索尼 (SONY) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Sony Corporation earnings conference call.

My name is Dan and I'll be your coordinator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would 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.

Please proceed, sir.

Thank you very much for that introduction, Dan.

Thank you all for joining us today, July 30, 2009 for the discussion of Sony's first quarter results.

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

With me on the conference call tonight is Nobuyuki Oneda, Corporate Executive Officer, EVP, and Chief Financial Officer of Sony Corporation; Robert Wiesenthal, Group Executive of Corporate Development and M&A for Sony and EVP and CFO of Sony Corporation of America; and Gen Tsuchikawa, Senior General Manager of the Investor Relations division.

Thank you all very much for joining us.

In just a few moments, we'll review today's announcement.

Then we'll 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 announcements.

Consolidated sales for the quarter decreased 19% year-on-year, to JPY1,599.9 billion.

This was a decrease of JPY379.2 billion, JPY163 billion of which can be attributed to exchange rates.

On a local currency basis, the decrease was 11%.

An operating loss of JPY25.7 billion was recorded; a deterioration of JPY99.1 billion year-on-year.

Of this deterioration, approximately JPY68 billion or almost 70% was due to the appreciation of the yen.

Consolidated restructuring charges of JPY33.9 billion were recorded as operating expenses during the quarter as compared to JPY0.6 billion in the same quarter of the previous year.

As we explained at our earnings announcement in May, our restructuring is progressing at a pace, which exceeds our original expectations.

If we were to adjust to the impacted equity and net loss of affiliates and restructuring charges, we recorded operating income of JPY23.3 billion for the quarter.

Loss before income taxes for the quarter was JPY32.9 billion compared to income before income taxes of JPY62.9 billion in the same quarter of the previous fiscal year.

Sony recorded an income tax benefit amounting to JPY12.2 billion during the quarter.

Net loss attributable to Sony Corporation shareholders was JPY37.1 billion compared to JPY35 billion in net profit recorded in the same quarter of the previous year.

Now, let's discuss the quarter's results on a segment basis.

As I'm sure you're all aware, we changed our organizational structure as of April 1st.

As a result, US GAAP requires us to change how we report our segment results.

The two most significant changes are the following.

First, we have realigned the Electronics and Games segments and have established three reportable segments where we previously had two.

They are the Consumer Products and Devices segment, the Network Products and Services segment, and the B2B and Disc Manufacturing segment.

The Consumer Products and Devices segment contains our television business, our digital imaging business, which includes digital camera and camcorder, our audio and video business, our semiconductor business, and our components business.

The Networks Products and Services segment contains our game business, our PC business, and other network businesses including our digital music player and personal navigation businesses.

In the B2B part of the B2B and Disc Manufacturing segment, we've included our broadcast use products, such as VTRs, cameras, and editing systems, and our professional use products, such as monitors and security cameras.

The disc manufacturing part of the segment manufactures DVDs, Blu-ray, and other disks for home entertainment and games.

The second significant change is the establishment of a music segment.

As you already know, Sony made its former equity affiliate, Sony BMG, into a 100% subsidiary in October of last year, changing its name to Sony Music Entertainment.

From this quarter, Sony Music has been added to Sony Music Japan and Sony/ATV, which previously had been reported in all other to form a separately reported music segment.

So now let's review the results.

First, Consumer Products and Devices.

Sales in this segment decreased 27% year-on-year.

On a local currency basis, sales decreased 18%.

This decrease is primarily due to the impact of the appreciation of the yen versus the US dollar and the euro.

The generation in the business environment brought on by the slowing global economy and the intensification of pricing competition.

On a product category basis, sales of Bravia LCD TVs, Cyber-shot compact digital cameras, and Handycam video cameras decreased.

An operating loss of JPY2 billion was recorded for the quarter compared to operating income of JPY36.1 billion in the same quarter of the previous fiscal year.

Although selling, general and administrative expenses decreased JPY33.7 billion, and the cost of sales ratio improved JPY30.5 billion, this was more than offset by unfavorable exchange rates negatively impacting results by JPY47.9 billion and gross profit decreasing JPY44 billion due to the decrease in sales.

During the quarter, JPY20.7 billion in restructuring charges recorded in this segment.

Excluding the impact of restructuring charges, operating income of JPY18.7 billion was recorded.

Again, excluding restructuring charges, the product categories with the largest decrease in profit were video cameras, imaging sensors, and compact digital cameras.

I'd now like to touch on our TV business.

Although unit sales of LCD TVs for the quarter increased 100,000 units or 3% year-on-year to 3.2 million units, sales decreased 24% year-on-year to JPY237 billion due to price declines, and the impact of exchange rates.

On the other hand, excluding restructuring charges, operating results improved JPY11 billion to an JPY8 billion loss due to raw material cost reductions, primarily panel costs, and the reduction in fixed costs.

Sales and operating income of compact digital cameras decreased due to a decrease in unit sales in all regions brought on by the global economic slowdown and a contraction of the market, price declines and the impact of exchange rates.

However, due to the impact of improved expenses, we were able to maintain a similar profit margin as the same quarter of the previous fiscal year.

In video cameras, although the transition to the HD format is progressing smoothly, sales and operating income of video cameras also decreased due to a decrease in unit sales in regions outside of North America brought on by the global economic slowdown and a contraction of the market, price declines, and the impact of exchange rates.

However, as was the case with compact digital cameras, we were able to secure a similar profit margin as the same quarter of the previous fiscal year due to successful expense reduction.

Turning to Network Products and Services.

Sales in the Networks Products and Services segment decreased 37% year-on-year, primarily due to a decrease in games and Vaio PC sales.

On a local currency basis, sales decrease 30%.

An operating loss of JPY39.7 billion was recorded compared to operating income of JPY4.6 billion in the same quarter of the previous fiscal year.

This was primarily due to a decline in the profit of game and Vaio, although profit of digital music players increased.

Game sales decreased 48% year-on-year to JPY111 billion.

This was primarily due to a decrease in unit sales of PSP and PS3 hardware, unit sales of overall software, and the impact of exchange rates.

Game operating results deteriorated JPY40 billion and a JPY34 billion operating loss was recorded.

This was primarily due to a decrease in overall software unit sales and a decrease in PSP hardware unit sales.

For both PS3 and PSP, unit sales comparisons are very difficult year-on-year as sales of extremely popular titles were concentrated in the first quarter of the previous fiscal year.

Therefore unit sales decreased year-on-year to 1.1 million units for PS3 and 1.3 million units for PSP.

Unit sales of PS2 were 1.6 million units in the quarter, exceeding the same quarter of the previous fiscal year in Europe and North America, where the prices changed in April this year to $99 and EUR99.

Vaio sales decreased due to a decline in unit selling prices brought on by the contraction of the high-end market and an overall decrease in market prices, a decrease in unit sales brought on primarily by the slowing global economy and the impact of exchange rates.

Operating income decreased due to the impact of exchange rates, the impact of price declines, and the decrease in unit sales.

Next, B2B and Disc Manufacturing.

Sales in the B2B and Disc Manufacturing segment decreased 28% year-on-year.

On a local currency basis, sales decreased 18%.

This decrease is primarily due to a decrease in broadcast and professional use products, and disc manufacturing.

An operating loss of JPY12.4 billion was recorded in the quarter compared to operating income of JPY8.9 billion in the same quarter of the previous fiscal year due to a decrease in profit from broadcast and professional use products, and disk manufacturing brought on by the decrease in sales.

Due to our efforts in reducing inventory, the total inventory for Consumer Products and Devices, Network Product Services, and B2B and Disc Manufacturing segments was JPY745 billion, a decrease of 34% compared with the level at the same time last year.

Next, the Pictures segment.

Sales in the Pictures segment increased 7% year-on-year.

This was mainly due to an increase in motion picture and television revenues.

Motion picture revenues increased due to theatrical performance of Angels and Demons and Terminator Salvation.

Television revenues increased year-on-year due to an increase in revenues from US network and made for cable programming.

Higher advertising revenues in India for the broadcast of the 2009 Indian Premier League cricket competition also contributed to the increased revenues.

Operating income of JPY1.8 billion as recorded compared to an operating loss of JPY8.3 billion in the same quarter of the previous fiscal year.

This improvement was primarily due to the recording of an JPY8.3 billion gain from the sale of a portion of Sony Pictures equity interest in a US cable network.

Operating results also benefited from increased US television sales and motion picture product.

Partially offsetting the improvement was higher costs related to the media rights for the Indian Premier League.

Sales in the Music segment increased significantly, primarily because of the results of SME were consolidated by Sony as a wholly owned subsidiary beginning October 1, 2008.

Sales at SME for the quarter were JPY61.2 billion.

Compared to the sales of SME in the same quarter of the previous year when it was not consolidated, sales decreased 19% on a US dollar basis.

Sales were negatively impacted by unfavorable exchange rates and the continued accelerated decline in physical music market as well as the continuing impact of the worldwide economic slowdown.

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

Operating income increased 16% year-on-year primarily due to the consolidation of SME.

In the current year's fiscal -- the current fiscal year's first quarter, SME recorded an operating loss of JPY0.2 billion.

In the same quarter of the previous year, JPY2.5 billion in equity and net losses of affiliated companies was recorded for Sony's 50% stake in Sony BMG.

On a US dollar basis, SME's operating loss for the quarter was $2 million.

On a pro forma basis when this figure is compared with the operating loss, Sony BMG recorded in the same quarter last year when its results were not consolidated, operating loss decreased by $47 million.

The improved operating results were primarily due to lower restructuring and overhead costs compared with the first quarter of last year.

Operating income at SMEJ decreased primarily due to decreased album sales.

Next, Financial Services.

Financial Services revenue increased 24% year-on-year, due to an increase in revenue at Sony Life.

Revenue at Sony Life was JPY200.5 billion, a 29% increase year-on-year.

Revenue increased year-on-year due to an increase in both net gains from investments in the separate account and valuation gains from investments in convertible bonds in the general account as a result of the rise in the Japanese stock market, on increase in net gains from other investments from the general account, and an increase in revenue from insurance premiums reflecting a higher policy amount in force.

Operating income increased to 58% year-on-year as a result of an increase in operating income at Sony Life.

Operating income at Sony Life was JPY47.5 billion, a 72% increase compared with the same quarter of the previous fiscal year due to the increase in both valuation gains from investments in convertible bonds and net gains from other investments in the general account.

Finally, Sony Ericsson.

Sony Ericsson sales decreased 40% year-on-year as unit sales decreased significantly reflecting the global economic slowdown, a shift in the market to low-end phones in Latin America, and other factors.

Loss before taxes of EUR292 million was recorded due to lower sales and unfavorable exchange rates.

Equity net loss recorded by Sony for the quarter was JPY14.5 billion compared to equity and net income of JPY0.6 billion in the same quarter of the previous fiscal year.

Let me complete my prepared remarks by turning to our forecast for the balance of the year.

Although our results for the first quarter exceeded expectations, we've not changed our forecast for the full fiscal year from the one we announced on May 14th due to the continued uncertainty in the operating environment.

Operating loss in the first quarter was less than expected because foreign exchange rates depreciated versus expectations, the results of the CPD segment were better than expectations, and the Japanese stock market rose compared with its level in March.

However, regarding results from the second quarter onward, we believe that the operations of FES and B2B and Disc Manufacturing segments will be quite severe as there continue to be many uncertainties in the business environment.

Moreover, we have revised our assumptions for foreign currency exchange rates from the second quarter onward to approximately JPY93 to the US dollar and approximately JPY130 to the Euro.

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

(Operator Instructions).

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

Please proceed

Yes, good evening and good morning as the case may be.

Thanks for taking my call.

I have three questions on my mind.

Two on margins.

And those are on the TV side you discussed the margin improvement as a result of both fixed cost reductions and your panel cost reductions.

Can you give a sense of what those both were year-on-year?

How much did fixed costs come down year-over-year?

And how much did panel costs come down year-over-year for you?

And then, similarly on the PlayStation 3, can you give us some metrics on how the profitability of that product are tracking -- maybe perhaps give us a sense of how much you've reduced the cost to build since inception?

Or some color on what the slope of that curve looks like for reducing costs of PlayStation build?

And then third question.

Your guidance for the fiscal year had included some minor components but the sales over the network content, sales over the network of JPY50 billion for the fiscal year.

Can you give us a sense of how that segment tracked in the quarter?

Thanks.

Hi, this is Nick Oneda.

Your first question on TV operating margin improvement is compared to last year or compared to the forecast?

Which one are you talking about?

I'm referring to the cost from last year.

So, your fixed cost reduction year-over-year and the panel cost reductions year-over-year.

Okay.

The -- first of all, the biggest cost down is coming from the cost of the material.

And the second, the area is the reduction of the expenses for both the manufacturing expense and the SGAs thanks to the structuring costs and those for the saving of the other expenses.

And the cost of the -- material cost of course at the -- is the effort of the reduction of the regular parts and also the -- some of the panel cost is also reduced.

And can you give us what that was on a year-over-year basis?

Both those -- panel costs came down 30% and overhead came down (inaudible).

We didn't disclose the cost reduction for the -- by product group, by product basis.

But we are still shooting for the over JPY300 billion of the expense reductions compared to the last year.

So, we didn't disclose the any specific deductions of the cost by TV group itself.

From that we are speaking 50% of their fixed costs would be reduced over year-to-year basis.

50%, got it.

This is a goal.

And then on the PlayStation 3, perhaps some sense of how cost reductions have done there?

Yes, the -- your third question is the JPY50 billion deduction?

That's correct.

No, the third question was on network content sales.

So, sales of content over your PlayStation Network, et cetera.

The cost reductions since we introduced the PS3 is very substantial and this is on schedule.

And we don't disclose how much of the PS3 specifically the cost reduction was achieved during the past two years.

But that is on schedule.

We'll just give you some rough numbers.

About 70%?

Roughly speaking.

70%, got it.

That's helpful.

The third question is about just in general how we characterize the network sales so far?

Correct.

Okay.

It's Rob Wiesenthal speaking.

I think we're pleased.

There seems to be an increasing mix of films with respect to being downloaded and streamed, especially as compared to the games.

Obviously at the start of the PlayStation Network it was mostly just downloads of games.

And I think the breadth of the catalog's improving both on the game side and on the film side.

I think right now close to half of our users have opted to sign up for the network.

And I think it's running on track and we're expecting really great things this year from it.

So, far so good.

Yes, if you compare to the last year, the network sales is probably one-third of this year's forecast of JPY50 billion.

The account number is up to 26 million, content download has reached 540 million.

And we're on track for the projected 500 million.

Excellent, thank you.

(Inaudible) thank you very much for your time.

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

Please proceed.

Hi, guys.

Thank you for doing this call.

Congrats on a very good quarter, obviously.

Two questions.

One, really wanted you to elaborate a little bit on the Sharp JV that you guys had announced.

A couple of questions on it.

I know you guys are originally -- or initially going to put in $10 billion, which is about a 7% stake.

Does that mean that you will only be responsible for purchasing 7% of the output?

Or are you still liable to purchase 34% of the output?

The (inaudible) to take the quantity is the initial stage is only 7% based upon the percentage of the investment.

And if we increase the investment proportionally that our obligation to get the products will be increased.

Understood.

Okay.

And then I think you guys have also mentioned that you're able to procure cells rather than modules?

Yes, we can buy both the module and the panel itself.

We have the option that we could buy as a whole module or that we can just buy the (inaudible).

And then make the module by ourselves.

Okay.

And then how will you recognize this JV on your P&L?

As you go from 7% to 34% ownership?

The past year -- this is the impact toward the -- because of this Sharp business is almost none.

And they gradually will be increased, then the profitability of course will be better than the current models.

Okay.

But what I was referring to was would it be recognized similar to SLCD where you will book it on the equity line?

Yes, after the investment reaches 20%.

So, before 20% you don't have to recognize it anywhere?

The [cost accounting].

Okay, got it.

And then my last question on the Sharp JV is the structure and terms similar to SLCD where you procure, whether it's panels or cells on the lower of costs or market?

Well, basically that would be the way that we will negotiate with Sharp.

Okay.

I thought this JV was already signed?

Yes.

So, I would think that the terms are finalized, right?

There are some similarities, but we're not disclosing the details.

Okay.

But it should be similar to SLCD because otherwise you wouldn't be doing something that's more a disadvantage than SLCD.

(Inaudible) that was the purchase price.

It's very similar.

Okay, got it.

My second question is I think you guys had commented that although you didn't change your guidance for the fiscal year of minus JPY110 billion your target is breakeven.

Can you talk about how you narrow that gap?

Where you get that other JPY110 billion coming from?

Of course the one with the biggest possibility is that whether we can further decrease the purchase of the material costs.

We announced that the purchase cost of the material could be reduced almost 20%, which is $300 billion.

But as of this moment, that the -- we did achieve almost 80%, which is the basis that we projected in -- we included into our forecast.

So, this is one of the items that at which we could improve our profitability and then narrow the gap of the (inaudible).

Okay.

So, it was really just on the panel pricing.

No, not the panel, but those -- the general -- the parts procurement.

I see.

So, that basically implies that you guys will get rid of the quote/unquote Sony standard, right?

Because the Sony standard was the one that was dragging down your costs.

I'm sorry, dragging up your costs.

No, I think what Nick is talking about is about our -- there's an activity, which we are trying to make a Company-wide procurement platform where we would source not by product division but by the whole Company.

And that is not just on panels, but it's across all types of material we purchase.

Material, and chips, and products we purchase from third-party vendors.

Okay, understood.

And also the -- even though that we are projecting the over $300 billion expense reductions, we are trying to do more.

That could narrow down the gap.

Okay, great.

Thank you, guys.

(Operator instructions) Your next question comes from the line of Ben Williams from GAM.

Please proceed.

Yes, hello.

I've got a question on your new network products and services division.

Last year you reported JPY4.6 billion of profit and looking at the old standard games generated JPY5.4 billion.

So, that by definition PCs and Walkmans must have lost about JPY1 billion.

We've got about a JPY40 billion or JPY45 billion deterioration for this year.

Could you give a breakdown of the deterioration and how it splits between Vaio PCs and the game business?

Excuse me.

You're talking about quarter-on-quarter comparisons?

Year-on-year.

Yes, quarter -- first quarter this year versus [last] quarter last year.

Stand by one second, Ben.

We're just pulling some stats.

Sure.

Are you talking about the first quarter result over the last year versus this year?

Yes, let me just go over it again.

If we look at the game business, just the game business as it was defined last year that generated JPY5.4 billion in operating profit.

And the new Network Products and Services, which is on slide nine of this year's presentation, it says FY08 you generated JPY4.6 billion in profits.

And that includes the games.

So, my understanding is that the new division includes Vaio PCs, Walkmans, and the game business.

So, if last year the game business generated JPY5.4 billion and the new division generated JPY4.6 billion, that means that Vaios and Walkmans lost JPY0.8 billion.

We've now got minus JPY39.7 billion, so there's about a JPY45 million turn -- deterioration.

I'm trying to work out how much came from PCs and how much came from the game business.

Yes, Ben, unfortunately the simple back of the envelope math looking at last year's numbers won't work because there's different allocations of internal pricing on exchange rates.

Whereas last year all the stuff was in a segment, this year we've got multiple segments that have been reordered.

So, it would probably be easier for us to have this conversation with you offline than to try and do it over the conference call.

Okay.

Well, we'll -- I think we've got a meeting arranged for a couple of weeks, so we'll go through it then.

Did you have another question?

That's it, thanks.

Thank you.

At this time there are no further questions in queue.

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

Sam Levenson for closing remarks.

Very good.

Well, we appreciate everyone's attendance on the call tonight.

We look forward to answering any further questions that you have.

Please feel free to contact the IR department in London, New York, or Tokyo.

And thank you for your interest in Sony.

Good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.