Sony Corporation F2Q08 (Qtr End 09/30/08) Earnings Call Transcript

Nov. 2.08 | About: Sony Corporation (SNE)

Sony Corporation (NYSE:SNE)

F2Q08 (Qtr End 09/30/08) Earnings Call Transcript

October 29, 2008, 5:30 pm ET

Executives

Nobuyuki Oneda – EVP and CFO

Gen Tsuchikawa – Senior General Manager, IR

Analysts

Kota Ezawa – Nikko Citi Ltd.

Masahiko Ishino – Mitsubishi UFJ

Kazumasa Kubota – Okasan Securities

Yasuda [ph]

Kuyama [ph] – Merrill Lynch

Yuji Fujimori – Goldman Sachs

David Gibson – Macquarie Capital Securities

Yasuo Nakane – Deutsche Securities

Eiichi Katayama – Nomura Securities

Unidentified Company Speaker

Thank you very much for waiting. We would like to start our presentation meeting on the second quarter of the fiscal year ending March 2009. I would like to introduce speakers. To your left, EVP, CFO, Executive Officer, Nobuyuki Oneda; Head of IR, Gen Tsuchikawa. First, Oneda will give an explanation on the outline of the second quarter earnings and the details of segmental information will be explained by Tsuchikawa. Mr. Oneda.

Nobuyuki Oneda

Second quarter consolidated sales decreased 0.5% year-on-year, but on a local currency basis, they increased 5%. Operating income decreased significantly due to the impact of the decline in the Japanese stock market on the Financial Services segment and the recording of a gain the previous year from the sale of former headquarters site. If we were to exclude the impact of these factors, operating income would have been unchanged and would have been basically in line with our previous forecast.

Now each P&L line item. Consolidated sales decreased 0.5% year-on-year to 2,072.3 billion yen. Operating income decreased by 90% year-on-year to 11 billion yen. The impact of the decline in the Japanese stock market, as I mentioned beforehand on the Financial Services segment, expanded from about 9 billion yen in the same quarter of the previous year to about 50 billion yen this year, a more than 40 billion yen downward impact on operating income. Moreover, a gain of 60.7 billion yen on the sale of a portion of the former headquarters site was recorded in the last fiscal year’s operating income. If we were to exclude this impact, it’s unchanged.

In the Electronics segment, operating income decreased mainly due to the deterioration of the cost of sales ratio, reflecting a decline in unit selling prices and a decrease in equity in net income for Sony Ericsson. In the Game segment, operating loss decreased year-on-year primarily due to PS3 hardware cost reductions and increased sales of PS3 software, as well as strong sales of PSP hardware. In the Pictures segment, operating income increased mainly due to the increase in motion picture revenues from Hancock and so on. In the Financial Services segment, operating income decreased significantly due to a deterioration in profitability at Sony Life resulting from the significant decline in the Japanese stock market.

Non-operating income deteriorated by 1.2 billion yen to negative 3.7 billion yen. But this deterioration was mainly due to the recording of ForEx losses during the current quarter compared to ForEx gain in the same quarter of the previous year. Due to all these factors, income before income taxes decreased by 93% to 7.3 billion yen. Sony recorded an income tax benefit amounting 8.9 billion yen, the benefit resulted from the utilization of tax credits and the reversal of tax reserves principally due to the favorable outcome of tax audits and litigation at certain subsidiaries outside of Japan.

Minority interest in loss of consolidated subsidiaries was 4.6 billion yen compared with 0.5 billion yen in income in the previous year. Minority interest in loss was recorded primarily due to the recording of a loss at Sony Life. Sony Life is a consolidated subsidiary of Sony Financial Holdings Inc., in which Sony’s ownership decreased from 100% to 60% as a result of the global IPO of SFH in October 2007. As a result of these factors, net income decreased by 72% to 20.8 billion yen.

Next, I would like to explain our revised forecast for the March 2009 fiscal year. On October 23, we announced the downward revision to our forecast for the entire year. And these numbers have been announced. Our sensitivity to foreign currencies, which we already announced, is one yen change against the dollar to have 4 billion yen annual impact on the operating income and 1 yen change against the euro to have 7.5 billion yen impact. On the 23rd, we did not provide an update of our capital expenditure, depreciation and amortization, or R&D expenses, but these are not changes.

Now Tsuchikawa will give an explanation of the results of each of our business segments.

Gen Tsuchikawa

First, Electronics. Sales in the Electronics segment decreased by 1% due to the negative impact of the appreciation of the yen against the dollar. On a local currency basis, sales increased by 5%. Sales to outside customers increased by 2% year-on-year, and on a local currency basis, increased by 8%.

On a product category basis, sales of BRAVIA LCD televisions, which saw increased in itself in all regions; VAIO PCs, which saw increased sales outside of Japan; and Alpha digital SLR camera, which had an expanded line-up and increased market share, increased.

Operating income decreased by 41% primarily due to a deterioration of the cost of sales ratio as a result of a decline in unit selling prices and the decrease in equity in net income for Sony Ericsson. Operating income, excluding equity in net income of affiliated companies, on a previous basis decreased by 30%. The largest profit generating product categories were, in the order of magnitude, system LSI, video cameras, imaging sensors, broadcast and professional equipment, and compact digital cameras.

Let me give you an operating profit year-on-year analysis. Operating income decreased because although the local currency sales increased had an 18.7 billion yen positive impact. Price declines in such categories as compact digital still cameras and PCs, as well as changes in the composition of certain product categories caused a deterioration in the overall cost of sales ratio for the segment, 32.7 billion yen negative impact. And equity in net income primarily for Sony Ericsson decreased by 19.5 billion yen, and foreign exchange rate changes had a negative impact of 16.3 billion yen.

Now let me discuss the change in operating income on a product category basis. The categories which had the largest decrease in profit were compact digital still cameras, PCs, and video cameras. Compact digital still cameras had a decrease in profit due to a decreased unit sales resulting from a slowdown in market growth in North America and Europe, and due to price declines. The PC had a decrease in profit due to intensification of competition and a shift toward lower priced products. Video cameras had a decrease in profit due to decreased sales in all regions due to a contraction of the market.

On the other hand, profit increased from LCD TVs, which had a significant increase in unit sales, and from imaging sensors, which saw an increase in sales of CMOS sensors and improvement of operations. The sales for the TV category during the quarter increased by 19% year-on-year to $355 billion yen and operating performance improved by 13 billion yen to a loss of 9 million yen.

Inventory at the end of September 2008 was 1,086.5 billion yen, which is an increase of 8% compared to the same time last year. The end of this quarter is the one during which we hold inventory in advance of the year-end holiday selling seasons. However, since the market environment has deteriorated rapidly, the level of inventory is a little high. Days to sales ratio is higher than in the past.

Let me go on to Sony Ericsson. Sony Ericsson sales decreased by 10% year-on-year due to the impact of exchange rate fluctuations and the shift of the product mix to lower price performance. A loss before tax of 13 million euro was recorded, a significant deterioration year-on-year mainly due to continued pricing pressure at a time of adverse cost trends, and continuing the difficult competitive environment particularly in Europe, which more than offset the contribution of new products introduced at the end of the previous quarter.

The next is the Game segment. Sales in the Game segment increased by 10%. Approximately 80% of sales came from hardware and accessories, and the rest from software. Overall hardware sales increased due to a year-on-year increase in PLAYSTATION 3 and PSP unit sales. Sales of PS2 decreased, but the business continues to be strong in the Middle East and Asian regions.

Q3 unit sales were 2.43 million for the quarter, 1.9 times the amount of the same quarter of the previous year. We are on track to our goal of selling 10 million units for the year. Since the start of the second half, sales of the 80 gigabyte model got off to a good start in Europe and North America, ahead of the launch in Japan. As we approached the year-end holiday selling seasons, we will expand our service to an even wider user base through continued efforts to strengthen our game software line-up and an expansion of non-game content and network services.

PSP unit sales increased by 23% year-on-year to 3.18 million units. The strong sales seen in the first half of this fiscal year continue. And as we described on October 23, we have revised upward our unit sales forecast for the year to 16 million units from 15 million. The new PSP model with its improved display has gone up to a great start, and we are working to expand penetration of the console even further with continued marketing efforts tailored to each market. As for software, overall software sales decreased due to a significant decrease in PS2 software sales, although sales of PS3 and PSP software increased.

As for our network services, in mid-September we began the Life with PlayStation online service for PS3, which introduces a new life style. And in mid-October we began a PlayStation store service that can be accessed directly from the PSP. With the number of registered accounts on the PlayStation network increasing rapidly to exceed 13 million with more than 5 million being added in the last six months, our business is expanding very smoothly.

Moreover, the video download service we began in July in the United States has been well received by our customers and the business is growing smoothly. Operating loss was 39.5 billion yen, an improvement of 57.2 billion year-on-year. This improvement was mainly due to a significant improvement in the operating performance of PS3 business as a result of PS3 hardware cost reductions and increased sales of PS3 software as well as strong sales with PSP hardware. Although profit from the PS2 business decrease year-on-year, it continues to contribute to profit of the segment.

Inventory at the end of September ’08 was 243.2 billion yen, a decrease of 2% year-on-year. Compared to the level as of June 30, 2008, inventory increased by 53% to 83.7 billion yen due to an increase in inventory of PS3 and PSP hardware in advance of the year-end holiday season.

Going on to the Pictures segment. Sales increased by 3% year-on-year in the Pictures segment. The increase is due to higher motion picture revenues, primarily from the strong worldwide performance of Hancock. Operating income increased 200% to 11 billion yen. Operating income benefited from the higher motion picture revenue, as I just mentioned, as well as high equity income from the sale of European cable television channel by an equity affiliate.

Next going to the Financial Services. Revenue in Financial Services decreased by 36% due to a decrease in revenue of Sony Life. Although insurance premium revenue increased due to an increase in insurance-in-force at Sony Life, revenue at Sony Life decreased by 42% to 72.8 billion yen due to increased net valuation losses from convertible bonds and impairment losses on equity securities in the general account and net losses from investment in a separate account, which is due to significant decline in the Japanese stock market.

Although an increase in insurance premium revenue contributed positively to the results, 25.5 billion yen operating loss is recorded at Sony Life, primarily due to an approximately 50 billion yen negative impact from devaluation losses and impairment on equity securities. Although Sony Life recorded an operating loss for the quarter under the US GAAP, as was announced today by Sony Financial Holdings in their consolidated results summary, today under the Japanese GAAP, which Sony Life complies with, the entity was profitable.

Finally, the all others category. The sales decreased by 5% year-on-year. Although sales at So-net Entertainment Corporation increased due to higher fee revenue from broadband connection services, especially fiber-optics, overall segment sales decreased due to a decrease in sales at Sony Music Entertainment, Japan. Best selling albums during the quarter included works from ORANGE RANGE AND CRYSTAL KAY.

Operating income decreased by 67% year-on-year, primarily due to decreased sales at Sony Music Entertainment, Japan, and a deterioration in equity in net income for SONY BMG. Speaking of SONY BMG, sales at SONY BMG decreased by 10% year-on-year. This is due primarily to the timing of the new releases combined with the continued decline in the worldwide physical music market, not being offset by the growth in digital product sales.

SONY BMG recorded a loss before income taxes of $45 million for the quarter compared to income before taxes of $8 million in the same quarter of the previous fiscal year. The loss for the period reflects the impact of the lower revenue as well as a year-on-year increase in restructuring cost. On October 1, Sony completed the previously announced acquisition of Bertelsmann AG’s 50% stake in SONY BMG. The new company, which will eventually be called Sony Music Entertainment, became a wholly owned subsidiary of Sony. Thank you.

Now we would like to entertain questions from the floor. Please wait for the microphone and ask questions after identifying yourselves by name of the company and yourself. And if the question is in English, it will be translated consecutively by interpreters and then there will be announcer. And we limit one person asks two questions because of the time constraint.

Question-and-Answer Session

Kota Ezawa – Nikko Citi Ltd.

Ezawa from Nikko Citi Ltd. I have two questions. In Electronics, the reason for reduced profitability – there was a deterioration of the mix, product mix. I think you can elaborate on that point so that we will have a better overall picture. And also in Electronics, about inventories, in North America and Europe, the level of inventories is increasing. What about the health and the contents of the inventories and how long it will take for the inventories to come down to healthy level?

Gen Tsuchikawa

When we say mix, what I mean by mix is by a product category, for example, percentage of TV, DI, and audio. The rate of LCD TV is increasing, but that is not profitable yet. So product category mix is the reason and what I meant by when I said mix. About inventory level, yes, as you say, days of supply, months of supply, in terms of those metrics compared to the second quarter of the previous year, we have four or five days more. The reason – and the content is, one, TV. In the second quarter, the sales unit we expected were not reached. So we are behind the schedule and this happened in the latter half of the second quarter. That is why the days are higher for TVs. And the same tendency for digital cameras, our sales forecast that – actually our sales were less than our sales forecast. And strategically, we over-bought panels with a hindsight. Because of the shortage of panels in the last year, we tried to purchase panels at earlier dates than last year. So this adds to – if we add these two factors, the four or five days more. Towards the end of the fiscal year, I think we can adjust all these factors, but in December level, there might be some inventories remaining. Thank you very much.

Kota Ezawa – Nikko Citi Ltd.

My supplemental question. For example, among TVs or among digital camera businesses, product mix is not deteriorating in each product category, rather rate of TV in total product category seems increasing. What, for example, in digital camera product category the rate of percentage of entry level is increasing on a relative basis and profit margin compared to high-end product that is low? So there is this sort of factor in terms of product mix. And we can say similar tendency to a certain degree TVs. Another question is, getting PLAYSTATION 3 from July – September, there is a reverse negative spread, and what is the level of reserve for this?

Nobuyuki Oneda

At the end of September, 40-some billion remaining reserve. In the second quarter, impact on PL is a gain, a small gain. In other words, posting in reserves and reversal of reserves, this is a positive factor for profit and loss in the second quarter. And as far as negative spread is concerned, as you know, exchange rate, in particular the euro, has depreciated. So the price comes down because of the impact of the exchange rate. So the negative spread increased more than we expected because of this. Let me supplement, valuation thus is 43.3, reversal is 2.1 billion.

Gen Tsuchikawa

Next question, please.

Masahiko Ishino – Mitsubishi UFJ

Ishino from Mitsubishi UFJ. Two questions. One, in the – you revise downward, but the yen keeps appreciating the euro. If you assume 120 yen per euro, what sort of downside risk or downward revision risk including segment information? That’s what I’d like to know. Second point, TV and Game business, especially TV, what sort of impact will it have on profit and loss of TV business because of the change in exchange rate, Game as well?

Nobuyuki Oneda

The 120 yen, well, at today’s exchange rate, 125 yen and 97/98 yen, then operating income will be about 90 – further 90 billion yen. This will be an impact on operating income. That said, we hedge our positions. So it will be offset by 30 billion yen. But this offset will be in the non-operating, but before tax income our impact will be about 60 billion because 30 billion goes to non-operating income. Now, TV, 140 yen and 100 yen are the assumptions. But several tens of billions yen of impact if 120 yen instead of 140 yen or 90-something instead of 100 yen. And impact by segment, we would like to refrain from disclosing this. As far as Game is concerned, while euro has a major impact on Game business, I would say 30 billion yen impact because of the exchange rate change, because we are assuming 140 yen per euro – so given present level. I think – and that is incorporated in this estimate. If that is the case, 90 billion yen impact on operating income, excluding hedging, then 70 billion, 80 billion red ink for TV and 50 billion for gain, well, yes, if we take just the impact of exchange rate movement, that might be possible.

Gen Tsuchikawa

Are there any other questions?

Kazumasa Kubota – Okasan Securities

Kubota from Okasan Securities. The first question is the digital cameras or video cameras and VAIO, price is getting weakening, the business environment is deteriorating. What are the measures that you are taking, the measures that you can disclose externally? So, on those three product categories, what actions are you taking to overcome the current problems?

Gen Tsuchikawa

Digital camera, the products are provided did not necessarily accommodate the needs of the customers. But the models which we will launch in next spring would be as such that will prove to be appealing to our customers. So I think it has to do with the product strength or the attractiveness of the product. Camcorders, the overall market itself is shrinking somewhat. Therefore we will have to maintain the market share or increase the market share. Camcorders profit margin has not come down as much as that of the digital cameras. So we have to increase our share and add more value. And if we can do that, I think we could reasonably maintain the current position. VAIO, the whole trend of the society is that they are going for a lower end of products – lower priced. So the margins are being squeezed. Last year the profit margin was in the order of 7% or 8%. However, whether we can maintain the same level this year and next year, it will be very difficult. But the current level, in our view, is just too low. One of the reasons for the deterioration is that the volume is lower than we had anticipated. So we have to increase the volume and at the same time continue to reduce cost as much as possible, and overcome the ForEx fluctuations trying to increase the dollar portion of the cost.

Kazumasa Kubota – Okasan Securities

The mini PCs, those unit prices have come down. I think domestically those mini PCs are sold like mobile phones. The modality of the sales promotion is just like mobile phones. So, would you maybe making a fundamental change to business of VAIO?

Gen Tsuchikawa

I think we have to address those questions. I’m not excluding that possibility. But as you know, it’s still – what you have said is still a small percentage. But it does accelerate the overall pricing down of the PCs that may trigger the price weakening. So we have to think of a strategy of VAIO and also mini PCs. But I’m afraid I will not be able to disclose what exactly we’ll be doing.

Kazumasa Kubota – Okasan Securities

And the next point is, for the point of confirmation, PS3 business, that 4 million has been shipped during the first half and we have not changed the 10 million target for the year. So, is it that – is it just on budget or sales has been better than you have anticipated?

Gen Tsuchikawa

We will be shipping a large number of units during the Christmas or holiday seasons. So, as of today, we believe that we can achieve original budget of 10 million for the year. Thank you. Let us go to the next person.

Yasuda

Thank you very much for this presentation. Yasuda [ph] is my name. My question is on the Game business. Game I think would not be impacted so much by the economic activities, but yet if you look at the North American data for September, it has been affected. So what are the risks – downside risks for PlayStation offsetting as you would expect for the Christmas season today?

Gen Tsuchikawa

Yes, we do recognize that the business environment has really deteriorated. But notwithstanding on a global basis, we maintained 10 million shipment forecast. And for the PSP, it’s some 10-some million. So we have PS3, PSP, PS2. As of today, the numbers that we have disclosed in July remain as they are. Actually PSP is going up to 16 million instead of 15 million. Holiday season, we do not intend at this juncture to change numbers significantly.

Yasuda

The second question is about the state of competition vis-à-vis Microsoft. It seems that it suggests that you are doing better or maybe you should revisit the pricing. What do you think of the pricing strategy?

Gen Tsuchikawa

Pricing strategy, as I have always explained, is something I must refrain commenting on. Microsoft has reduced the price, yes, and that has resulted in an increase of their business. We know that. But in Japan, it went up and it went down to the earlier level. So the reaction may differ amongst the markets.

Kuyama – Merrill Lynch

Kuyama [ph], Merrill Lynch. I have quantitative and qualitative questions. First was the quantitative question. You talked about the ForEx impact. But if the topics remain at the closing level, what would be the additional loss that the Financial Services would incur? I think sensitivity is being enhanced. So if you can share any numbers? Semiconductor, you have two products which might contribute to the increase of sales. What has been the profit generator from semiconductor business? And thirdly, if you have the – you have the shipment forecast by product. How well or how badly the first half did in terms of digital cameras or LCD? If you can share the numbers, please do so. On the quantitative level, last week on the 23rd, you talked about structural reform, which the package will be put together before the end of the year. Now after the Sony shock, you have put together package reform in terms of headcount, facilities, and product assortment. Would it be as extensive and as fundamental as that, or will you not be able to come up with such an extensive program because time is just too short or limited?

Gen Tsuchikawa

Now as it relates to the index topics, what should be much deterioration with the portfolio of Sony Life incur? I think the topics – if you use the topics number for today, the noon, maybe there will be 50 billion or more of downside risk. But of course, it’s quite volatile. That may change in one day, but again this is all hypothetical because we have to use the figure for March 31. But if that was indeed the case, the number I measured might be the number. Now semiconductor business, Game is doing more than we had anticipated. The improvement has been expedited. The units of PSP and PS3 are increasing. PSP by 1 million and so is PS3. So the tips for games generating profit for the entire fiscal year. CMOS sensors, the yield has improved during an excellent operation. So, game-related chips have done well in the first half and for the entire year. CMOS could also be a contributor. So semiconductor is one segment that can secure positive profit. Restructuring, we anticipate to implement restructuring on an extensive basis. I talked about the items that we are addressing. Investment, we will revisit the investment plan and we will look the low performer or not profitable businesses. And of course, we will look at how we might reduce the fixed cost. What else? Consolidation of manufacturing plants and increasing efficiency of development, we engaged in a similar exercise three years ago, but this time we will be looking at the entire thing again. Please note that we will just concentrate on categories that are deteriorating, but we will have a broad view. TVs saw very concrete actions, will be put together. But again, we will look broadly the opportunities for structural reform.

Kuyama – Merrill Lynch

Thank you. How about the progress for the first half?

Gen Tsuchikawa

Yes. For TV, as I mentioned, compared to what we anticipated in July, it is slightly less. We were short by maybe hundred of thousands of units. For digital cameras, we were slightly behind schedule. In the same way, audio products, we are certainly behind. VAIO, we have had sufficient volume I think. So, TV and digital imaging, those were the areas of categories where we had some downside movement or shift. Thank you. Additional questions? There are no questions? Yes, second from the front.

Yuji Fujimori – Goldman Sachs

Fujimori from Goldman Sachs. And the first question, in the second quarter or the first half, I would like to ask about how you are doing against budget or plan. And how do you assess this, as good or not so good? You have downward revised by 270 billion yen for the full year, but how about the breakdown for the first half and the second half?

Gen Tsuchikawa

Compared to the previous plan, I can explain the performance for the first half. And Financial Service was the greatest in terms of decrease, as I mentioned, 50 billion negative impact. As for Game segment, there was an impact of foreign exchange fluctuations. There was a slight negative for that reason. And for Electronics, there isn’t ForEx impact, but there are some other factors, which contributed to an upward change. So there has been some slight positive impact. And Electronics minus Financial Services was a significant minus as of July. So that is the difference between the previous projection and actual compared to July.

Yuji Fujimori – Goldman Sachs

Second point, so the risk with the second half has already factored in to the figures. You mentioned in the previous briefing that in Electronics a revision of 90 billion yen, how much of the risk was incorporated into this revised figure? You talked about inventory and you said that at the end of December you may still have some inventory left. So you need to probably make some drastic measures to improve or eliminate the inventory at the end of December. So, can you elaborate by each category some of the specific measures that you would be taking?

Gen Tsuchikawa

Well, as for inventory risk, although it has increased, it is in the order of tens of billions of yen. So, among the 1 trillion yen inventory, it’s tens of billions of yen. So it’s not something that would significantly impact a profit, unless the market is fully confused and the volume is decreased drastically. So as we continue the current sales, then I don’t think it will become as an infinite [ph] problem. And you talk of how we assess the risk. It’s a very difficult question to respond to because the future of the market is very uncertain. But at least for TV, we may be below 1 million or digital camera will come down from 26 million to 24 million units. So that kind of a risk is factored in to the figures. So in that sense, in the Christmas holiday season or towards this holiday season, we have already taken into consideration some decline in the sales. But after the holiday season, I don’t know how much decline there may be. It is very difficult to forecast. But we will be very prudent and watching over this development of the market, and that is all I can say. I hope you would accept that. Thank you. In the center, on the right.

David Gibson – Macquarie Capital Securities

David Gibson, Macquarie Capital Securities. Two questions. You mentioned net debt for Sony, excluding Financial Services, at 471 billion. Can you talk about what you will be doing with your CBs coming up for expiration and how you see your net debt, excluding Sony Financial Services, looking at towards the end of this fiscal year?

Gen Tsuchikawa

In the second quarter, 471 billion, that was negative net cash flow. And there are some seasonality factors evolved. But it is worse than what we had anticipated originally. Now towards the end of the fiscal year, year-end, when we made announcement last time, we announced that we would end in positive cash flow. But as of now, as of today, it will be a net cash flow of minus 200 billion yen as we anticipate. The biggest factor being, of course, the net income. The profit has come down significantly. That is one factor. So, 200 billion yen would be the amount that will come down compared to the original plan. But the maturity of the CB at the end of the year, in relation to that CBs, we do have some cash at hand. And so there is not – it’s not such a significant level that we would have to do something about it immediately. However, there is a very tough contraction to the credit. So as may be necessary we may procure – use call loans or CB – commercial papers so as to maintain other liquidity.

David Gibson – Macquarie Capital Securities

So will you not do another CB then?

Gen Tsuchikawa

At this time, when I look at the market conditions, right now thinking of resorting to CBs right now, but we will be flexible watching how market develop.

David Gibson – Macquarie Capital Securities

And one follow-on, when we will see as to how would again attend financial briefings as he promised at the strategy meeting?

Gen Tsuchikawa

About the timing of this briefing, we cannot say anything specific right now. But when action plan will be completed, I think we will have an opportunity to give an explanation as soon as possible. I hope you would accepted my explanation. Next question.

Yasuo Nakane – Deutsche Securities

Nakane from Deutsche Securities. Thank you very much. I have only one question. On a local currency basis, sales forecast by region in the second half, that’s what I’d like to know. USA, Europe, China, emerging market, if you divide regions into four, September, October qualitative (inaudible) situation I’d like to know.

Gen Tsuchikawa

Compared to the previous year, in every region, I don’t think the figures will be negative. But what about the comparison to our plan or budget? I would say probably I think Japan will be as we have planned, but in developed countries, North America and Europe in particular, and China, in those regions I think the figure will be several percentage points lower than our plan. I hope you will be satisfied with that explanation about the regional figures. I’m talking about principally on Electronics business. Next question, please.

Eiichi Katayama – Nomura Securities

Katayama from Nomura Securities. First question, last year when the book was closed for the entire fiscal year, I think the sensitivity to the dollar exchange rate was reduced from 6 billion to 4 billion. You might not be able to do it by the way, but 7.5 billion sensitivity to the euro in order to reduce that. What sort of measures can you think of, I’m sure you’re working on this, to reduce the yen’s change vis-à-vis the euro? That’s my first question. And in the downward revision, economic situation, financial situation and exchange rate, they might be called all external factors. Yes, external factors deteriorated and the company’s objectives and numerical figures all changed. What about the income and profitability of the Financial Services sector that is non-core? It might not be really meaningful to grasp the real performance of the company to include this. So, from a CFO’s point of view, what is the idea of positioning of this Financial Service business in the future in the entire Sony Group?

Gen Tsuchikawa

Now, our measures vis-à-vis the euro, unlike dollars it’s quite difficult to take measures. For the moment, we have started to take measures. In Nitra, Slovakia, TV production plant was moved for – this was for entire Europe. So this might have mitigated the impact of the move of the euro, but most of the parts of significant or a significant amount of parts come from Korea to Nitra. And that transaction is dollar denominated. So this will offset the mitigation effect as long as one will be cheap, the purchase price of S-LCD will be adjusted because the dollar is weak and we can negotiate a lower price, purchasing price from S-LCD. Fundamentally, we have to increase value-added in Europe. But procurement of components and parts is rather difficult in that market. So how should we go about it? We have to take time. And I cannot tell you right now that we do have this sort of strategy and that to cope with that at this time. Now about the positioning of Financial Services, sometimes that business is doing quite well, sometimes it’s not. And of course, for the entire group, the entire group’s performance is subject to the performance of that sector. That is true. But investors, I think, have a good understanding of the nature of the Financial Services business I think. One other point is, this is up to a Sony Financial Holdings to decide. But Financial Services segment, there is a legal aspect of how to prevent the impairment of capital, and from that perspective, the percentage of shares and the convertible bonds in the portfolio might be reduced. This is my personal view. And because of that – of course, we are not thinking of cutting off that segment from the group. And I do not have any – we are not in a position to give any instruction to change their investment policy drastically because – but because of the present situation, I think there is a shift to safer fixed income product. I don’t know, this might not be the right answer to your question. I’m afraid we have to close this presentation because the time has come. We’d like to thank you for your attendance despite your demanding schedule.

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