索尼 (SONY) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Sony Corporation's third quarter 2010 earnings conference call.

My name is Frances, and I will be your coordinator for today.

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

We will be facilitating a question and answer session towards the end of this conference.

(Operator Instructions).

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

I will now turn the presentation over to your host for today's call, to Sam Levenson, Senior Vice President, Investor Relations, for Sony Corporation of America.

Thank you very much for that introduction, Frances.

And I would especially like to thank everybody on the line, the intrepid souls who turned out and accommodated our schedule so early today in the United States.

We really appreciate it.

I'm Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America, and listening on the conference call tonight is Mark Kato, the CFO of Sony Corporation; Robert Wiesenthal, Group Executive Corporate Development and M&A for Sony Corporation, and EVP and CFO of Sony Corporation of America; and Yoshinori Hashitani, VP and Senior General Manager, Investor Relations division.

Thank you all very much for joining us.

In just a few moments, we'll 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 releases, and other statements that are 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 the 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.

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

And with that, I'm now going to turn to today's announcements.

We're pleased to report that the operating results of the fiscal third quarter significantly exceeded the Company's forecasts for the period.

All of our reportable segments, with the exception of Sony Ericsson, achieved operating results above our forecast, with the strongest performance generated by continued success in the game business.

Within the CPD segment, we enjoyed continued success in the semiconductor business in particular.

Foreign exchange rates continued to generate a significant headwind, with a 9% appreciation of the yen versus the dollar, and a 19% appreciation versus the euro, year over year.

In this environment, sales and operating income decreased, but due to increased product competitiveness, and the benefit of the structural reform we've been implementing, consolidated operating income decreased only slightly year on year.

We estimate that, excluding the impact of exchange rates, consolidated operating income increased more than 20%.

For the quarter, the company recorded a 1% decrease in sales, an JPY8.6 billion decrease in operating profit, and a JPY6.8 billion decrease in net income attributable to Sony shareholders.

Let's look at the results on a segment by segment basis, beginning with the Consumer, Professional and Devices segment.

Sales increased 4%, and sales to outside customers increased 8%.

This was primarily due to high LCD television sales, resulting from increased unit sales; higher semiconductor sales resulting from increased small to mid-sized LCD panel sales; and higher interchangeable single-lens camera sales, resulting from increased unit sales, partially offset by lower component sales resulting from a decrease in PC component sales.

Operating income decreased primarily due to an increase in SG&A, unfavorable exchange rates, a deterioration in the cost of sales ratio, and an increase in restructuring charges.

These factors were partially offset by an increase in gross profit due to higher sales.

Excluding restructuring charges, product categories with a deterioration in operating results included LCD televisions, which were impacted by price declines despite higher unit sales, and compact digital cameras, which were impacted by lower sales resulting from price declines and unfavorable exchange rates.

Product categories with an improvement in operating results included home video, which benefited from higher unit sales of Blu-ray disc recorders.

Television business sales increased 19% to JPY407 billion, due to a 46% increase in LCD TV unit sales year on year, to 7.9 million units.

Excluding restructuring charges, JPY13 billion in operating loss was recorded, a deterioration of JPY20 billion year on year.

This was due to significant price declines and the impact of unfavorable exchange rates, despite a continued reduction in costs and efforts to improve expenses.

Compact digital camera sales decreased primarily due to price declines, and the negative impact of exchange rates, although unit sales increased significantly year on year.

Operating income decreased due to price declines, unfavorable exchange rates, and aggressive investment in sales promotion, designed to expand the business.

However, primarily due to an increase in unit sales and the benefit of cost reduction, we maintained a high operating profit margin.

The interchangeable single-lens camera, NEX-5, launched in Japan in June of last year and now selling globally, and the Alpha 55 SLR cameras, equipped with translucent mirrors and high-speed shooting, which launched in Japan in September and other areas thereafter, continue to sell well.

Video camera sales and profit decreased due to the negative impact of exchange rates and price declines, but operating profit margin was basically flat, due to improved expenses and higher unit sales.

Turning next to the Networked Products and Services segment, sales decreased 6%, and sales to outside customers decreased 7%.

This was primarily due to a decrease in sales in the game business, resulting from unfavorable exchange rates.

Excluding the impact of exchange rates, sales increased.

Operating results improved significantly, year on year, due to a significant improvement in the cost of sales ratio, and an increase in gross profit from higher sales, although exchange rates had a negative impact.

Due to significant improvements in the cost of PS3 hardware, the game business contributed to the increase in overall segment operating income.

Game sales decreased 9% year on year to JPY323 billion.

This was primarily due to the impact of unfavorable exchange rates.

Operating income increased JPY28 billion, to JPY43 billion year over year.

The significant increase was primarily due to PS3 hardware cost reductions and high unit sales of PS3 software, resulting from hit titles such as Gran Turismo 5, despite the negative impact of exchange rates.

The game business has now been profitable for five consecutive quarters.

Next is the Pictures segment.

Sales decreased 27%, and operating income decreased, although The Social Network performed well.

Sales decreased significantly because the previous fiscal year included such releases as 2012, and Michael Jackson's This Is It.

Greater than expected revenues were recorded in the international TV channel operation, resulting from continued strength of advertising and subscription revenue in India.

Operating income decreased primarily due to the recording of a loss on one film, lower home entertainment revenues from catalog product, and higher marketing expenses for upcoming theatrical releases.

Sales from the Music segment decreased 15%, and operating income decreased.

Sales decreased because of the continued contraction of the fiscal music market, and the appreciation of the yen, partially offset by higher digital sales.

Operating income decreased due to the impact of lower sales, but operating profit margin was basically unchanged year on year, due to cost reductions primarily in the area of marketing.

Works that contributed the most sales to the quarter included albums from Ikimono Bakari, Susan Boyle, and Michael Jackson.

Next is the Financial Services segment.

Financial Services revenue increased 2%, primarily because of an increase in revenue at Sony Bank, due to an improvement in foreign exchange net gains on foreign currency denominated customer deposits.

Operating income in the Financial Services segment decreased primarily due to a decrease in operating income at Sony Life.

Sony Life's operating income declined primarily due because of a decrease in net gains on sales of securities, partially offset by greater insurance premium revenues driven by a steady expansion of insurance in force.

Sales at our equity affiliate Sony Ericsson decreased 13%.

This decrease was due to a decline in unit shipments resulting from a reduction in the size of the product portfolio, driven by a greater focus on high profit margin smartphones.

Income before taxes improved significantly, due to a decrease in restructuring charges, a rise in average selling price and an improved cost structure.

As a result, Sony recorded equity net income for Sony Ericsson of JPY0.4 billion for the quarter, compared to a loss of JPY10.2 billion in the same quarter last year.

This is the fourth consecutive quarter of profit for Sony Ericsson.

Finally, let's review the sales and earnings forecast for the remainder of the year.

We've revised downward our forecast for consolidated sales by JPY200 billion, because we're expecting lower sales in CPD segment for the fiscal year.

While third quarter operating income exceeded our expectations, we have made no change to our full fiscal year consolidated operating income forecast.

We expect fiscal year operating results in the Networked Products and Services segment to exceed our previous forecast in October.

This is because our third quarter operating income exceeded that forecast, primarily due to the favorable results in the game business.

We expect fiscal year operating income in Pictures, Music, and Financial Services segments to slightly exceed the October forecast, because the third quarter operating income for each of those segments also exceeded that forecast.

We expect fiscal year operating income in the Consumer, Professional, and Devices segment to be below the October forecast.

This is because we're viewing the operating environment, primarily for LCD televisions in the fourth quarter, very cautiously, despite the fact that third quarter results slightly exceeded our October forecast.

As a result, our consolidated operating profit forecast remains at JPY200 billion for the year, an approximate year-over-year increase of JPY170 billion.

Before we go to questions, let me close with a few important points.

We achieved sales and operating income this quarter that was close to the level of the same quarter last year, despite a JPY7 increase versus the dollar, and a JPY20 increase versus the euro.

Without the negative foreign exchange impact, we estimate that operating income for the quarter would have been 20% above the prior year.

Of the three businesses which previously were loss-making, we've achieved sustained profitability in two, Sony Ericsson and the game business.

The television business will see a significant year-on-year improvement in profitability, but has yet to achieve profits for the full fiscal year, and challenges still remain.

We continue to address these challenges in a particularly difficult competitive environment.

Through this year's improvement in profitability, we've increased our cash on hand to JPY770 billion, excluding the financial business.

We intend to leverage this cash to invest for future growth, all the while maintaining a healthy balance sheet.

We continue to invest in areas where we have significant competitive advantages, such as the image sensor business.

We've expanded our movie distribution and music streaming service in more regions and countries around the world.

And we've announced a number of exciting new products and services, such as the Xperia Arc phone, the next-generation PlayStation Portable, and PlayStation Suite, which will enable PlayStation content to be enjoyed on Android-based mobile devices.

We're excited about these opportunities to drive future growth, and we look forward to telling you more about how these strategies are unfolding over the coming quarters.

At this time, we'd be pleased to take your questions.

(Operator Instructions).

Mark Harding, Maxim Group.

I wanted to just perhaps dig a little bit deeper into the TV units.

I guess initial display search data, as well as some of your competitors, showed actually fairly decent growth, in terms of their TV units for the quarter.

Could you perhaps give a little bit more color about what was going on in the TV units in particular?

And perhaps, if you could give some more color on regional sales and perhaps market share.

Okay, I'll take region by region.

North America was a little bit, well for us, say, not disappointing, but we hoped it would be a little bit better.

The entire US market for LCD TVs was, very roughly speaking, flat, year on year.

So, within that, we did -- we're up -- we were able to gain market share a little bit, but in terms of units, I think it was roughly around our expectations, but not beyond.

On the other hand, the Japanese market -- I don't know if you're aware of it, but we -- the government has installed a subsidy program called the eco-point system, in that it is a flat subsidy to purchasers of some brown goods.

And TV was among those categories.

So here, the sales of TVs, roughly speaking for us, was about 40% higher than our initial expectations.

So that's one element.

The emerging markets also did very well for us.

On average, not just for TVs, these markets are growing in the range of 30%; in some countries 40% to 50%.

So, in those areas, in terms of unit sales, we did quite okay, I guess.

Okay.

And then in terms of 3D sales, could you give any color around how that's progressing.

I guess some initial numbers suggested disappointment with the industry overall.

For the 3D TVs, at the outset of the year we projected 3D sales to be about 10% of our sales, in terms of units.

It turns out to be that at the end of the fiscal year, we'll be a little bit shy of this 10%; high single digit.

When we launched our product early summer, market share-wise, we did -- we were a little bit behind our competition, but towards the end of the year, the Christmas season, we were able to gain a lot of market share.

So, in that sense, momentum-wise, I'm very happy, but as far as the total unit volume is concerned, a little bit behind expectation.

Now having said that, I think for the whole 3D area, I don't think, as an industry, there's enough content to go around at the moment.

So that may be one reason that consumers are not purchasing 3D product in general to meet our expectations.

But going forward, I think there's a lot of software content to be coming out on 3D, so I do have high hopes.

There's -- this is Rob Wiesenthal.

As Kato-san has said, I think these are early days for 3D.

I think coming out of CES, I think we were presently surprised with the strong interest in 3D and the strength of the lineup that we had, in terms of the quality of the picture.

Sony Pictures has a number of 3D releases; they'll be coming out this year.

Additionally, we're launching, in conjunction with Discovery and IMAX, what will hopefully be the very first 24-hour 3D network in the United States.

And again -- sorry, as this content comes online and on stream, I think the desire for 3D televisions will improve.

And again, the -- we're going to shift in time from where the consumer has to make a decision whether to buy a 3D TV or not, to a point in time in which 3D is a feature on the high-end sets.

And that will come over time and that will increase the amount of content that people desire to produce, and in turn, hopefully increase the number of consumers interested in the technology.

Okay, great.

Then just shifting gear a little bit, looking at the operating margins on the TV side.

I guess over the past couple of years, you've done a lot in terms of moving towards an asset-like strategy.

Can you give us, perhaps, a little bit more color around the fixed versus variable composition of TV operating expenses and TV expenses now versus a couple of years ago?

We don't disclose those numbers in actual numbers, sorry.

But just to give you the kind of -- well the structure that we're looking at, at the moment.

Now, I have to admit that TV for this fiscal year we will not be able to make it break-even.

I think I said the same thing the last earnings announcement.

Now, if you break down components or the reasons for us not meeting the initial [ops] break-even, I think there are various reasons.

Now obviously prices have come down, but this is not the reason because we have been expecting prices to come down.

Factors such as quantities, unit volume; at the outset our projections was to do about 25 million TVs.

Now at this point, it seems like the more -- the closer number would be around 23 million; so a decline in unit sales is one reason.

The second, and I think this is the biggest component, in terms of cost, is that the cost of the panels are not coming down as we had hoped to.

So this is the second, what I would say the biggest chunk, in terms of affecting the profitability of the TV business, in fact.

In terms of fixed cost, I think we are on schedule to reduce it.

During the past year, we have sold our plant in Slovakia to Hon Hai, and we have announced plans to sell the Barcelona plant as well.

These are on track and I think the results, or the benefits of these transactions will show up; it may not be immediately, but in the years -- in the months to come.

Okay, fair enough.

And then just lastly, I just wanted to focus perhaps on some of the other businesses.

Qriocity; can you give any metrics around that?

And given that Amazon is appearing to look like they're going to be getting into some of the streaming content, can you give any idea as to how you're looking to boost the overall ecosystem.

As you've probably heard, we launched the Qriocity music service in seven overseas countries.

It is the first music cloud service that we've ever offered and, as you know, with the success of Spotify overseas, and the shift from downloading of files to accessing content, there really is a shift going on from ownership to access.

We have very high hopes for this service.

On the movie side, we've done quite well with Qriocity here on the PlayStation 3; it is also available on Vaio's and on Google Television.

And the service offering can -- basically has the amount of films that is, I would say, comparable with other services such as Amazon and iTunes, and we're looking at new models, including subscription, as we move forward.

Right now, we have about 69 million registered users on our platform.

In terms of revenue, just to give you an image, the sales from our network services last year -- last fiscal year, was about JPY40 billion.

This year, our projection was to do twice of that amount -- well JPY80 billion.

But so far, it's dragging a little bit behind.

What is selling?

Basically, it's games.

We have added films, video clips, music to our offerings, but still very early days, and I hope these to increase in the future.

Mark, thank you.

We have to move to the next questions.

Kota Ezawa, Citigroup.

I've got two questions, I'd like to go one by one, please.

If I imagine then a JPY35 billion change in profit for the CPD division for the second half, I think.

I think -- if we assume this many for LCD TV, I figured LCD TV operating profit for the full year could be minus JPY60 billion to minus JPY65 billion.

Can you please correct me if I'm wrong?

This is the first question.

I think you are going a little bit too deep into the losses.

The cumulative losses end of third quarter, that's the nine months, we are at JPY200 -- I'm sorry, JPY26 billion loss at the moment.

Now, fourth quarter, we are saying that CPD revised profit projections is lowered by JPY35 billion.

Yes, bulk is TV, but not the full JPY35 billion.

So, JPY60 billion is, I think, is a little bit too steep; maybe a little bit shy of that.

Okay, thank you.

The other question is, I think it might be suitable for Rob, a question about the restructuring, but then is it constructive restructuring?

Do you have any idea about the restructuring opportunity in, say 2011, regarding business reorganization between CPD and NPS?

The idea is to differentiate Sony's products more to other companies.

I think a collaboration between CPS and NPS would be extremely important as next year's initiative.

If you can talk on your personal idea or opinion on what sort of chance you see for a more similar structure between those two big business divisions.

Are you talking about organization, or how we realign or we reform our structure.

Well, here I cannot elaborate on actual what kind of planning we're discussing.

But just to give you a flavor, the one thing that's happening is the convergence in the markets.

Our current organization is set up so that Consumer, Professional and Devices, this is mainly the traditional consumer electronics-type products that are in there.

Whereas, NPS, Networked Products & Services, this Group has -- well, the IT staff, the network staff, the mobile staff; things for our future -- the new era.

Is the market separated in two like this?

No.

For example, if you take TVs, I mean TVs are now becoming, well, Internet enabled, and that -- in that sense, currently our people, our divisions, are talking now among each other, so that they come up with a very, what I would say, cohesive, comprehensive strategy.

So, without talking about realigning organizations, I think the communication is much more tighter since beginning of the last fiscal year, when Howard instituted his changes.

But from the market standpoint, I think there are opportunities to further refine, or realign the business units, so that it meets the market trends.

That's the [farest] I can go on this subject.

One thing that I will add is, obviously it's a very competitive market out there in consumer electronics.

Going forward, the ability to earn revenues from consumers who have network devices, such as TVs, pass the point of purchase with network services, such as Qriocity, whether it be with the purchase of games directly to television sets, movies, or streaming music.

Those revenue streams are something we've not been able to count on in the past.

Those are starting to be fortified in the sense that these services that are now being offered directly to consumers straight on WiFi television, Blu-ray players and PlayStation 3's.

Hopefully, that will serve to enhance the profitability of these business lines going forward and that requires very close coordination between NPSG and CPDG.

Okay, great.

Thanks very much.

Daniel Ernst, Hudson Square Research.

Thanks for taking my question; two, if I might.

The first on the games' segment, or network product segment.

As you pointed out, five consecutive quarters of profitability there and very strong profits in the segment this quarter.

And I believe, looking at the software shipments, which were up for PlayStation 3, 21% year over year; very strong software growth in an overall game software market that has been down.

I'd like to know about the sustainability of that trend, with the game market being weak and it looks like your profits are being driven by high margin software sales.

What is the prospects for maintaining that profitability in the games' segment, in the environment of a weak software market overall?

And then second question on the TV business, with revenues -- or rather units, up 46% year over year, it looks like the implied blended wholesale price for you was down about 18% year over year, which is more or less in line with the industry.

So, given that your prices are falling in line with the industry, what can you say about being able to be more profitable, given that you're not seeing anything worse than anybody else is?

Okay.

Your first question about gaming sustainability, or profitability.

I think our PS3 platform is getting into a very nice cycle within its lifecycle.

The consoles are becoming much more affordable.

We have this move controller, which enables game creators to come up with new exciting software.

All of the PlayStation 3 units can become 3D-ready, just by upgrading the firmware.

So I think we have a lot of opportunities to grow the software business on the current platform.

3D is one thing, the move controller and, I think, many of the third-party community has plans to write games or publish games on this platform.

So, I think this -- the current trend is sustainable for several years into the future.

The hardware platform itself, if you look at it as a piece of technology, I don't think it's outdated at all.

Now, it's in its fifth year, but if you take it -- break it down by components, the chipsets, connectivity, hard drives, Blu-ray capability, HDMI, firmware upgradeability and all of these enable the platform to be very, I would say, a viable platform going forward.

So I think there's a lot of life in this platform.

How can Sony be more profitable in the TV business?

If we have an answer to this, I think we will have a much more easier Q&A session here, but if you are talking about price, and not price deterioration itself, this year was not beyond our expectation.

And I don't think we, as a Company, know the price drop was not steeper, I don't think so.

But going forward, I think the price deterioration can only continue for so much, in that at the base, there is the cost of the panels, which I think, is nearing -- maybe it's -- well I would say, the lowest possible cost within some range of time.

But today, not many companies are making money, even LG and Samsung, they're having a hard time.

Our competition -- well, I cannot talk -- I don't speak for them, but the industry as a whole has become -- entered a phase that right now it is not easy to make money at the moment.

But I think we have hopes in that we do have new technologies like 3D, Internet TV and so forth, so that we can try to add more value onto our product and to our systems.

I think at some point in the future, because it is so competitive in the CE business, you'll be hearing us on these conference calls not only talking about the profitability of the sales of TV, but talking about the profitability of our existing user base of people who own TVs that were purchased previously.

That is going to be what is part of a long-term solution of how to get profitability out of the CE business in general, as all these devices become networked.

Great.

Rob, just a follow-up to that.

What was the performance of the Google TV over the holidays; it only had a short area for sales, all in the US.

Can you give some sense of how that performed for you?

Look, it's early days on the Google TV and I think we were happy to be first.

I think once the Android marketplace opens up on Google TV and we go through new versions, I think it's going to become easier to use because it's going to have a lot more content.

I think you're going to be pleasantly surprised with, as we move forward, the Blu-ray player -- Google TV Blu-ray player, which is a very easy add-on for consumers.

So again, it's very early days in this, but it's clear that televisions are going to be network connected and Wi-Fi and people are going to have alternatives to enjoy content beyond cable systems and satellite operators.

Okay, thanks.

Yuji Fujimori, Barclays.

First of all, how Q3 operating profit performed versus your budget.

At the previous conference, you showed us the analysis -- the comparison between the actual results versus your budget in Q3 and Q4.

I'm afraid I couldn't write down the whole data, so could you remind me how differs from your budget and the actual results and Q4 forecast.

Very simple straightforward questions, my answer is straightforward as well.

The third quarter results were better than our initial projections by about JPY35 billion.

The breakdown of which is, CPD, JPY5 billion; Networked Products & Services, JPY15 billion; Pictures, JPY5 billion; Music, JPY5 billion; and Financial Services, JPY5 billion.

So total is JPY35 billion?

JPY35 billion, yes.

Right.

How about Q4 downward revision?

It's basically CPD, Consumer Professional & Device Group; a JPY35 billion decrease in projections.

Okay.

Also, Kato-san commented the inventory situation at the end of December was a little bit excessive especially in the TV space, so how is the situation at the end of January?

And is that the main reasons why you were foreseeing big losses in TV operation in Q4 again, or is there any different reasons behind, or some extraordinary losses in Q4, in the TV operation?

TV, no, the -- I think it's a combination of several factors, not one to be singled out as the major factor.

The inventory level is, as I mentioned, slightly higher than initial projections.

Normally, through the course of the fourth quarter, since we do have the fiscal year '11 models coming out in the spring, we need to clear out inventories in the market as well.

So, usually what happens, maybe more spending marketing money in order to push this product out.

I think now that is part of the issue, but not the major reason.

There are -- it's a combination of others as well.

For one thing, we are a little bit behind in schedule in introducing our new fiscal year '11 models.

Typically, the new models are much more cost competitive and that would -- if we don't have those products in time for the market as we had projected, the profit picture is affected as you can easily see.

Okay.

So it's a combination, yes.

All right.

Thank you very much.

The final question is, you commented the panel cost is still expensive compared with the ideal level.

So is it fair to assume the new product introduction from this spring has the optimized panel cost compared with the current pricing situations?

Yes, Fujimori-san, optimized cost is a difficult expression.

The lower the better is for me.

Sure.

But, yes.

Yes, that's why we're introducing the new models.

The panels, they had -- there are generations, cost down versions coming out now and then and we hope the new panels to be ready in the kind of quantities that we need.

What I mentioned a few minutes ago is that we're a little bit behind in that.

Okay, I see.

Thank you very much.

Jason Mauricio, Arete Research.

Could you maybe give us a insight or some color on the impact to the NEX series on the camera business?

Have you seen a decline or increase in high-end compact camera sales?

Or has it been a halo product for the Alpha series?

Just any data points or insights you could give us there would be really helpful.

Yes, the NEX product for us is a very good, promising product.

It's being introduced in many of the markets to a different degree.

For example, if you take Japan, at one point, they were able to gain about roughly a little bit shy of 30% at a market when we were typically in high single-digit market share.

Now that level has come -- somewhat come down a little bit but on an average, I think we were able to command twice as large a market share than in the past.

Now the situation differs market-by-market but as a category, these are -- cameras, I think, has opened up a new, I would say, market for us; easy to use; very high quality, crisp pictures; and there are many interchangeable blenders.

And for us, it's opened up a new, I would say, maybe a genre of cameras, which is profitable for us and very high hopes because we do have a new product coming out in this category in the months to come.

I cannot elaborate too much, but yes.

Has it been additive overall?

Or has it cannibalized any specific areas, whether it's low-end SLR cameras or high-end compacts?

Yes, it is additive in that it is not in the genre of the, I would say, the normal compact category.

Now is it -- does it eat into the single lens [reflect], the conventional big bulky cameras?

Since we did not have much larger market share, this opening up a new market is I would say totally additive to us.

Okay.

In terms of 3D, you've been big proponents of 3D cameras, 3D TVs, even 3D games and your Qriosity services certainly seems like it's proving to be a differentiator.

Any comments on whether we could see 3D content over Qriosity as a differentiator versus other over-the-top services?

Or is that something, a technology you want to keep within the physical disc space?

We actually have some 3D content already available on Qriosity.

So, I think it's -- right now, it's a differentiator for Qriosity because we're early but I'm expecting that almost all the competitive services will be carrying 3D content.

Obviously, you see them on a conventional distributor such as the satellite operators and cable operators.

Does that answer your question?

Yes, thanks a lot.

And finally, I see you're keeping overall CapEx forecast flat versus the October announcement.

Has that changed at all within the business areas?

We've seen quite a number of competitors increasing semiconductor CapEx and I'm just curious if you're doing the same.

Yes.

For this fiscal year, we have not changed the CapEx projections.

It's JPY240 billion.

Now, going forward, looking forward into fiscal year 2011, the total CapEx, we have not gone through our budget yet so I cannot give you projections, but we are investing heavily in areas like semiconductors, image sensors.

We have announced that we will be spending about JPY100 billion in our CMOS image sensors.

Great.

Thank you very much.

Thank you, Jason.

Frances, we have time for one more question.

Ryousuke Katsura, Mizuho Securities.

So my question is about the panel cost again.

You've been continuously talking about the panel cost was the main reason of the downward revision of the TV profitability and the main reason of that is the unit decline from 25 million to 23 million.

But is there any other reason of this -- that the procurement cost was higher than your expectation, mainly from -- compared to the market price?

I believe that the supply chain management systems you have been trying hard to fix this problem, but is there -- I think my question -- main purpose of the question is whether you can really improve the profitability going forward and this would be one of the key areas for fiscal year '11.

Yes.

First, the panel cost and the fact that we can -- we will not be able to meet our initial quantity projects, 25 million, are two separate things.

They are not really interrelated.

The reason for the higher panel cost, this is a very complicated issue with very -- angles to it.

As you know, we procure our panels from the two joint ventures, with Samsung and Sharp, and the rest from the open market.

Now, the open market if you look at the situation today, there is maybe an oversupply situation, prices are coming down.

But when we purchase our product, we have to plan for the future, secure enough panels going forward to meet our projections.

That means that we're not buying these on a day-to-day basis or a week-on-week basis.

There's more planned for the future.

That means that we have to secure quantities agreeing on a certain price.

Now, it has turned out that we were not able to take full advantage of the declining panel price market; this is one angle in fact, to give you an example, okay.

So relating to that, is there any additional information/comments regarding the investment to the Sakai factory?

Well, Sakai factory is only one source of our panels and I cannot be too specific, but -- I cannot point out one manufacturer or one in-size panel that we'll highlight.

Generally speaking, overall, they were higher than our initial budget projections, including Sakai.

So, in other words then, towards fiscal year '11, you have more opportunities to procure from the open source and that would give a reduction of the cost?

That is true.

Okay.

And my second question is about the -- similar to the former question was about the direction of the CapEx.

The company overall, I think that the asset-light is a big direction but I believe there's still some confusion in the market that on the other hand, you're starting to do some CapEx on semiconductor or LCD, etc.

So given those mixture of the stance, how could we think about the overall direction of the CapEx going forward?

In other words, what I'm saying, that even I think it was JPY230 billion is the CapEx for fiscal year '10, but even increasing the CapEx of semiconductor, is this number going to decline or it would still increase?

And relating to that, the idea of the reason of this CapEx relating -- this BSI image sensor area?

I cannot talk about next year's CapEx because we're still in the process of planning for it and I'm sorry about that.

But on the first part of your question, asset-light and investment, you said there is some confusion in the market.

If we're not being clear on this, maybe it is our fault but there has not been no confusion on our part between asset-light and investing in some of the businesses.

Asset-light is a strategy we have adopted, saying that if we cannot add value to the manufacturing process and there are services readily available among the business partners, why spend our own money in building factories and buying equipment.

We can rely on our outside sources.

That's the asset-light strategy.

At the same time, for some businesses, if it makes sense to vertically integrate just like, to give you an example, a good example is the camera business and our CMOS sensors, the image sensors.

We do have technology in sensors, in cameras, in the lenses, in the signal processing technology which, all combined, gives us an edge in providing state of the art, new exciting product.

These areas we have been investing and we will invest.

So I hope you can get a flavor of what I'm saying.

If it contributes to differentiating our product and high profitability as well, we are not afraid of investing in equipment.

So -- but it has to be -- we have to be very selective in where we invest our own money and where not to.

That's our strategy and we have been doing that for quite some time now, but if it was not communicated to you in a very clear way, then this is the story.

Okay.

Some color on the BSI image sensor direction, ROIC?

ROIC on the image sensor, no, we're investing because it is -- for us, it looks very profitable.

We have been very strong in the camera business, but recently, there's a lot of demand for our high quality image sensors for the smartphones.

So that's one reason that we're investing and I think we can enjoy very high margins from [outside] sales on this product.

Great.

Thank you very much, Katsura-san.

I'm afraid we have to end the call there and I want to thank all of our participants again for joining us at such an early hour.

We look forward to talking to you next quarter.

Goodnight.

Ladies and gentlemen, thank you all for your participation in today's conference call.

This concludes the presentation and you may now disconnect.