next, looking at Pictures, sales in the Pictures segment decreased 16% year-on-year.

This was mainly due to an accelerated contraction of the home entertainment market brought on by the global economic downturn, as well as fewer films being sold into the home entertainment market.

The prior year's revenue also benefited from the sale of a bankruptcy claim against KirchMedia, a former licensee of film and television product.

Successful films released during the fiscal year included Hancock, Quantum of Solace and Paul Blart: Mall Cop.

Operating income at Pictures decreased 49% to JPY29.9b, due primarily to the lower home entertainment sales I just mentioned and the sale of the bankruptcy claim in the previous fiscal year, as well as JPY4.9b restructuring charges this year.

Financial Services.

Financial Services revenue decreased 7%, due to a decrease in revenue at Sony Life.

Although insurance premium revenue increased due to an increase in insurance in force, revenue at Sony Life decreased 7% to JPY430.5b, primarily due to increased net valuation losses from convertible bonds and increased impairment losses on equity securities in the general account, and increased net losses from investments in the separate account, all resulting from the decline in the Japanese stock market during the fiscal year that surpassed the decline in the prior fiscal year.

An operating loss was recorded in the Financial Services segment of JPY31.2b, primarily due to the deterioration of results at Sony Life.

Sony Life recorded a JPY29.8b operating loss, compared to a JPY11.5b operating profit in the prior year.

Although insurance premium revenue increased, loss was recorded mainly due to increased net valuation losses from convertible bonds and impairment losses on the equity securities in the general account, and the additional recording of policy reserves in the separate account, resulting from the significant decline in the Japanese stock market.

All Other.

Sales in All Other increased 41% year-on-year.

This increase was primarily due to the impact of Sony consolidating 100% of Sony BMG as of October 1, 2008.

On January 1, 2009, Sony BMG's name has been changed to Sony Music.

Excluding the impact of the consolidation of Sony Music, sales of All Other decreased year-on-year.

Although sales of Sony's Entertainment Corporation increased due to higher fee revenue from broadband connection services, sales of Sony Music Japan decreased in the prior fiscal year, including the receipt of a settlement payment related to copyright infringement claims.

Sales of Sony Music Japan decreased mainly due to a decrease in album sales, resulting from a continuing decline in the physical music market.

Best-selling albums released from Sony Music during the six months included albums from AC/DC, Beyonce, Pink and Britney Spears.

Best-selling albums released from Sony Music Japan during the fiscal year included albums from YUI, ikimono-gakari and Mika Nakashima.

Operating income decreased 50% year-on-year, to JPY30.4b.

This was primarily due to the recording of a JPY10b gain on the sale of Sony Berlin and the receipt of a settlement payment related to copyright infringement claims in the prior fiscal year.

Having finished the review of last year, let's turn to an update on our restructuring initiatives.

In December of last year and January of this year we announced restructuring plans aimed at improving the profitability of Sony Group.

At that time we announced the following measures; JPY250b in expense reductions across the Sony Group during the March 2010 fiscal year; an approximately 10% reduction in the 57 manufacturing sites in the Electronics segment by the end of the March 2010 fiscal year; and an 8,000 person headcount reduction from Electronics and an 8,000 person headcount reduction of outsourced personnel, also by the end of the March 2010 fiscal year.

These measures are moving quicker than our original plan.

And with regards to the JPY250b expense reduction target, we are now enacting measures to reduce expenses by more than JPY300b.

With regards to the manufacturing facility reduction, we've decided to close four plants in Japan and four plants outside of Japan, for a total of eight plants; also ahead of our original target.

As for the manufacturing sites in Japan, we are stopping production at Sony EMCS's Ichinomiya Technology Center in June, and we plan to stop production at Omigawa Technology Center, Hamamatsu Technology Center and Senmaya Technology Center by the end of December of this year.

Outside of Japan, in addition to Pittsburg in the United States and Dax in France, which have already been announced and already stopped production, we plan to cease production at our Mexicali plant in Mexico and transfer our electronics components factory in Indonesia, called Sony Chemical Indonesia, to a third party.

As for the headcount reductions in the Electronics segment, through early retirement and other means we are on track to decrease more than 8,000 people, and, at the end of March 2009, we had already decreased our outsourced personnel by more than 8,000 people.

As a result, we have already reached our original goal for headcount reduction and we will continue to make efforts to improve efficiency.

We forecast JPY110b in restructuring charges for the March 2010 fiscal year and continue to implement measures designed to strengthen our financial structure going forward.

Now I'd like to explain our forecast for the March 2010 fiscal year.

In creating this forecast we assumed approximately JPY95 to the US dollar and approximately JPY125 to the euro.

Since we assumed that the severe operating environment brought on by the global economic slowdown will continue, and since our foreign exchange assumptions anticipate an appreciation of the yen above the March 2009 fiscal year, we expect consolidated sales to decrease 6% year-on-year, but flat on a local currency basis.

Consolidated operating loss is expected to improve JPY118b year-on-year, to a JPY110b loss.

As I just mentioned, restructuring charges, which are recorded in operating income, are expected to be approximately JPY110b, compared to the JPY75.4b in the prior fiscal year.

Operating income on an adjusted basis, which excludes net income of affiliated companies and restructuring charges, is expected to improve more than JPY150b during the March 2010 fiscal year, to JPY30b in profit.

If foreign exchange rates were to remain at the level they were in the previous fiscal year, operating income would be approximately JPY160b.

For the March 2010 fiscal year we forecast capital expenditures of JPY250b, a reduction of approximately 25% year-on-year, primarily in the Electronics segment.

Now, looking at the forecast by business segment, first in Electronics, we're expecting a decrease in sales due to continuing weakness in the business environment and the impact of the appreciation of the yen.

Regarding operating income, we will endeavor to reduce manufacturing costs and operating expenses and, in particular, in the Television business we expect operating loss to contract significantly.

However, overall operating loss is expected to slightly increase, primarily due to an increase in restructuring charges.

In the Game segment, a decline in segment sales is expected, due to the impact of the appreciation of the yen and a decrease in sales for the PS2 business.

Regarding operating income, we anticipate that we will continue to record an operating loss, mainly due to the impact of the appreciation of the yen, and a decrease in PS2 hardware and software unit sales, although we expect to see further manufacturing cost reductions on PS3 hardware, enhancement of the PS3 software lineup and steady improvement in the profitability of the PSP business.

In the Pictures segment, despite the appreciation of the yen, we expect higher revenue and operating income, as a result of the greater number of major films to be released compared to the March 2009 fiscal year, and increased advertising and subscription revenues from channels outside the US.

Since we don't incorporate any projected effect from gains and losses on investments at Sony Life due to stock market fluctuations, we expect sales and profitability in the Financial Services segment to improve significantly compared to the March 2009 fiscal year, which experienced the effect of the downturn in the Japanese stock market.

So, allow me to quickly summarize a few key points from our announcement.

We concluded fiscal 2008 slightly ahead of our most recent forecast.

We have increased our target for cost savings, from JPY250b to JPY300b.

We've increased our planned closures of plants to eight; four in Japan and four overseas.

We've already decreased our outsourced headcount by 8,000 and are on track to decrease headcount a further 8,000 this year.

We anticipate a significant reduction in operating losses in the coming year and, on an adjusted operating income basis, excluding the equity in affiliates and restructuring charges, our results should be above breakeven.

We look forward to keeping you apprised of our progress throughout the coming year and, at this time, we'd be pleased to take your questions.

(Operator Instructions).

Your first question comes from the line of Jason Mauricio from Arete.

Please proceed.

Thank you very much.

Just a couple of quick questions.

Could you update us on PS3 inventory, be it your own inventory or channel inventory in terms of units, and maybe give us an update on the timing of the 45 nanometer cell chip?

Second, what is your assumption this year for LCD TV price pressure, and maybe if you can talk about large screen size versus small screen size mix?

And, finally, of the two -- of the increase in -- or the expense reduction of 300 -- or plus JPY300b, can you discuss where the extra cost savings are coming from, whether it's all from the manufacturing facilities or if there are some other initiatives that go into that?

And how much of the total expense reduction is due to a suspension in bonuses?

Thank you.

First of all, we did not disclose the specific inventory level of the PS3.

But at the end of the March 31, our inventory level of overall Game business is almost a reasonable level.

That's our understanding.

I'm sorry that the -- I didn't give you the detail of the specific inventory level of the PS3.

Again, this is -- we don't disclose the Vizio, the big screen size or the small screen size but, compared to last year and this year, we will emphasize the improvement of the large screen size.

And also we will emphasize the new features of the high frame rate and the echo model of the LCD Televisions.

The Television, in the case of the price deterioration, the last year we could say small size, like less than 32 inch, the price deterioration would be around 25%.

And the large screen size, which is more than 40 inch, we think that the price deterioration would be somewhere between 25% and 30%.

But for the next year, I mean this year, fiscal '09, the price deterioration will be slightly moderate, like 5% or so.

So this give 32 inch is just like 20% to 25%.

And the large screen size is probably somewhere between 25%.

Your last question is the cost saving.

Originally, we told you that JPY25b to JPY30b.

This is -- JPY25b was a very rough guesstimate when we announced it, and then after we reviewed the by-division-by-division basis, we came up by an additional [JPY500m].

And please also understand that this saving does not only come from the restructuring, but the regular cost saving for the expenses is also included.

Thank you.

Okay?

Okay, thank you very much.

Maybe just a quick follow up on the last point.

I think before, when you first announced the JPY250b of cost savings, the suspension of management bonuses was a big portion of that.

Is that -- does that remain a significant portion of your JPY300b cost plan?

Well, it's not so much but, yes.

In certain extent, yes, but it's not the big impact because of the salary or the bonus cuts.

Okay, thank you very much.

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

Please proceed.

Yes, good morning.

Thanks for taking my call.

And, good evening, as the case may be.

Two questions, if I might, first, on the profitability of the Television business in your forecasts for the fiscal year ending March '10.

You're looking at flat TV sales year-on-year, presumably, with some additional reductions in pricing, so you're forecasting a recurring loss in division.

In the past you talked about increasing volumes and getting past your large overhead in the Television group to bring that back to profitability.

But now, we're looking -- now with looking at flat sales year-on-year, what are the weavers that you think could eventually take the Television group back to profitability?

And then I have a follow-up question on the Game division, thanks.

(Technical difficulty).

Dan, are we back with you?

Yes, you're back.

Okay, my apologies to everyone.

My call on this end.

Dan, please repeat your question, and we're going to ask everyone to limit themselves to two questions.

Dan, go ahead, please.

Great, thanks.

So, to repeat the question, in the Television division you're forecasting a loss in the coming fiscal year.

You're also forecasting flat unit sales and, presumably, there's continued erosion in prices, as is natural in the category year-over-year.

So, with that in mind, what are the weavers you have available to return Televisions back to profitability?

Because we used to talk about getting the volumes up in LCD to cover the fixed overhead to bring that back to profitability.

But now, as we are looking at a flattening of sales as we look beyond the current fiscal year, what are the opportunities to bring Televisions back to profitability?

And then my second question on the Game division for flat sales on the PlayStation 3.

In the year you just reported you're forecasting a 30% increase, which is positive, but does that assume a price reduction in the plan for both the units and the profitability of the Group?

Thanks.

Okay, the -- in the case of TV the -- half of this fiscal year we think that the [low sales] of TV will continue.

But we are hoping that the second half will be the breakeven.

So hopefully the next fiscal year, which is the fiscal year 2010, will be the positive -- the profit situation for the TV.

The reason of this is the -- I think that I can say three things.

One is the -- more drastic restructuring is now we are taking, and particularly the difference between the last -- the restructuring versus this time restructuring.

We are now reviewing the more -- we are reviewing the parts engineering resources within the TV.

But we are now trying to cut those people, which we did not do before.

And we also reorganized the purchasing organization.

That was -- used to be an independent organization by-product-line-by-product-line basis, in other words, which is like a [title type] organization.

Now it is one centralized organization which is headed by Mr.

Nakagawa, our Deputy President.

And he consolidated the -- not only the Electronics segment, but also the Game organization.

So, therefore, that the more bigger purchase amount we could use as the weapon to negotiate with the parts manufacturers.

And also the -- we are trying to seriously negotiate the price down of the panel, which is the biggest material cost within the TV operation.

We did a very bad the purchasing method for the last year, which we will change it.

This is number one item which we are pursuing now.

Second is the more speedy operation.

We are now reviewing the supply chain cycle.

We compare our supply chain cycle with the Samsung, and we learned a lot.

So we will change [our] supply chain management.

And also we are reviewing the design cycle to be more faster compared to the previous year.

Number four is the -- this is the product area.

I think that the -- our high frame rate, which is the more smooth picture for the high-speed moving scenes, high frame rate ratio we'll be trying to increase it.

And also the more large sized, the ratio -- large sized television ratio would be increased.

So that we will make some money -- more money from the large screen size.

So those three was the difference of the actions which we did not take so seriously in the last several years.

Understood.

Thank you (multiple speakers).

And then, hopefully, next year we'll be breakeven [no problem].

Okay.

And the Game route?

In the case of the pricing strategy for the PS3, please allow me not to make any comment at this moment.

This is a very serious issue.

So if I announce the price strategy that will affect our -- the inventory level.

I am sorry.

Fair enough, thank you.

Your next question comes from the line of Shannon Cross from Cross Research.

Please proceed.

Hello, thank you very much for taking my question.

Could you talk a bit about color in channel inventory levels for cameras, both cameras and camcorders?

Perhaps you can provide it on a geographic basis, but any trends you are seeing there.

And then my second question is with regard to cameras as well.

Do you see any technology changes that might drive a refresh cycle?

And I would point to Canon talking about HD video in compact cameras.

But, again, I am curious as to your thoughts.

Thank you.

The digital camera inventory level, particularly in the channel, we don't have the exact -- the numbers.

But we think that our inventory level for digital camera is a reasonable level at this moment.

Do you have any thoughts as to where your competitors' levels are as well, and if the channel has been cleared over the last few months?

Yes, one good example is our competitors had to reduce the price towards the end of the year in the last fiscal year.

So we didn't do that, because our inventory level was relatively healthy compared to our competitors.

So, therefore, we didn't lose so much money towards the end of the fiscal year.

So that's a good sign that we didn't have any -- the extra inventory compared to our competitors.

On the technology side, obviously, recently there's been a push by the consumer looking towards more low-cost cameras but, obviously, innovation is still something people are looking for in the higher priced models.

We're really seeing a -- in terms of our own lineup on the smaller cameras, better touch screens, larger screens in terms of the size of the camera and wireless.

Wireless is extremely important going forward.

And you are going to be seeing a lot of our lineup going forward where you'll have instantaneous access in terms of uploading your photos to social networking sites, your PC and any type of online service that can manage your photos, and that's going to be very important.

Face recognition and smile detection continue to be good sellers as well.

Any thoughts on the HD video on compact cameras?

Well, I think you're seeing more and more, not only on the camcorder side -- smaller HD cameras, but the still cameras having better, better resolution for video quality.

So that is something that you're -- is going to be a recurring theme.

Video on compact cameras is being introduced by a number of manufacturers.

And I don't think it's something that needs a specific manufacturer.

I think what we can say, what is unique about us, is that more on the camcorder side we've introduced new camcorders with totally new CMOS technology, which has twice the light resolution.

And that is -- we've introduced that in this February in Japan and it's gaining market share immediately, and our market share has gone up from the 30s to the mid 40s.

Thank you very much.

Your next question comes from the line of [Dan Malkoun] from Moore Capital.

Please proceed.

Yes, just a quick question on -- going back to the panel pricing commentary that you had, I think when you were talking about how to get to breakeven in TV panels.

Recent data is that panel prices have been going up, so I am just curious what's baked into your forecast for LCD panels.

How do you guys get price down in that segment at a time when it seems like the pricing is moving up?

That's my first question.

We are expecting that, even though the availability of the small -- the panel size is a little tight, but throughout the fiscal year I think that the panel capacity may be the reasonable level.

And our strategy is to buy the panel, not only one focus like our joint venture, but also we want to use the Taiwanese manufacturers or we may buy some -- the panels from other -- the competitors too.

So, therefore, we are expecting the -- more than the -- at least a two-digit cost reduction we could achieve within this fiscal year.

Okay.

So the thought is, then that you get better pricing as you move away just from JV purchasing?

Well, the JV purchasing is still the majority part of the resources.

But we also use the outside to be -- how to say, to give the big pressure toward our joint venture partners.

Okay.

And also our partner, S-LCD Corporation, they're going to use the new -- the generation [make buying two] operation.

So this would be more cost effective.

Okay, so that should help lower the price of the panel as well.

Right.

Right.

Okay.

So currently in your forecast for breakeven for the second half of the year, I just want to make sure I got this right, you are assuming panel prices decline?

Yes.

Okay.

And then, just in terms of PS3 and the unit guidance for the year, just curious, how do you get to -- it's pretty substantial growth; on a percentage basis about 30%.

So how do you expect to get to that number for this fiscal year?

What are that drivers behind that unit growth?

Well, the -- I think that you have to get what the -- our price strategy is too.

And also we are enhancing, not only the package media, but also the network related -- the Game businesses also we are expanding.

So how we could increase the 30%, the increase of the PS3?

(Technical difficulty).

There's a very strong lineup of titles, both online and in physical form, taking full use of the sub-processor, a lot of eagerly anticipated games; God of War, Uncharted 2, Heavy Rain, Infamous, and then also some accessories as well.

So I think we're pretty excited about it.

Okay, thanks very much, appreciate it.

Your next question comes from the line of Luc Mouzon from Credit Agricole Asset Management.

Please proceed.

Yes, hi, good morning.

I just got two questions, the first one is regarding to your inventory -- the timeframe of inventories.

And could we expect, according to your comment, that you'll build up a bit in terms of production over the next quarters, which means that inventory level will increase as the usual seasonal patterns for Sony going into the second -- the first and second quarter this year?

And my second question is just regarding the joint venture at Sony Ericsson.

There's a lot of rumors about eventual -- eventually Sony being interested in taking over Ericsson, partly or entirely out from the joint venture.

So what could you give us in terms of comments with regard to this position?

And what is the clear benefits of getting Ericsson in the joint venture at this stage and not having phones as an entire business unit inside the consumer electronic?

The inventory level, even though that the end of this -- end of the last fiscal year we could successfully reduce the inventory level compared to the third quarter end.

But I personally think that our inventory level is still relatively high compared to our competitors.

So the important thing is not only the quarter -- end of first quarter or end of second quarter, but overall inventory level itself, we still have to reduce it.

I think, very roughly speaking, 10% of our inventory is probably -- should be reduced for the coming fiscal year.

With respect to Sony Ericsson, the Sony Ericsson joint venture, our focus right now is on returning Sony Ericsson to profitability and making sure we have the best lineup of phones we can.

And we're pretty excited about the phones that are coming out.

They are going to using all platforms, including Android and Symbian.

And we'll continue our work with our partners at ST-Ericsson on the chip side.

So that's really our focus right now, is to return Sony Ericsson to profitability.

Okay, thank you.

Your next question comes from the line of Arvind Bhatia from Sterne, Agee.

Please proceed.

Thank you very much.

I wanted to go back to the PS3 question of the 30% growth in this fiscal year '09.

Should we assume that 30% is going to be the case for the US and Europe, or are there any major differences across various markets?

And then I had a question on the PlayStation Portable, where you are also forecasting about a 6% increase versus, I believe, the most recent quarter was down, if I am looking at this correctly, about 30% versus your forecast.

Just wondering if you could make some comments there as well.

And my -- I guess my related question also is what is your view on having a motion sensing controller similar to what Nintendo has with its Nintendo Wii Remote?

Thank you.

I am sorry, we don't disclose the seasonal sales increases or decreases.

So just we disclose the overall on a worldwide basis.

So I am sorry that this data has never been released before, so excuse us.

The second one was on PlayStation Portable.

You're assuming an increase versus the most recent trend of being down.

Again, on the PSP, there are a lot of important titles coming out.

Additionally, there are a lot of applications that are now taking advantage of the WiFi capability of PSP.

The store is now available for downloads for games, so it's becoming a much more useful device to people, both in terms of getting online games and getting online movies, (inaudible) content, LittleBigPlanet, MotorStorm for PSP; these are big titles that we are excited about.

And in terms of motion sensing controls like the Wii, we have, obviously an important segment of the market and we continue to look at it in terms of opportunities, like EyeToy and others, and stay tuned for E3 and see what we have in store.

Great, thank you guys.

Thank you.

Operator, we have time for one more question, please.

Your final question comes from the line of [Richard Kay] from Cross Research.

Please proceed.

Thank you.

I have two questions.

Number one, you mentioned your supply chain management comparison with Samsung Electronics.

And I think Oneda-san mentioned that Sony had learned a number of things from looking at the comparison with Samsung.

I was wondering if you could possibly comment on a comparison of your TV profitability with Panasonic.

As you know, Panasonic has had profitability on its TV -- on its television segments for, I think, three fiscal years, a 4% to 5% operating profit margin.

And I was wondering if you could comment on why you think they've achieved that and you have struggled to do that.

That's my first question.

The supply chain management compared to the Samsung is the -- one thing is the supply chain does not mean that only in the fiscal the transition timing.

The overall orders through the shipment cycle has to be considered the total supply chain.

And in our case, compared to the Samsung, there are so many people involved during the -- within the supply chain, the process.

So Samsung, the supply chain, based upon POP basis, the point of sales data, directly goes to the decision makers.

So we have so many decision makers during the -- each regions or the sales branches or -- those are one of the reasons that we have to change.

And also the -- unfortunately, because of the contract with Samsung, we have to fulfill the production capacity, otherwise we have to pay the penalty.

So that means that, regardless of demand, we may have to buy some -- the inventories.

So that's another reason that we may have to have some extra inventory.

That, we are negotiating with Samsung.

So there are many areas that we can improve the supply chain issue.

Thank you.

Is it possible (multiple speakers) -- I am sorry to interrupt you.

Is it possible to comment a little bit on your margin comparison with Panasonic Matsushita, because Panasonic Matsushita has had profits in televisions for two or three fiscal years now?

I was wondering if you could comment on that a little bit.

Richard, this is Gen.

Hello.

Hi, there.

I don't think we are in a position to talk about Panasonic's profitability because we don't know what's in their -- what's in the numbers they tell you.

We include all our associated costs, including all the costs of our (inaudible) numbers.

I don't know how -- we don't know how Panasonic is doing that, so that we can not comment.

But I think it's fair to say that we've been in the LCD camp, and I think they're moving from the plasma camp into the LCD camp and so that's how we see where Panasonic is going at this point.

That's very clear, thank you.

I have one second question.

Oneda-san mentioned that the LCD Television could come to profitability this fiscal year, I think second half.

Are you able to comment when you think Television will breakeven long term cumulatively?

Because obviously you've had many years of losses already on LCD Television.

When do you think you'll cumulatively breakeven on the whole projects?

And, actually, same question for PS3.

When will you cumulatively breakeven on PS3, bearing in mind the initial costs you had to put in, which were over JPY200b back in fiscal '06?

So breakeven long term cumulatively for those two products is what I am interested in.

Yes, for those two key products we are expecting that they both -- the product line will be breakeven annualized basis for the next fiscal year 2010.

And in the case of LCD, as I said before, the second half of the fiscal year we are trying to achieve the breakeven.

And that's the same as the Game business too.

This fiscal year is still a little tough, but the next year more cost down will be expected, particularly some of the chips we are still using the 65 nano.

But fiscal year 2010 I think that most of the key LSI will be -- will use the 45 nano based chip.

So in this case the cost of the PlayStation 3 will be drastically changed.

And the fiscal year 2010 I think that we could achieve the profit for overall PSP business.

Okay.

So, on a cumulative basis, do you think it'll be two or three years that you breakeven, on a cumulative basis, thinking of your whole investment in the PS3 cycle?

Well, if we include the investment into the -- if we include the Semiconductor business, even though we sold some of the assets, I think the cumulative basis in ROI may be a little longer than three, four years.

Okay.

Thank you very much.

Thank you.

At this time, we have no further questions.

I would now like the call -- turn the call back over to Mr.

Levenson for closing remarks.

Thank you, Dan, and thank you all for joining us tonight from Tokyo.

Please don't hesitate to call the Investor Relations department in Tokyo, London or New York.

Our phone numbers are included in the press release.

We look forward to speaking to you soon.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.