索尼 (SONY) 0 Q0 法說會逐字稿

(inaudible) I'd like to start this meeting to announce the earnings results of Sony for the second quarter of 2013. Thank you very much for being with us despite your very busy schedules.

I would like to introduce our speakers at this time. To your right as seen from your side, EVP and CFO Masaru Kato; and seated to his right is Vice President in charge of IR, Yoshinori Hashitani.

Today, the consolidated results and annual forecast will be presented by Mr. Kato, and also, all of the segment results and forecast will be presented by Mr. Hashitani. Then we will have time for Q&A.

Mr. Kato, you have the floor.

(interpreted) Thank you very much. I will begin by explaining consolidated results for this quarter, and consolidated sales increased 11% year on year to JPY1,775.5 billion. This significant increase in sales was due to increase in sales of smartphones, and the favorable impact of exchange rates.

However, sales decreased approximately 9% on a local currency basis. This was due to the impact on the electronics business of a contraction in the AV/IT market and a slowdown of emerging market economies.

Consolidated operating income of JPY14.8 billion was recorded. This JPY14.8 billion was recorded. And this decrease, year on year, was due to a decline in the operating result of the pictures, imaging products and solutions and devices segment.

Net loss attributable to Sony Corporation's stockholders was JPY19.3 billion. We are not [actually on the forecast] for FY13.

Assumed foreign currency exchange rates for the second half of the current fiscal year are approximately JPY100 to $1 and JPY130 to EUR1. This remains unchanged from our previous forecast.

Consolidated sales for the current fiscal year are expected to be JPY7.7 trillion, due to a downward revision in the annual unit sales forecast for certain electronics products.

Consolidated operating income is expected to be JPY170 billion, JPY60 billion below the August forecast. Although the operating income of the financial services segment in the current quarter exceeded the previous forecast, the operating income of the four electronics segments, including game and the pictures segments, are expected to be below the previous forecast.

Net income attributable to Sony's stockholders is expected to be JPY30 billion, JPY20 billion below the August forecast.

Next, I'd like to explain the enhanced disclosure we have implemented from this quarter in our effort to enable our investors and various stockholders to better understand Sony's entertainment business.

We have enhanced our disclosure in three ways. First, from this quarter, we have established categories in the pictures and music segments, and have disclosed sales to external customers on a quarterly basis.

The three categories in the pictures segment are motion pictures, television production and media networks. The three categories in the music segment are recorded music, music publishing and visual media and platform.

The businesses that are contained in each category are explained in the earnings release and the slide deck you already have.

Second, we have disclosed the depreciation and amortization and the restructuring charges of each segment on a quarterly basis. This disclosure will cover not only pictures and music segments, but all segments. We think that this will enable an easier calculation of EBITDA to be made.

Third, we have disclosed supplemental information regarding the entertainment businesses on our website. This information contains things like the box office revenue of films released during the quarter, and a list of upcoming film releases in the pictures segment, and the top 10 best selling releases and number of songs in music publishing in the music segment.

Moreover, we will disclose the US dollar sales and operating income of Sony Pictures Entertainment which consolidates its global subsidiaries in dollars. This is the first time we are distributing the printout of this supplemental information today.

In addition, as we have already informed you, [President Hirai] and the management of our entertainment businesses will be hosting an entertainment Investor Day on November 23 at Sony Pictures in the US. We will also be holding a business briefing for investors in Tokyo on November 26 where the highlights of the US event will be presented.

Next, I will have Hashitani explain our segment results.

(interpreted) You can see here the sales and operating results for each segment for the quarter on the screen. First, I will explain the imaging products and solutions segment.

IP&S segment sales decreased 7%. Although there was a favorable impact of exchange rates during the current quarter, overall sales decreased primarily due to a significant decrease in unit sales of video cameras and compact digital cameras, reflecting a contraction of the market.

Operating results for the quarter was JPY2.3 billion. Operating results declined due to the decrease in sales of video cameras.

Sales for the fiscal year are expected to be below the August forecast, due to downward revision in the annual unit sales forecast of video cameras and digital cameras.

But on a year-on-year basis sales are expected to be flat. Operating income is expected to be below the August forecast, due to a negative impact of the decrease in sales. But on year-on-year basis, operating income is expected to increase significantly.

Let me add some comments on digital imaging products. We have revised downward our annual unit sales forecast for digital cameras and video cameras, but we have begun to take measures to enhance presentation of our products to adapt to the market trend.

We are working to increase selling prices and improve (inaudible) of digital cameras by changing the high value-added [production of our] high end compact RX series, and our first (inaudible) camera, [Alpha 73].

In addition, the lens style, the QX camera series which was announced last month is receiving critical acclaim. This entirely new concept makes possible high resolution and [originated] will combine with smartphone, and will create a new market for this (inaudible) camera.

Next, game segment. Sales increased 5% year on year, primarily due to the favorable exchange rate. Operating losses JPY0.8 billion. This is due to impact of a strategic price reduction of PS Vita, and unfavorable exchange rate primarily offset by the increase in software sales. But there's no change from the August forecast for sales and operating income in game segment.

Preparation for the introduction of PlayStation 4 are progressing steadily around the world. We aim for the new PS4 platform to contribute to the [cost stability] and (inaudible) by diversifying its revenue streams to various network services [data and PS] network and by offering the user services (technical difficulty).

Next is mobile products and communications segment. Although the PC business is facing a severe business environment, the smartphone business is performing well, and this led to a significant increase in overall sales, and a significant improvement in operating results.

Sales increased 39%. This was due to a significant increase in unit sales of smartphones and an increase in average selling prices, as well as a positive impact of exchange rate.

Operating loss improved JPY22.2 year on year to JPY0.9 billion. The significant improvement was due to the increase in sales of smartphones.

Sales for the fiscal year are expected to be below the August forecast, due to a downward revision in the annual unit sales forecast of PC. But on a year-on-year basis, sales are expected increase significantly.

Operating income is expected to be lower than the August forecast, due to the decreased PC sales, but on a year-on-year basis, operating results are expected to improve significantly, and we expect to record a profit.

Now, Sony Mobile. Following well received Xperia Z, which went on sale globally since February of this year, in September we globally launched our new (inaudible) smartphone, Xperia Z1, equipped with the leading edge image sensor and that have caused quite a stir globally.

And, Sony Mobile will roll out the [appealing] products of smartphones and tablets, [these] that combine the technology and management resources of all of Sony, to try to improve its operating results.

Now, home entertainment and sound segment. This segment sales increased by 12% year on year because of the positive impact of exchange rate.

Operating loss improved JPY3.7 billion to JPY12.1 billion. This improvement was due to a decrease in restructuring charges and an improvement in television business.

Sales for the fiscal year are expected to be below the August forecast, due to a downward revision in the annual unit sales forecast of LCD TVs, but on YoY, basis sales are expected to increase significantly.

Operating income is expected to be lower than August forecast because of negative impact of decreased sales, but on a year-on-year basis it is expected to improve significantly.

In the TV business, sales for current quarter increased 19% to JPY174.1 billion, despite a decrease in unit sales, thanks to the positive impact of ForEx and an improvement in production mix shifting to a high value-added product.

Operating loss, excluding restructuring charges, improved JPY0.9 billion to JPY9.3 billion, due to the improvement in product mix, and a reduction in expenses.

We have revised downward our annual unit sales forecast to 14 million units from 15 million, [are] projected in August due to a cautious view of economic uncertainty from the third quarter in developing countries like Central and South America and Asia.

Devices; sales decreased 17% year on year. The decrease was due to decreased sales of system LSI for the game business and absence of sales from the chemical products business sold in September last year, partially offset by positive impact of exchange rate and significant increase in sales of image sensors for mobile phones.

Operating income was JPY11.9 billion, despite the favorable exchange rate. Profit decreased due to the recording of a gain on the sale of chemical products business in the same quarter of the previous year, and significantly lower net benefit in current quarter from insurance recovery from the flood in Thailand.

Sales for the fiscal year are expected to be below August forecast, due to a lower than expected sales of image sensors for cameras. Now, year on year, we expect sales to decrease due to a decrease in sales of system LSI for the game business.

Operating income is expected to be below the August forecast, due to the decrease in sales, and we expect operating income to decrease year on year. Factors that led to the changes in operating results of electronics as shown here.

Exchange rate JPY19.5 billion, a price decline and demand decline, JPY33 billion, cost down and rationalization JPY35 billion, others JPY21 billion.

The total inventory for five electronic segment, at the end of September, increased JPY111.2 billion year on year to JPY862.2 billion, due to the depreciation of the yen. Inventory increased JPY110.6 billion compared to the end of June. Inventory has increased compared with the same time last year. However, we believe there is no problem with the current level because a year-on-year increase in sales are expected in the third quarter of the current fiscal year.

Next, to the pictures segment. Sales increased 9% year on year, but operating loss of JPY7.8 billion (sic - see slide 5 and press release "JPY17.8 billion") was recorded. The increase in sales was due to depreciation of the yen against the US dollar.

On a US dollar basis, sales were down 13%. This decrease was due to a decline in sales of motion pictures resulting from lower television licensing, home entertainment and theatrical revenues.

But on a US dollar basis also, sales for the television production increased year on year, due to the recording of revenues from Left Bank Pictures, a television production company in the United Kingdom, as well as due to higher sales of television catalog product.

A major part of the decline in operating results was due to the lower motion pictures revenue. The current quarter reflects the theatrical underperformance of White House Down, while the same quarter of the previous fiscal year included the strong performance of The Amazing Spiderman.

In addition, a year-on-year increase in production costs incurred as a result of an increase in the number of new episodes produced for US television networks, impacted results.

Sales for the full fiscal year are expected to be below the August forecast, because results for the current quarter were lower than the August forecast. But year on year, we expect them to increase significantly.

Operating income is expected to be below the August forecast, due to lower than expected results this quarter. And we expect operating income to be essentially the same as the previous year.

Sales in the music segment increased 16%, and operating income rose JPY1.8 billion year on year, to JPY9.7 billion. The major increase in sales was due to the depreciation of the yen against the dollar. On a constant currency basis, sales were essentially flat.

Digital media and platform sales decreased, due to a decrease in home entertainment revenues for animation products. On the other hand, sales of recorded music increased year on year, due to the continuing growth in digital revenues, and the success of a number of recent releases.

Operating income increased, primarily due to the impact of the depreciation of the yen, and the increase in sales of recorded music. For full year, there's no change from the August forecast for this segment.

Next, is the financial services segment. Financial services revenue increased 6%, and operating income increased JPY8 billion to JPY39.2 billion.

Both sales and operating income in this overall segment have increased significantly, due to a significant improvement in investment performance at Sony Life, reflecting a rise in the Japanese Stock Market during the current quarter, as compared with a slight decline in the same quarter of the previous year.

The forecast for financial services revenue for the fiscal year remains unchanged from the August forecast. Revenue is expected to be essentially flat year on year. Operating income for the fiscal year is expected to exceed the August forecast, because results in the current quarter exceeded our expectations, and we expect operating income to increase year on year.

This ends my explanation. As you've just heard, we've had to make downward revisions, unfortunately. But I think the electronic segment, the traditional and [professional] AV/IT business, because this is very challenging and severe, the situation continues. So that's, basically, business and economic reasons.

And also, the situation especially in the market, the market reasons, and also, competitive environment, [TV, PC], digital cameras and camcorders, we decided to revise the forecast numbers down, and [with that we are] revising downward sales and operating income numbers.

In the meantime, since last year, in the electronics business, the areas that we've identified as core businesses, mobile, game and digital imaging, in these areas, this last year, we have been concentrating our management resources. The results of having done so have appeared this quarter. So that's one bright spot, or one bright piece of news.

To be more concrete, in mobile business, we launched Xperia Z in Spain, which did very well. Now, we have the successor to that model, Xperia Z1 go to the market recently and, again, it's doing very well. It's a very encouraging response that we've gotten from the market.

And starting November in the US and European market, PlayStation 4 will be launched. Currently, we only have preliminary information, but given our experience in the past into this new platform, we can say that, this time around, there's a very high response and the level of interest will be high, because it's very much a network oriented device, and the socialized game playing is accommodated. And, therefore, [interest should be] high indeed.

In digital imaging, [we're losing product usually for] customers in favor of smartphones. But to counter that situation, we are introducing products, such as value-added model, Alpha 7, RX series of cameras, which are doing very well. And as people are using more and more smartphones, we want to leverage that transition to coexist, so to speak, with the smartphones, digital imaging that will be compatible with smartphone systems. In other words, we introduced a lens style QX camera series, which is an attempt to develop a new market for ourselves.

So these initiatives are the reflection of our efforts that we started making last year. Yes, we have challenging businesses and have turned it around to make it possible, but in the days ahead, particularly [after] next year, we have these benefits that will be drivers of increased profitability. And we will work [particularly] hard on realizing that.

As far as TV business is concerned, again, thanks to all the initiatives that we've made, for the full year, the profit line will show a significant improvement. Currently, we've revised the unit volume forecast downward, because the economy is down in emerging countries market, where we [didn't expect] any growth. And also, the currencies there are weak.

So compared to August forecast, our view is more severe. We believe the environment will be challenging for us and, therefore, we continue to work on cost reductions. And also, towards the end of the year, we will introduce 4K models and expand our sales and marketing initiatives, to improve profitability, to make sure that this business realizes positive turnaround.

As far as PC business is concerned, the market is expected to contract significantly. So the annual unit sales forecast for Vaio has been revised downwards, and, therefore, sometime in the future, we believe that the business will continue to be tough. Therefore, we're working on fundamental reform of the structure of our business, because that, we believe, is urgent. We are currently working on developing a reform plan now.

So as far as financial services are concerned, they are [steadily contributing profit, doing well]. Pictures; as I said, in the second quarter, theatrical releases did not perform as well as we had expected, so the performance was not all that bright.

But more recent releases, Captain Phillips or Cloudy with a Chance of Meatballs 2, these pictures are, so far, performing to expectations (inaudible). So in the second half, on the momentum of these, we will continue to work very hard.

And for the pictures business, I just talked about motion pictures business. But in other categories of this segment, television production and media networks, there, we are continuing to expand our business and seeing a growth in this business. We will focus resources in these areas, while working on general reduction of our costs.

So the (inaudible) for this year, even though we revised the number slightly downward this time, but we do expect this business to contribute basically the same level of profit as last year.

But for more details, we're going to host an entertainment business Investor Day next month, and spend that time giving you more detail about these developments. Thank you.

(interpreted) Now, we would like to entertain your questions. Those of you with questions, please wait for the microphone, and please identify yourself by stating your name and affiliation, before asking your questions. Those of you, when questions are asked in English, there'll be a consecutive interpretation into Japanese, and answers will be given in Japanese. Please confine the number of questions per person to two.

Well, before entertaining the questions, I would like to explain one aspect to you, in the way of supplemental explanation, because it is, very often, asked. That is the change in operating income by segment during the second quarter. IP&S minus JPY5 billion; game plus JPY5 billion; HE&S minus JPY5 billion; pictures, minus JPY10 billion; and financial services plus JPY5 billion; others, plus JPY15 billion. So as you can see, this is the ups and downs, compared to our earlier forecast.

In addition, there is one other aspect. We announced, in the first quarter announcement, we announced the unit sales. Those of you who do not have that, on page 16, we've given you the forecast number and the difference for your reference.

From the video camera, [JPY3.5 million]; digital camera [JPY12.5 million]; and smartphone unchanged, the same; PC, the August forecast was JPY6.2 million, and LCD JPY15 million; and game [JPY10 billion], the home console hardware.

And then, PS4 unit sales is added from this time onwards, compared to the first quarter. And the mobile [data] hardware unchanged, and software, last time was [JPY319 billion], and this time, [JPY360 billion]. That is because the PS4 software is included. Semiconductor shipments now [JPY490 billion], and the CapEx remains unchanged.

So this is the supplemental explanation.

(interpreted) Now, if you have a question, please raise your hand.

(interpreted) Ezawa, Citigroup. My question addressed to [Mr. Sato], one. Another (inaudible) Mr. Kato.

The first point; the recent development in growth area, going forward, and financially you need to allocate some resources, and the media performance is one, but growing area like game or smartphone, I'd like to ask you some questions.

Smartphones, are you thinking of making inroads into China and the United States, in the future? In such case, how much operating capital do you think you would need and at what timing?

And continuing with the game business, Mr. Kato earlier mentioned that the PS4 has a high affinity with the network arrangement and you will have a network servers and what would be the CapEx for such? And in total, would it pose a major cash issue for the capital position of Sony, going forward?

And in this connection further, if the part of the electronics business, [whether it be digital] cameras, [DI] and PC, TV also are not that well, then the conventional [CE] segment, just as you did in [TV business] in previous years, would you think of conducting the type of restructuring you conducted in the past, for TV businesses?

In such case, what about the investment into new businesses, because the restructuring working as a constraint, do you think you may be restricted to making investment in new areas of growth?

(interpreted) Many questions. Your first question about investment in growth areas, and what about the funding, and most likely we will you need resources, especially for game and smartphones, what are the specifics there?

Well, [restructure] numbers and at what time and how much we need, we are not in a position answer. But in terms of general direction, how we look at these, for game and smartphone, the nature of business is slightly different, so starting with the game business.

The PS4 platform itself, as we have been explaining to you, well, in comparison to PS3, it is in terms of investment like a platform. In other words, we did not design the specific semiconductors, nor do we have a production facility for the PS4 semiconductor. In that sense, CapEx [will be made lighter].

But then, going forward, if we deploy network business further, investment required there. Well, last year we acquired a company Gaikai, and placed a foundation for cloud businesses, going forward, and when we introduce that into business, and we expand our network businesses, well, the investment [server] might need some.

But in terms of size and scale of required investment, like in the past, when we started semiconductor business, and expand that, we had to make the CapEx in the order of several hundreds of billions of yen.

However, compared to that, our required investment in service would be much lighter, to the tune of several tens of billions of yen. Such investment may be required, but not as much as hundreds of billions of yen, like in the past, of semiconductors.

For smartphones, for manufacturing, external [fab]. Well, we have a connection with such, and so for the purpose of increasing the capacity, it's not that we have to make a continuous capital investment. Because we'll be using the external partners, and also internally we have various manufacturing sources, so we can make full use of what's available outside and inside.

And then, for a growth driver, there may be, generally speaking, the possibility of growing the business through M&A, but at the moment, we do not have any specific cases as such. So it all depends on a specific timing, and how much funding would be needed.

About the smartphone, and not the CapEx, but simply if you start selling a device in the US you need capital, working capital like the investment in inventory and marketing.

Well, our business in the US in smartphone is not that big, in terms of market share. In terms of regional development, we would like to look at the US market, in the future, but when the size of the business grows then we will need a corresponding the operating capital, unless we have a good working of [CCC] cycle and we work on that.

But the operating capital becoming too much, and to put a constraint on the overall cash flow, for the Company, we do not think that would happen; no, that would not happen.

And your second point, I think I answered. Well, the second point, I'd like to go ahead in answering, and would like to ask Kato san to supplement, if necessary. So the legacy business, DI and PC, you cited examples, and specifically what will we do?

Well, various forms of reforms and transformation, we do not have any specific at the moment, but for DI, basically, the [our intention] for DI business is to shift further to high value added products.

And on the other hand, in the area where the smartphones have encroached, we have our smartphone business, so smartphone business overall can absorb that aspect. In other words, basically shifting and renewing our resources we can do internally.

And for R&D, if we go further to high end, the B2B areas, maybe there to work together, in Sony Group. So for Sony Group as a whole, fundamentally, we can work together to support each other, as one Sony.

And concerning the PC business, you mentioned that restructuring would be to the tune of TV restructuring, but the PC business has a fairly different structure as the TV business, so apart from the specific direction we [pursue] I would say that, of course, the impact may not be [felt], but the size or the magnitude of the impact will not so much as the case of TV. So by taking special measures, proactive measures, then we can work to grow smartphone and game, and that would not constrain growth of game, nor smartphone.

(interpreted) If I may supplement, just as Mr. Hashitani mentioned, in the area of digital cameras, there could be various ways of further development. For instance, in B2B, 4K is one with a good display device, and also the captured images, the better capturing of the images, there are such needs. And another non-consumer businesses of [security] camera is another, with a growing market, and very promising.

So we can shift our resources there. And as was mentioned earlier, the camera technology, or the embedded camera technology in smartphones, we can shift our engineers, so we can do that so far as engineers are concerned.

But then what to sell in what way? The marketing areas, there are some changes. Therefore, the allocation of appropriate talent to appropriate places, it's not that we will (inaudible) if the existing marketing forces lead to a higher growth areas, then if necessary, we will make some adjustment there, and improve on that.

And in PC, you cited example of a TV restructuring, it's different by the nature of business. In case of TV business, we work very hard but in terms of the weight of the assets, it's very different. The PC business, it's not that we produce the parts and components internally; we leave manufacturing, to a large extent, [to EMS], although we do manufacturing.

But in case of TV, we had 13 manufacturing locations; we reduced that down to 4. And the process of reducing that was much hard and heavy, very different from the case of PC. So in terms of our perception, we think there's room for structural reform, but when in terms of expense requiring and also the rate of the works of restructuring, it's very different between PC and TV.

(interpreted) Nakane, Deutsche; [three] questions. First point; JPY60 billion downward revision, I would like to know the breakdown by category and the difference between the former pro forma plan and the present one?

And you talked about developing countries, or emerging countries, which amount to JPY20 billion. How did it change?

The second point is game business. [PS4] hardware and software, you tried to -- you do not change any numbers, but what about your view about emerging markets? In the case of PS3, hardware profitability was actually bad and that is the reason why you revised downward. What about PS4, there is no change from the previous [one]?

(interpreted) I'd like to take up the third question first. Regarding game, profitability of PS4, I touched upon it in my presentation, in terms of [running], it's different from PS3. It is a live platform which requires less investment, so we would like to turn it to a profitable business earlier and as a diversification on revenue it's (inaudible), we shift closer to network.

So downloading game and [Sony] by downloading in game, we are still doing it, but we also have the revenue for the subscription model. From PS Plus, we [even planned] PS3. We have been given valued added services but in PS4, I think we can expand this sort of business. But I think there are various sources of revenue we would like to expand and we would like to pursue that, possibly [PS4].

And you were talking about the impact of exchange rates on game. The major impact of exchange rates is on manufacturing in the game business. So far, of course, certain semiconductors were internally manufactured but in assembly, at the time of launch, we manufacture them in-house. But, ramp up and the increase of costs that has been actually manufactured in other countries, such as China. So if the yen depreciates, there will be a negative impact. And this structure will not change even when we introduce PS4.

By segment, by category, breakdown of the downward revision, just roughly, I cannot give you any numbers, but the major ones HE&S, IP&S and MP&C and devices in that order.

Second question exchange rates of emerging markets and impact. I would say JPY10 billion impact on sales as well as on operating profit compared to the previous plan.

(interpreted) Takashi Watanabe, Goldman Sachs. I have two questions. So first of all, about entertainment, if you can comment on this please, [the result]. We've heard the operating margin for Sony pictures is low and people outside have pointed that out, I also.

When I compare you against the industry peers in terms of TV, motion pictures, it's about 10% others or network business is as high as 40% [obviously], so why are your numbers so low? If you have comment about that, please give us that.

Also, second point is related to Mr. Ezawa's question. This time smartphones and PS4 and [as someone said] they are applications, the [major] products and it's positive news that they are very competitive, particularly compared to the situation one year ago. But the traditional lines of business, the business environment is very tough.

This year, you benefited from ForEx deterioration but, aside from that, digital [cameras], both sales and bottom line are down if I look at your numbers. So some performed well, but those which are not performing well now are going to see further deterioration it seems. So plus or minus, it could be neutral [as such].

So next year, I think we feel revenue from these [conventional] businesses will continue to decline, so even though you may perform well with the new products, the net results will be, at best, even.

Now, if you spend time, you can shift your resources for professional services or in new areas of business to become more profitable, but then again, in those new areas, business results in terms of sales may not be realized overnight. So the conventional business, it's not transparent what you're going to do the next year.

Can you give us some information in terms of actions that you'll be taking so as to be convinced that your profits from conventional business will be up next year?

(interpreted) First of all, the [camera] business, the margin you say is low compared to what our peers are doing. It's been pointed out. If you conduct a detailed analysis business structure, the business models may be different, so it cannot be a direct comparison.

But aside from that, I think there is room for us to improve our business margin like in other lines of business that Sony has. Not happy with the current level of the profit margin, and the management at Sony pictures share this mind; they have specific measures action they may be taking. We are not going to talk about it today because on 21st of next month and on 26th in Japan, we will spend ample time in the sessions to talk about this, so please wait until that opportunity for more details.

Now the growth areas, but also if you look at conventional areas, the business is facing tough going, so plus and minus, if it comes to be neutral and going forward, there does not seem to be any momentum for growth. You point that out and we are aware of that.

So as far as core businesses are concerned, I've been saying that we've concentrated resources into our core businesses to make them even more profitable, and I think we've been achieving results.

But in the other areas, I talked about our PC business, something fundamental has to be considered, although today I cannot divulge anything in terms of [concrete] actions, but we know that there's no time. Time is not on our side and we've been considering some plans and we're going to translate the ideas to more concrete forms of plans. And when appropriate times comes, we'll be announcing to you what we'll be doing in terms of our concrete measures.

Now as far as TV is concerned, two years ago, we are losing as much as [JPY140 billion]. Last year, we start to JPY70 billion loss and this year, our idea is to reach break-even, though currently it's tough going, but the trend is that we are on the track for improvement. So next year and onwards ,TV will continue to turn this around, make it more profitable.

Our CEO, Mr. Hirai, is referring that he thinks growth do not turn out to be what we're expecting. We will take some [direct actions]. That stance remains the same.

And for other businesses, and there are many of other businesses, but in general, I think what is key is our selection and focus. So [although business is shrinking], we have to make up our mind with a strong inclination we align that portfolio is the key with doing that. In fact, we may speed that up to realign our portfolio in a more accentuated way.

(interpreted) When I take a microscopic view, this turn in the first half in local currency basis, revenues were down by 9%, so in traditional business, declines in traditional business are not even offset by the growth in new businesses, so you need to work on the fixed cost. Fixed cost must be reduced further because profits go down, you cannot observe that with the reduction in your costs.

(interpreted) Well, you cited an example of digital cameras in terms of the restructuring reform, in other words, how we allocate our engineers. There is the work in [non-customer] business or in medical [theater] business, that's possible.

The AV/IT business, the market is [working now] long term, Sony sales in that line of business is declining. That's a fact of life, though by region, there is a growth potential for emerging markets or some even in mature markets, but in general terms, we have to make sure that we reduce our cost structure, the fixed cost commensurate with the size of our business, we know that.

And there is nothing new about this because since last year, inside our Company, in-house, we have initiated cost reduction programs even though I have not personally talked to you about that, [it's been largely] to an outside audience but since August of last year, we've started a fixed cost-reduction program for internal purposes at Sony. So efforts are underway and efforts have borne fruit, though the results of the efforts have not yet been disclosed, but I'll give you some [size].

JPY80 billion of fixed cost reduction over a two-year period, this is what I've been saying to all the people in Sony the -- an officer responsible for these affairs know today, then it will be time to be rethink it, but JPY80 billion [done] in fixed costs over two years, in FY12 and FY13, and we know almost for sure that we can achieve those reductions.

(interpreted) Thank you.

(interpreted) Ono, Morgan Stanley. Two points. First question; during this quarter the new plan, the operating income of JPY170 billion, the current year, does this include the asset sales? What's the size of it? During the second quarter we have sales gain of M3 of JPY13 billion, and it was not in your original plan.

Now you changed the operating income for the current fiscal year to JPY170 billion, and that includes JPY13 billion of M3 sales gain. And other than that, are there any additional asset sales you are contemplating? Or was this included in JPY170 billion? That's the first point.

And the second point, TV business. Initially, the annual sales unit of JPY16 million, and coming down by and by and down to JPY14 million. Market situation, and in view of other manufacturers' plan, JPY14 million sales unit forecasted may be challenging.

So the actual result of JPY13.5 million to JPY14 million, that's about flat. And in order to achieve a profit, you initially mentioned that you have increased the unit sales. But at this level, for the purpose of break-even, is it [JPY14 million] is the new money necessary to achieve break-even? That may be difficult, but you have additional measures to achieve a break-even or the profit. So your determination to achieve profit remains unchanged, is that right?

(interpreted) First, asset sales. Well, it included our forecast. In your question, as you have pointed out, the sales of M3, it was not included in our original plan. And what about the original plan at the beginning of year, and how was the outlook about the assets sales?

As I mentioned, we will continue to work on the change of the business portfolio, and also to secure funding necessary for investment. And also to make balance sheet further wholesome. So we will think of some transactions in terms of sales, or buying of the assets.

In the course of current fiscal year, asset sales [much will be due], and some are continuing from last year. But last year, the asset sales was in excess of JPY200 billion, but this sum will not be that much for this year. I can say that.

And what's in and what's out, I am not in a position to disclose in specific terms now, but the direction is as I mentioned.

And about TV business; in a nutshell, it is really challenging to achieve our initial goal. But in terms of the product I can tell you, with the introduction of 4K and can we achieve a very big, sizeable profit to 4K, it is the flagship product in terms of excellent technology, where the most part of business would be the high-value added products of 2K LCD.

So we have been working to improve the average selling price, and we are achieving the good results there. And also we have been successful in reducing the fixed cost as planned. But as you mentioned, when the sales unit declines, and the margin of profit decline accordingly, so there would be a back and forth, and I could not give you specific numbers. But it's still uphill effort, I have to say.

Anything you like to supplement?

(interpreted) A point of confirmation about the asset sales. There will not be any additional asset sales. But for [the addition] comes from the business operation. The asset sales only we have announced already. The addition is just of the one we've announced.

(interpreted) About TV, restructuring, you mentioned -- you talked about the DI, and Mr. Hirai had already made an commitment in the improvement of TV. Is there any timing to determining what you will become of TV business?

(interpreted) The year-end sales season is a very big season, and we will do whatever we can, whatever is needed, to achieve the maximum result. So the results of year-end sales would be one of the elements which will be taken into account.

The timing is running short; maybe one last question, please.

(interpreted) Ayada, Daiwa Securities. Two questions. First question; it's close to the previous person's question. You've shown a slide IP&S and HE&S for JPY5 billion below the plan. Is it reflecting the unit sales decline are in proportion to the decline in profitability?

And in the second half I think there's a downside risks of TV and PC, that's what we believe. But is it because of the actually profit might come down because of the unit sales decline in the second half? Or do you have any countermeasures if that happens in reality? That's what I would like to confirm.

The second question is about game. Compared to the first quarter, there's an improvement in profitability rather significantly. Is it because of increased [effort], is it because of the increased sales of software? Or maybe -- and I would like to confirm that.

And what about R&D in the second quarter compared to the first quarter? And will the R&D pick up in the third and fourth quarter?

(interpreted) About the first question, yes, IP&S and HE&S a JPY5 billion decline from the actual forecast. This is, yes, unit sales have declined more than we expected. I think that is the right understanding.

But for the entire fiscal year numbers, as I have explained, we have reduced unit sales forecast for the entire year. So this is the factor that our operating profit will come down for the full year. And we are not expecting a further downward revision in the future.

About the game business, in the first and second quarter there has been an improvement. Yes, software was selling quite well, especially software of PS3. And [where] we compare first quarter and second quarter, there's a cut off area of expenses. That's a partial explanation.

(interpreted) R&D? What about R&D?

(interpreted) We are not disclosing R&D by quarter, but we do not think that there will be [additional] R&D cost, or below R&D cost than expected. So it will be, I think, as we planned. We are not disclosing R&D for each segment.

Thank you very much. This concludes our explanation meeting. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.