索尼 (SONY) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter fiscal year 2011 Sony Corporation conference call for overseas investors. My name is Keisha, and I'll be your operator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Edward Reid, from Investor Relations Department of Sony Corporation. Please proceed.

Thank you very much for that introduction, Keisha. And thank you all for joining us today, May 10, 2012, for the discussion of Sony's fiscal year results.

I am Edward Reid, from the Investor Relations Department here in Tokyo. And with me on the conference call tonight is Mark Kato, CFO of Sony Corporation, Robert Wiesenthal, Group Executive, Head of Corporate Development and M&A, Sony Corporation, Executive Vice President and Chief Financial Officer at Sony Corporation of America, and Yoshinori Hashitani, VP, Senior General Manager, Investor Relations Division of Sony. Thank you all very much for joining us.

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

With that, I'm now going to turn to today's announcement.

First, I would like to explain the consolidated results for the fiscal year ended March 31, 2012. Consolidated sales decreased 9.6% year on year, primarily due to the unfavorable impact of foreign exchange rates, the impact of the Great East Japan earthquake, the floods in Thailand, and deterioration in market conditions in developed countries.

Consolidated operating loss was JPY67.3 billion, compared to operating income of JPY199.8 billion in the previous fiscal year. This deterioration in our operating results was primarily due to lower sales I've just mentioned, and a significant deterioration in the equity rustles of affiliated companies, although a JPY102.3 billion re-measurement gain was recorded, due to fully consolidating Sony Ericsson.

During the current fiscal year, we recorded JPY315.2 billion of tax expense, primarily due to the recording of a non-cash charge of JPY260.3 billion to establish a valuation allowance against deferred tax assets, predominantly in the US. Net loss attributable to Sony Corporation's stockholders was JPY456.7 billion, compared to net loss of JPY259.6 billion in the previous fiscal year.

I encourage you to refer to the earnings release for a detailed discussion of the results of each segment. However, I do want to touch on our TV, Digital Imaging, Game and Semiconductor businesses.

Sales in the TV business decreased 28% year on year, to JPY840 billion. This decrease was due to our scaling back operations and not pursuing volume, in an effort to secure a stable foundation for profitability.

It was also due to price declines, resulting from deterioration of the operating environment, and due to the impact of exchange rates.

During the fiscal year, LCD TV unit sales decreased 13% year on year, to 19.6 million units. Excluding restructuring charges and S-LCD impairment losses, an operating loss of JPY148 billion was recorded. This is JPY73 billion worse than the previous year. However, it is JPY27 billion better than our forecast of JPY175 billion, which was made when we announced our profitability improvement plan in November of last year, because we are already enjoying the benefit of having dissolved the S-LCD joint venture.

We recorded JPY60 billion in losses associated with the sale of our equity stake in S-LCD this fiscal year. Including this loss, operating loss was JPY208 billion.

The profitability of the TV business improved faster than expected in the fiscal year ended March 31, 2012, and we are making steady progress towards improving our profitability structure, as we aim to turn a profit in the fiscal year ending March 31, 2014.

Next is the Digital Imaging business. This category suffered a decrease in sales and profit year on year, due to the impacts of the earthquake and Thai floods. Sales and profit of video cameras decreased year on year, due to the natural disasters, a decrease in unit sales, and price declines. However, we continue to maintain a stable level of profitability through cost reduction.

Compact digital cameras experienced a decline in sales and profit due to the natural disasters, a decrease in unit sales, and unfavorable exchange rates. We are now producing some of the models we used to produce in Thailand, China and Japan.

The impact of the Thai floods on our interchangeable lens digital camera business was extremely severe, as sales decreased significantly due to unit sales declines from delays in new product launches and unfavorable exchange rates. Despite this, loss was less than the previous fiscal year.

Next is the Game business, which includes the Network Service business. PS3 continues to maintain sales around the 14 million unit level, and is selling well, as is software. PS VITA achieved unit sales of 1.8 million as of the end of March.

As for the Network Service business, the amount of content, the number of countries in which we are active, and the number of compatible devices are all expanding steadily. However, overall game sales decreased, due to unfavorable exchange rates and the strategic price reduction of PS3 hardware. Operating income decreased year on year due to the impact of the sales decline, and the asset impairments in the Network Service business.

Next is the Semiconductor business. Semiconductor business sales decreased due to the impact of the earthquake and the Thai floods. Operating income was essentially flat, primarily because of increased image sensor sales -- because increased image sensor sales were offset by the sales decrease of the category, and an increase in fixed costs from an increased production capacity.

Lastly, I would like to explain our forecasts for the fiscal year ending March 31, 2013. Consolidated sales are expected to increase 14% year on year, to JPY7.400 trillion. Operating results are expected to improve from the previous fiscal year's loss, to a profit of JPY180 billion. Equity and net loss, contained within operating results, is expected to be approximately JPY5 billion, significantly less than the loss recorded in the previous fiscal year. Net profit attributable to Sony stockholders is expected to improve significantly, to a JPY30 billion profit.

Next, I shall explain the forecast for each business segment. First is Consumer Products and Services. We expect LCD television sales to decrease, due to our intention to not pursue volume, and to run the business with an emphasis on improving the profitability structure. On the other hand, we expect overall segment sales to increase significantly due to an expected recovery, primarily in the Digital Imaging and PC businesses, from the effects of the earthquake and Thai floods.

We expect to record a significant decrease in operating loss for the overall segments, primarily due to recovery after the natural disasters, and an expected significant decrease in LCD television losses.

When we announced our profitability improvement plan for the Television business in November last year, we said that we expected the loss in Television to be JPY175 billion for the fiscal year ended March 31, 2012, that we were aiming to reduce the loss in the fiscal year ending March 31, 2013 to half the JPY175 billion amount, and also, that we were aiming to turn a profit in the fiscal year ending March 31, 2014.

As I mentioned earlier, compared to those original projections, loss, excluding the impairment on S-LCD and restructuring in the fiscal year ending March 31, 2012, was JPY27 billion better than expected, JPY148 billion, due to the benefit of the dissolution of S-LCD.

Loss in the fiscal year ending March 31, 2013 is expected to be around JPY80 billion, less than half the JPY175 billion. Our Television profitability improvement program is progressing according to plan.

We expect sales in the Professional Device and Solutions segment to increase year on year, because although sales of the Semiconductor category are expected to decrease, due to the sale of the small and medium size display business, we expect to recover from the effects of the earthquake and floods primarily in the component category.

For the same reasons, we expect operating results in the Professional Device and Solutions segment to improve significantly from the loss of the previous fiscal year, and for a profit to be recorded.

Imaging Centers are expected to continue to maintain a high level of profitability, and lead this segment in the fiscal year ending March 31, 2013.

Picture segment sales are expected to increase year on year, due to a greater number of major releases, which will include The Amazing Spiderman, Men in Black 3, and Skyfall, the next James Bond movie. Also expected to contribute are an increase in Television revenue, and an increase in advertising revenue from television networks. Operating income is expected to increase, primarily due to the increase in sales.

The Music segment's sales are expected to be essentially flat, because an expected expansion of Digital revenue will likely be offset by an expected continued decline in the physical market for music. Operating income is expected to be essentially flat as well, primarily due to higher Digital revenue and a decrease in restructuring charges being offset primarily by one-time profit relating to the recognition of digital license revenues recorded in the prior year.

We expect Financial Services revenue to increase, due to the continuing steady expansion of the business. We expect operating income to decrease year on year, primarily due to our not incorporating any gains on the sales of securities investments, similar to those recorded in the previous fiscal year, into our forecasts for the fiscal year ending March 31, 2013. But we are expecting this segment to continue to contribute a high level of profit.

We expect sales of Sony Mobile to increase significantly due to the full consolidation of the business. Despite ongoing severe competition in the smartphone market, on an operational basis, we expect --

(recorded) Please have your conferencing details ready so we can better --

I'll start that paragraph again. We expect sales of Sony Mobile to increase significantly due to the full consolidation of the business. Despite ongoing severe competition in the smartphone market, on an operational basis, we expect a significant decrease in operating losses, primarily due to improvements in the product mix and cost reductions.

However, for the overall segment, due to the recording of the large re-measurement gain in the previous fiscal year, we expect operating results to deteriorate significantly compared to the previous fiscal year.

That ends my discussion of our results and forecast. I will now turn it over to Kato-san, Rob, and Hashitani-san for Q&A. Keisha, may I ask you to queue up the questions, please?

(Operator instructions) Your first question will come from the line of Daniel Ernst with Hudson Square Research. Please proceed.

Yes, good evening, and good morning. Thanks for taking my call. Three questions, if I might. First, Hirai-san has had the new role of CEO for about 40 days now, so I'm wondering if you could provide kind of -- so the first 40 days report card, on what the mood at Sony is, how it's progressing, what -- any thoughts you can give us on the changing leadership and how Sony's feeling about it.

Two, on the Game division, some of the publishers here are starting to talk about their investment in the next generation consoles, and I know you don't want to announce any products, but I want to see if you can comment on where you kind of think we are in the cycle with the PlayStation3 having a large global installed base, now profitable, and what your strategy is about harvesting that base now relative to going out and building new platforms.

And then three, on the Sony Mobile division, Android competition not only has gotten more competitive, but it seems that there's been a consolidation of leadership among one or two and some of the early guys, like Motorola and HGC have really struggled in product innovation. And I wonder if you could sort of comment on what you think the prospects are for Sony Mobile in the Android space as we progress through the year. Thanks.

Hi, this is Kato speaking. I'll answer the first question about [how] Kazuo Hirai is doing in the first 40 days. I will sum it up in saying that he is very kind of -- what, enthusiastic, geared up to put the team together, and turn around the Company. And also, since his announcement early in February, you know, the management team has constantly been in a discussion to see what the problems are with the Company, how to realign the organization, make appropriate assignments and personnel. All those things were put in place about two months now since he's been in office.

And I think during the strategy meeting that took place on April 12, I think a lot of the audience, the market, could feel a sense of purpose here, not that we lacked it in the past, but the more kind of -- what, stepped up, geared up energy within the Company. That's my sum up of today.

Next, your question about the Gaming business, next generation console, as you said, I cannot touch upon -- anything about the next generation console today. But as you rightly said, PS3, in its current stage of the life cycle, are still, I think, are in kind of mid-stream for the life of the platform. The momentum is still very strong. We sold about 14 million units last year. This year's projection are now for home consoles is about the same -- about 16 million this year. This includes the PS2 also. We are categorizing this as a home console category. And the numbers are 16 million.

So, as the installed base grows, as you know, we make a lot of money on the software side, and I think this trend will go on for another -- what, I hope it's several years.

So we're not in a kind of a desperate need now to have a next generation coming to the business. But as I said, I cannot touch upon the new generation at this point in time. If we do have anything to discuss, I think the people at (inaudible) will deliver that message to you, as I said.

Third one, Mobile. Here, you know, Kuni Suzuki has been assigned for this business, together with other parts of the Mobile business that we have, mainly in tablets and in PCs.

Now, what he is trying to do is to kind of consolidate all the resources in terms of technology, marketing, etc., to revitalize the business that we have in smartphones.

Now, I think you can appreciate that in the past, we had a joint venture with Ericsson, which was a good joint venture, I would say. But in terms of product development sharing technology, joint ventures always have some limitations.

Now, with that limitation gone, we can go full ahead and pin together all the technology resources that we have within the Company. Also, combine that with the Network business resources, and all the content, starting from games, to music, to movies, and put all those things together to make our offering in smartphones an attractive option for the consumer. That is the kind of the bullet strategy we're looking at, at the moment.

Now, I must say that in the first fiscal year this year, we're in a turnaround mode in the smartphone business, and hope this business will turn out profits from the next fiscal year.

Does that answer your question? I hope --

It does. Thank you for the color. Appreciate it.

(Operator instructions) Your next question comes from the line of Jeff Loff of Macquarie. Please proceed.

Hi. Thanks for taking the question. So within the Gaming business, for the Network Services portion, can you tell us how much revenue was from that business in the fourth quarter, and then give an update on your targets and progress there?

Network business is on an increase, yes. But as we recall last year, we did have this unfortunate incident with the hacking (inaudible), which did impact our business somewhat. We do have all our customers returned to our service, because I think some of the games that we offer are must-have for our customers, but nonetheless, in order to get our security systems up, etc., our development of the systems and the product offering have been somewhat delayed.

So in that sense, we're a little bit behind in the sales projections for the last fiscal year, but no, year on year, we're on a continuous rise at the moment.

Now, coming into this fiscal year, we hope this trend to continue as the installed base of the adaptable produces are increased, in PS3, PSP, VITA, etc.

So, slightly behind in our projections since last year, but still on a very firm foundation to build the business.

What is the level of sales for last year?

(spoken in Japanese) Okay. In terms of revenue, JPY66 billion. That was the revenue for fiscal year ending March, 2012.

Okay. And then just staying on the Games business, you know, for the portable devices, you give the target of 16 million units. Are you able to break out the expectation for PSP and VITA?

Of the 16 million, approximately 10 million is VITA, the rest, PSP.

Okay, great. Thank you very much.

Your next question comes from the line of Shannon Cross, with Cross Research. Please proceed.

Thank you very much, and good evening. I had two questions. The first, could you talk in a little bit more detail about what you're seeing in term of end demand for consumers on a geographic basis? I'm specifically interested in Europe, but also, other geos, just both what the end demand is, as well as, if you've had any change in terms of inventory levels at the distribution -- that your distribution partners want to hold. And then I had a second question.

Excuse me. What product category or segment are you talking? Is it electronics that you're interested in?

Yes, electronics, just -- you know, your consumer products. So, whether on the PCs, the TVs, just sort of in general, I'm curious as to the health of the consumer, from your standpoint.

Okay. We do have a broad range of products, but talking in very general terms, if we divide our global markets into, let's say, developed countries and emerging markets, I would have to say that the sales in the developed countries are kind of stable. Not growing that much. For example, if you take the Japanese market in TVs, we switched from analog to digital last year, meaning that most of the consumers are kind of -- bought the new digital TVs already. So this year, sales has been in a very steep decline for TVs. This is not an economic situation, but rather, switchover already accomplished, done, so sales is down.

Now, if you look at markets in the United States and Europe, I would have to say it is not in a state that we enjoy good business at the moment. It is stable, but very competitive, and in terms of growth, not much.

However, the bright side is that emerging markets, BRIC countries, Latin America, Southeast Asia, are in general, for us, very nice business, very high growth. So if you look at the breakdown of our consumer electronics sales, last fiscal year, ending March 2012, the split between mature markets and emerging markets was like 50/50. This split, for us, would shift more towards emerging markets in the new fiscal year.

Okay, great. Thank you. And then my second question is on the smartphone side. I'm curious, there's been a lot discussion specifically around subsidies that the carriers are willing to pay, some discussion that some in Europe that some of them are pushing back on the amount that they're willing to basically fund. And so I'm curious as Sony looks at this business, and clearly getting very involved in this business, how you're thinking about subsidies and pricing over the next couple of years.

I'm sorry, I cannot discuss subsidies and pricing for particular products or areas. But just talking in general, if you look at our smartphone business, we were strong in Europe. Today, maybe a little bit weaker, but we need -- we hope to regain our momentum in the European region.

In North America, our existence is very, what I would say, light, slim. So here, you have a lot of ground to cover. In Japan, we have enjoyed very nice business, and so, we would like to continue.

And so, on a geographical basis, I think they are -- you know, a lot of room for us to grow if we do our job right.

Again, I'm sorry I cannot discuss subsidies and pricing at the moment.

Okay. Thank you very much.

There are no further questions in queue at this time. I would now like to hand the conference back over to Mr. Edward Reid for any closing remarks.

Thank you very much, Keisha. We'd like to thank all of you for joining us today to discuss the announcements. Please feel free to contact our London, New York or Tokyo Investor Relations offices if you have any further questions.

Thank you all for joining us, and good night from Tokyo.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.