索尼 (SONY) 2009 Q4 法說會逐字稿

Good day, and welcome to the Sony Corporation consolidated financial results for the fiscal year ended March 31, 2010.

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

(Operator Instructions).

I will now turn the call over to your host for today, Mr.

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

Please proceed, sir.

Thank you very much for that introduction, and thank you all for joining us today, May 13, 2010 for the discussion of Sony's fourth-quarter and full-year results.

I am Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America and with me on the conference call tonight is Mark Kato, Deputy CFO, Sony Corporation; Rob Wiesenthal, Group Executive, 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 very much for joining us.

In just a few moments we will review today's announcement and 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 announcement.

But before we review the results, I would like to formally welcome.

Mark Kato inn his new role.

After having recently served as Deputy CFO, Mark has been promoted effective June 18 to be the Chief Financial Officer of Sony Corporation.

Mark succeeds Nick Oneda, who is retiring after 41 years of distinguished service to the Company, the past five of which as CFO.

Many of you will recall Mark from his participation in our past conference calls and from his visits with investors in the US, the UK and Europe over the past year.

I would now like to ask Mark to say a few words.

Thank you, Sam.

I'm very honored to be appointed successor to Nick Oneda in the CFO role.

Nick and I have worked very closely over the past year and we will continue to do so over the next month to smoothly make the transition of responsibilities.

The Company is going through challenging times at the moment, and I will certainly try to keep the positive momentum going forward.

Over the course of the next year, I look forward to meeting more of you on my regular trips overseas.

Back to you, Sam.

Thank you, Mark.

I'll begin by briefly summarizing the financial results and other key developments during the past quarter.

Let me remind you that a webcast replay of the investor meeting that we had earlier today in Tokyo, along with the slides presented at that meeting, and our detailed earnings release are available on our website for your access.

We concluded the 2009 fiscal year having achieved each of the aggressive goals that we had set out for ourselves, and we move into 2010 with strong momentum across many of our businesses.

More specifically, we achieved JPY32 billion in operating profit after restructuring costs, equity net loss of affiliates and an asset impairment charge.

Excluding those items, our operating profit for the year was JPY213 billion.

These results compare with our initial forecast made a year ago for JPY100 billion operating loss.

We achieved over JPY320 billion in positive cash flow for the year, excluding the benefit from our financial services businesses.

This compares with negative cash flow of JPY375 billion in the prior year.

We achieved over JPY330 billion in cost cuts over the course of the past year.

We virtually achieved our goal of a 20% reduction in procurement costs, and we are on track to cut our vendor base in half from 2500 to 1200 by March 2011, as planned.

And we are well ahead of plan in terms of plant reductions.

We entered fiscal 2009 with 57 plants and a plan to cut 10% or six plants.

We ended the year having closed 11 plants; have announced plans to close three more in the coming months.

As pleased as we are with having achieved each of these milestones, we are even more excited about the momentum with which we are entering the new fiscal year.

In our TV business, our operating loss was reduced by JPY81 billion year over year to JPY46 billion excluding the JPY27 billion asset impairment charge.

In the coming fiscal year, we aim to turn a profit in the TV business, and we expect unit sales to increase from 15.6 million units to 25 million units.

We ended the year with a radically changed cost base, having contracted to sell the majority interest in two plants to Hon Hai, and with a dramatically improved product lineup that includes the monolithic design TVs, LED backlit and 3-D TVs and network enabled TVs, which will drive unit sales.

In our Game business, we achieved positive earnings in each of the last two quarters, and we aim for it to be profitable on a full-year basis in fiscal 2010.

PS3 hardware is now profitable on a gross margin basis and many exciting new game titles and expanding network business will contribute to increased sales over the coming year.

Similarly, Sony Ericsson has turned in positive results with their most recent quarter.

And they're also benefiting from a reduced cost structure and improved product lineup.

The results of the Financial Services segment continue to be quite strong with a 58% increase in revenue at Sony Life benefiting from positive investment results associated with the strength of the Japanese stock market and from an increase in insurance premiums, reflecting a steady growth in policy amount in-force.

As a result, operating income of JPY162 billion was recorded in the Financial Services segment as compared with an operating loss of JPY31 billion in the prior-year period.

Now, you may recall that when we hosted our third-quarter earnings call in February, we had reduced our operating loss forecast for the year from a JPY60 billion loss to a JPY30 billion loss.

Our actual results for the year were over JPY30 billion in operating profit, not loss.

The key contributors to that shift over the last three months of the fiscal year were the Financial Services segment, the Network Products and Services segment, and Sony Ericsson.

As a result, we expect to carry this momentum through to an even further improved earnings in the coming year.

So, now let's turn our attention to the fiscal 2010 forecast.

At this point in time, we're aiming for a 5% increase in consolidated sales and operating revenue to JPY7.6 trillion.

For operating income, our current outlook for the year is JPY160 billion as compared with JPY32 billion in 2009.

That figure assumes JPY10 billion in equity net income of affiliates versus a JPY30 billion loss last year and JPY80 billion of restructuring charges as compared with JPY124 billion last year.

Excluding equity and net income and restructuring charges, our operating profit is expected to be JPY230 billion.

These estimates assume JPY90 to the US dollar and JPY125 to the euro.

As always, we do not forecast any shift in the Japanese stock market and the associated gains or losses on the Sony Life portfolio.

Looking at each segment, we expect a significant increase in sales and to record operating profit in the Consumer Products & Devices segment despite continued unfavorable currency exchange rates as a result of the significant increase in LCD TV unit sales I just mentioned and ongoing cost reductions.

We expect to increase sales in the network products and services segment due to an increase in the sales of VAIO PCs, network services and digital readers.

Improved results in the game and VAIO businesses should result in reduced losses year over year.

In B2B & Disc Manufacturing, we do not anticipate materially different results in the coming year.

In the Picture segment, sales will decrease as a result of lower theatrical and home entertainment sales, partially offset by increased advertising and subscription revenues.

Operating income in the picture segment is expected to decrease as a result of the absence of gains on the sale of assets recognized last year, as well as the reduced revenues.

In the Music segment, the ongoing decline of physical music sales and the lower contribution from Michael Jackson catalog product will pressure sales and, to a lesser extent, operating profit.

Finally, as I mentioned, we don't forecast investment gains or losses for Sony Life, so we have to assume the revenue and operating income will decrease in the Financial Services segment in the coming year.

During fiscal 2009, we successfully executed against our initiatives to radically reduce our cost structure and to better position the Company for growth.

In fiscal 2010, we will continue to transform the cost structure of the Company all the while pursuing our key growth initiatives in 3-D, network services and new mobile products.

Sony is uniquely positioned to succeed in these areas.

Sony stands to gain the most from the adoption of 3-D.

Whether it's in professional use cameras, editing and broadcasting equipment, digital 4K projectors, 3-D movies, 3-D games, blue Ray and PS3 adoption, 3-D TVs or other consumer devices such as cameras.

There are no competitors to Sony who are in all these businesses, and we intend to take the lead in 3-D.

This process has already begun with the recent release of a firmware upgrade for PS3 that can enable the entire installed base of over 35 million units to be upgraded for 3-D gaming.

Soon, our 3-D TVs, movies and games will also enter the market.

Similarly, in network services, the opportunities for Sony are compelling.

When you consider the millions of network devices we sell each year, be they BRAVIA TVs, VAIO computers, Blu-ray players, PS3s, PSPs, digital cameras, camcorders, and so on, multiplied by the breadth of content that we can uniquely offer across dozens of countries worldwide, the number of higher-margin online transactions available to us over time will vastly exceed just about anything any of our competitors could attempt to address.

And the reason to buy Sony products are even more compelling when coupled with these services.

As such, we intend to vigorously pursue these key initiatives and leverage the unique opportunities that Sony has.

So, with that, we would be happy to take your questions.

(Operator Instructions).

Daniel Ernst, Hudson Square Research.

Good evening.

Thanks for taking my call.

Two questions if I might.

First, on restructuring, kind of two parts.

One, having achieved many of the restructuring goals you had previously laid out and in some cases exceeding them, can you give us a sense of where this coming year's restructuring efforts will be focused?

And then the second part of that is I look at the JPY80 billion in charges that you will take on restructuring; can you give me a sense of what part of that would be cash charges versus write-downs of some plants or something you are going to be closing?

And then my second question is broader.

If you look across the competitive landscape of consumer technology where you have numerous new services and hardware businesses, like, for instance, Apple, that have delivered cloud-based services that bring content to your phone and to your headphone set and to this new device, the iPad, which some argue may be a TV.

Can you give a sense of where you are in your strategy to launch converged network services with hardware that was discussed at CES this past year and certainly in previous years?

Thank you.

Let me answer the restructuring question first.

For the current fiscal year, the new fiscal year, we have marked in about JPY80 billion of restructuring charges.

70% of that is personnel-related I would say and the rest for others.

Now, this is a continuation of the transformation of our manufacturing base, for example.

We have closed many plants over the past year.

And that activity will continue into the new fiscal year.

At this point, I cannot say which factories where because it is a sensitive issue, but that is the outlook at the moment.

Your next question -- it's Rob Wiesenthal speaking.

Your next question was about the competitive landscape and cloud-based services.

Right now, we have about 100 million of an installed base of BRAVIA's Blu-Ray players, VAIOs, PS3s and PSPs and readers in the market that are all in some way connected to the cloud.

It's a huge opportunity for us to communicate with our customers and also, to learn about what their likes and dislikes are, but also transact with them in terms of commerce for content and for services in general.

There clearly is a shift going on from the days of side-loading content onto fixed memory and hard drives to subscription services and content that resides in the cloud.

You are already seeing that with the video-on-demand services from curiosity on the BRAVIA and also the PlayStation network.

And you will be seeing much more of that in the months to come.

But there is a shift.

I think everybody is participating.

Apple is not alone.

And I think the fundamental shift that we see and that we are truly embracing is we are truly dealing with customers' desires to avoid having to have local storage of content unless they want it.

We will be them for them if they want it in terms of pictures, movies, and music.

However, if they prefer to keep their content in the cloud or access content in a locker, we will provide that opportunity as well.

Understood.

And then a follow-up question on the restructuring.

So, are there additional cost savings that are expected to be yielded out of this next round of cuts?

Yes, we expect around JPY50 billion as a benefit of spending maybe JPY80 billion this year on the restructuring.

Great.

Thank you.

Kaito Arosawa, Citigroup.

I have two questions.

The first question is about the LCD TV volume guidance.

And I [noticed how you don't] mention 25 million this fiscal year.

(inaudible) said in a Tokyo briefing earlier that Europe region will increase by 3 to 4 million units.

I [want to neutral] factory in Slovakia Sony has sold to Hon Hai recently.

I think the factory doesn't have enough capacity to cover this increase.

Could you give us guidance if Sony is a plan to purchase other companies' TV for European market?

And if so, how this action behaved over Sony's LCD TV profitability?

This is the first question.

The second question is for Game segment.

You mentioned gross margin for the PS3 hardware turned to positive in March.

And the packaged software is making a profit, I believe, even though it's flattish in volume this year and the guidance.

Having said that, the question is, one the Game segment guidance is only above breakeven, but not same good profit as a whole.

Are you planning some cost issue on the Game segment regarding like 3-D initiative or anything?

That's the second question.

Thank you very much.

I'll answer your second question first.

Gaming.

Okay, we have a lot of good stuff going on for PS3.

As we mentioned before, there's no loss on the hardware anymore at the current price at the current cost.

That's a good thing.

And we have a lot of nice catalog of software coming out.

So that's all good.

Now, these good news are somewhat offset by the declining contributions in the other platforms, mainly PS2 and PSP.

PS2, which is entering its 11th year this year -- it's amazing that it's still contributing.

But year on year, the contribution that it's been making over the years has declined.

That's one factor.

PSP is a slightly different story in that it was a little bit of a disappointment to us the last fiscal year.

And we have revised downward projections of hardware shipment.

Initially it was about 15 million.

We ended up about 10 million.

So those are the factors acting towards the profitability of the Game segment.

The other factors I would say, we are always looking into future platforms as well.

Very premature to talk about future platforms, but R&D in those areas, it is always continuing.

The other area is on the network side.

We are building the PlayStation network platform, yes, and revenue is increasing.

Now for this, the current fiscal year our target was to about JPY50 billion worth of sales.

We're slightly behind that schedule.

In terms of profitability from the network side, I think we need to do a little bit more or better to become profitable here.

So, all those factors, if you combine them, we're saying that we're going to hit breakeven or a little bit better, but we are not being very aggressive in putting out higher numbers for the Game segment at the moment.

To answer your first question, this is Gen.

I'm not sure if we -- I think Nick said the 3 million, 4 million as an example, but I think it's fair to say that we are in discussions with various ODMs, OEMs in terms of for them to provide us with a set -- obviously we're also in discussions with other companies other than Hon Hai as well.

And the general position is that basically, a little bit more than half of all the TVs could come from ODMs, OEMs globally.

Thank you.

Going back to the Game segment question again, should I imagine that PSP and PS2 will make a loss, kind of material loss, in March '11?

No.

Okay.

And then --

Contribute to profitability, yes.

But what I'm saying is not as much as they have been producing in the past years.

(multiple speakers)

This is Sam.

I just want to make one other clarification.

Remember the reportable segment is not Game.

The reportable segment is NPSG.

So there are other businesses such as VAIO and our network services that we are investing in that will -- so our guidance with respect to that segment is beyond just Game.

I just want to make sure we're clear on that.

Okay.

And what's that guidance for the Game as itself?

If you have.

Yes, no; we're only speaking to the segment, not to the individual businesses.

Okay.

Thank you very much.

(Operator Instructions).

Mark Harding, Maxim Group.

Thank you for taking my call.

Just a couple of quick questions.

Firstly, I guess congrats on the TV margin improvement.

But I'm a little confused by the comments on the Japanese call relative to Hon Hai.

Could you perhaps explain why selling the plants to Hon Hai won't result in a greater margin improvement, given increased utilization of the fixed assets?

And then just a couple of questions about TV pricing.

This is Gen again.

Let me just try to answer the first question.

I think what Nick was trying to say was that at the time the transition to Hon Hai takes place, there would be no immediate benefits.

But of course over time, as Hon Hai starts to produce TVs for other manufacturers or starts to procure material say in a different way, to really -- to benefit from their scale, then those benefits will start to kick in.

But, it's not that benefits will happen day one.

The benefit to us is that the assets will be off-balance sheet for us because we only would take a very small -- we only continue to have a very small stake in the company, and that Hon Hai will be in charge of providing all the capital required to run the factories.

Okay.

So it will be more of a shift from sort of fixed costs to variable in terms of the TV margin improvement.

Yes.

When you talk about immediate benefit, yes.

Okay, fair enough.

And then I just wanted to get a sense of fourth-quarter pricing on the television side.

Can you parse out perhaps how much of it was perhaps a shift to lower-priced models versus ForEx?

Okay.

I don't think we can disclose two specific numbers.

But in general in the fourth quarter, one big reason that we had an uplift over the previous quarters was that in television segment, pricing did not deteriorate as much as we had expected.

This is one part.

And, along with that, we did not have to spend marketing money; again, not as much as we had expected at the last forecast.

Okay.

I guess sort of looking at it, it seems pricing was down about 20%, whereas in the prior quarter, it was down about 15% on a year-over-year basis.

And I was just wondering why there was that increased price erosion.

Can you repeat the question?

I'm not sure we understand.

Oh, okay.

So in the fiscal third quarter, there was about a 13% -- 14% year-over-year decline in pricing.

Whereas in this quarter it was about a 20% year-over-year decline.

So I was just trying to get a sense of why there was actually accelerated price erosion relative to the third quarter.

You're talking about industry or you are talking about --

Sony specific.

Let's check that info, Mark, and come back to you.

Okay, thanks.

Then, okay, so I just wanted to sort of move on to the guidance.

Considering that 2009 only reflected a partial year of restructuring, I was just trying to get a sense of why 2010 or perhaps get a better understanding of 2010 guidance.

It looks like in 2009, you saw about a 330 basis point improvement in operating margin.

But for 2010, it looks like you're only forecasting about 150 basis point improvement.

So I'm just trying to get a sense of some of the puts and takes there.

Well during 2009 we drove JPY330 billion of cost out of the business.

Not all of that is repeatable on an annual basis.

Also, we closed 11 plants in 2009.

So far we've only announced three for 2010.

So, I'm not sure we're going to get the exact same return on an annual basis.

It was my understanding that I guess the plant closings occurred ratably throughout -- occurred throughout the year.

So for 2010 you will get a full-year benefit of that -- of those plant closings, whereas in 2009 it was only a partial year.

Yes, I mentioned it's true.

I have to look at it across each business, Mark, to try and give you a better sense.

Okay.

Perhaps we could follow up off-line on that.

Let me try to answer the first question.

So I have to say that the fourth quarter is a more complicated timing.

The reason is because there's the old models and the new models.

And so, it's sort of hard to track it on an ASP basis.

But I think what we can tell is that what generally our marketing people come back to us with is that basically, '09 was a year where we were looking at, in terms of the smaller panels, a 20% to 25% decrease in pricing; and for the larger panels, a 25% decrease in pricing.

But, on the fourth quarter, that turns out to be a lot more milder for us and which -- so the transition into the 10 models turned out to be very smooth for us out on the fourth quarter.

So, it's -- I don't know which [direct] you're looking at, but you're looking at just ASP data on the fourth quarter is a little bit complicated for us.

So if you want to discuss further, we would be happy to discuss off-line about it.

Okay, that would be great.

Thank you.

Yuji Fujimori, Barclays Capital.

Thank you very much for taking my questions.

In terms of the guidance for March 11, I attended the Japanese briefing meeting but I missed some numbers.

So could you reiterate the amount of the changes in O.P.

by segment such as CPD, NPS?

That's the first question.

And secondly, in terms of the [eye] business such as or camcorders; [Oneida sound] commented you were expecting some decrease of earnings this year.

I understand the ForEx impact is negative for some -- but it has been cost increase.

But given the restructuring benefit is highly likely this year, I think it seems conservative.

So could you give us more color on these two businesses?

And finally, in terms of inventories, inventory was down by 23% year on year.

But still the turnover days were not or had some rooms to further come down.

So do you have any guidance for the inventory level at the end of March '11?

I'll answer the first question first.

O.P.

change breakdown by segment.

We'll start with CPD.

We'll have an increase in revenue, and a pretty big uplift in profit.

Roughly speaking, about JPY85 billion, and the segment is hopefully turning into the black, even after restructuring charges.

NPS, again, increase in revenue.

And an improvement -- well the last would be cut considerably but still maybe a little bit more to go to break even.

That's the outlook for the moment.

Pictures and Music both declined in revenue.

As you recall, last year, we did have unexpected -- I should not say this, but unexpected uplift in the passing away of Michael Jackson; unexpected uplift from Susan Boyle, etc., etc., etc.

And you know the music business, there is a decline in typical sales, which is not offset by increasing digital sales, etc.

etc.

So we're not seeing an increase in profitability in the entertainment segment.

And, again, on the Finance business, and this we're saying many times, but we're not including the uplift from the rise in the Japanese stock market, which we experienced in the last fiscal year.

We're not putting in projections for that.

So again, here is the decline close to JPY40 billion.

So that's the whole outlook.

The last thing, Sony Ericsson, they are improving in their profitability.

So here, we do expect a lot of gain.

Let me take the second question and talk a little bit about still cameras and camcorders.

In terms of still cameras, as you've seen, I mean we are pushing up our unit projections from 21 million to 23 million.

And obviously that will result in a slight increase in sales, but we're also expecting a slight decrease in profit basically because of price decline and ForEx.

In terms of camcorders, because the market itself is continuing to shrink, the sales would go down and the profit levels would go down as well.

But I think we could -- we think we will continue to keep pretty reasonable margins, which we have shown in the past.

On your third question, inventory, we expect inventory to be higher at the end of the new fiscal year.

Because we are aggressively pushing (technical difficulty) numbers out there.

For example, television the past [full year], we sold about 15; we're going up to 25.

For PS3s from 13 to 15.

And VAIO was another area that we're pushing product.

So, theoretically, the level of inventory -- although we try to control it as much as we can, as for the budget, we do have a slight increase.

Now if you're talking about effect from cash flow, our projections on the inventory alone, we will not be able to produce more cash inflow from the inventory side.

We will have to do others to improve on the cash flow.

I'm sorry, let me just go back to your second question once again just to make clear.

Is that as you have seen, we are sort of holding our units the same in terms of camcorders from the last year to this year.

Which is telling you that the market is continuing to shrink, but we are sort of expecting our market share to go up.

But, in spite of that, the pricing and ForEx will push the sales down and that will have the effect on the profitability.

Thank you very much.

We have time for one more question please.

Karl Hammond, Deutsche Bank.

Thank you very much for taking my questions.

The first question related to your equity affiliates.

And for the JPY30.2 billion loss this year, a lot of that or all of that comes from Sony Ericsson with a small profit from S-LCD.

But there's also sort of a balance of around maybe JPY6 billion or so.

And I'm just wondering where that came from.

And then looking to next year, where you forecasted JPY10 billion profit for the equity affiliates, how does that roughly break down between these businesses?

Give us one second, Karl.

I'm sorry, we don't disclose breakdown of these numbers.

I'm sorry.

So the only ones you provide breakdowns for are Sony Ericsson and S-LCD.

Is that correct?

Yes, Ericsson is a segment in itself.

So that's why we do have.

For the rest -- I'm sorry, we do not disclose.

Okay.

But within your forecast of JPY10 billion for next year, the vast majority of that will come from Sony Ericsson or not?

Yes.

Okay.

Thank you.

And just one unrelated question.

For your foreign exchange, you've assumed 90 and 125 for this year.

What do you calculate roughly to be your sort of operating profit sensitivities to changes, yen changes, against those currencies?

Yes, okay.

The yen difference for the euro would result in about JPY7 billion.

Okay.

Operating profit level.

And for the dollar, JPY2 billion.

Okay.

Thank you very much.

I'm afraid we've run out of time.

We would invite you to send any other questions you have to our Tokyo, London or New York Investor Relations offices.

We appreciate your interest, and we wish you all a goodnight.

This concludes today's presentation.

You may now disconnect.

Good day.