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Sony Corporation (NYSE:SNE)

Q1 2007 Earnings Conference Call

July 26 2006, 9:30 am ET

Executives

Takao Yuhara- Corporate Executive and SVP

Robert Wiesenthal - Group Executive in Charge of Corporate Developments

Jonathan Bates - Investor Relations

Analysts

Evan Wilson - Pacific Crest Securities

William Drewry - Credit Suisse First Boston

[Connor Omara] - HSBC

Daniel Ernst - Hudson Square Research

Ben Atkinson - Gagnon Securities

Jason Mauricio - Arete Research

Richard Petersen - Levin Capital

Olga Levintan - Lehman Brothers

John Taylor - Arcadia Investment Corporation

[Russell Robelspom] - Walter Scott & Partners Limited

Presentation

Operator

Good day, and welcome to the Sony Corporation earnings conference call for the first quarter of fiscal year 2006. My name is Michelle and I will be your audio coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s presentation.

(Operator Instructions)

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

I would now like to turn the presentation over to your host for today’s call, Mr. Jonathan Bates with Sony Investor Relations in Tokyo. Please proceed, sir.

Jonathan Bates

Thank you very much for that introduction, Michelle, and thank you all for joining us today, July 27, 2006, for the discussion of Sony’s results for the first quarter of the fiscal year ended March 31, 2007. I am Jonathan Bates with Sony Investor Relations in Tokyo. We are joined this evening in Tokyo by Takao Yuhara, Corporate Executive and SVP, Investor Relations, Sony Corporation; and from Los Angeles by Robert Wiesenthal, Group Executive in Charge of Corporate Developments and M&A, Sony Corporation, EVP and CFO, Sony Corporation of America.

Thank you very much for joining us today, Mr. Yuhara and Mr. Wiesenthal.

Takao Yuhara

Hello, this is Yuhara. Thank you very much for joining us with our conference call. I am very pleased to be with you.

Robert Wiesenthal

Hi, Rob Wiesenthal and Steve Cover from Los Angeles, and we look forward to answering your questions.

Jonathan Bates

Thank you very much, Mr. Yuhara and Mr. Wiesenthal.

In just a few moments, I am going to give you a brief summary of today’s announcements. Then, Mr. Yuhara and Mr. Wiesenthal will 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 and 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 as in light of the information currently available to us, and therefore we 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 choosing investor relations at the bottom of the page, at www.sony.com.

With that, I am now going to turn to our announcements.

Announcements of Sony’s results for the first quarter of the fiscal year ended March 31, 2007. Allow me to begin by explaining an accounting change. From the first quarter, we have reclassified royalty income as a component of consolidated sales and operating revenue rather than as a component of other income as previously recorded.

The reasons for this change were:

  1. Generating income from [patents] has become an important business strategy;
  2. The research and development expenses which leads the royalty income are incurred at the operating level; and
  3. Royalty use expenses have been and continue to be incurred in SG&A.

Figures from the same quarter of the previous year have been stated in accordance with this reclassification. The first quarter included YEN 8.6 billion of royalty income predominantly recorded in the electronics segments.

Now on to the consolidated results, which reflect this reclassification and other current topics.

During the first quarter, consolidated sales increased 11% year on year to YEN 1,744.2 billion, primarily due to increases in the electronics and pictures segments. Consolidated operating income improved YEN 33.6 billion from a loss of YEN 6.6 billion in the same quarter of the previous year, for a profit of YEN 27 billion this year.

Operating income in the electronic segment contributed the most to this improvement, primarily due to the strength of digital still cameras and Bravia LCD TVs. The strength of the electronic segments also caused our overall consolidated results to exceed our expectations for the quarter in April.

We believe the electronics business is steadily moving down the path to recovery, and strengthening the appeal of our products is key to the recovery of electronics.

Bravia LCD TVs have formed the basis for the recovery until now, and we have received much positive feedback on our Alpha 100 digital single lens reflex camera, which went on sale this month.

Other current topics for Sony include the facts that our equity affiliate, Sony Ericsson, became the number four market share player during the quarter, due to the hit sales of its walkman phones. In our pictures segment, The Da Vinci Code, which was released this quarter, recorded a huge success in terms of worldwide box office revenue, which has exceeded $740 million since its release in May.

Moving back to our consolidated results, consolidated restructuring charges for the quarter were YEN 10.7 billion, compared with YEN 15.9 billion in the same quarter of the previous year. Most of these restructuring charges were recorded in the electronic segments, with YEN 10.1 billion being recorded in the segments during the current quarter, compared with YEN 15.5 billion the previous year.

The restructuring plan we announced at our corporate strategy meeting in September 2005 is proceeding according to plan.

Of the YEN 200 billion in costs we aim to reduce, YEN 76 billion has been eliminated by the end of June.

Income before income taxes was YEN 54 billion, an increase of 320% year on year.

In addition to the significant increase in operating income, there was an improvement in the net effect of other income and expenses. Other income and expenses improved due to the recording of a foreign exchange gain, as well as due to an increase in gain on sales of securities investments.

YEN 3.6 billion in equity and net income of affiliated companies was recorded during the quarter, an improvement of YEN 12.7 billion over the previous year. YEN 3.4 billion in profits was recorded from SLCD, and YEN 10.2 billion in profits was recorded from Sony Ericsson, while YEN 4.6 billion in losses were recorded from Sony BMG and YEN 2.6 billion in losses were recorded from MGM.

As a result of all these factors, net income improved YEN 39.6 billion year on year to YEN 32.3 billion.

Due to the reclassification of royalty income as a component of sales and operating revenue, rather than as a component of other income, we have revised upward our April forecast for consolidated sales and operating income by the amount of this reclassification, YEN 30 billion. No other revision has been made to the figures announced in April.

Now, I would like to turn to the results of our business segments, starting with electronics. Sales in the electronics segment increased 14%. LCD TVs and digital still cameras, which had strong sales in all regions, and Vaio PCs where notebooks performed strongly, contributed the most to the increase in sales.

Operating income improved YEN 74.1 billion to YEN 47.4 billion. The largest profit contributing products were, in order of magnitude, camcorders, digital still cameras, and imaging sensors, a large loss-making products were system LSIs.

Products which had the largest increases in profit were digital still cameras, LCD TVs, camcorders, broadcast equipment, and CLT TVs.

Digital still cameras had both an increase in sales and profits due to strong market acceptance of products in all regions.

LCD TVs had a large increase in sales in all regions due to the continued success of the Bravia line and profit performance also improved significantly, due to the strength of the line-up as well as cost reductions.

Within camcorders, sales of both DVD and high-definition format models increased, and profit increased due to the contribution of these high value-added models.

Broadcast equipment had an increase in profits due to strong sales of high definition production equipment.

Profit performance of CRT TVs improved due to fixed cost reductions resulting from restructuring initiatives.

Products which had a large decrease in profits were system LSIs, which saw a decrease in sales to the game business.

Within this discussion of electronics, I would also like to talk briefly about the television and semiconductor businesses, to provide you with a better understanding of our electronics segment results.

Firstly, overall sales of the television category for the quarter were approximately YEN 260 billion, an increase of 70% year on year. Operating loss was approximately YEN 11 billion, an improvement of approximately YEN 30 million year on year.

Despite the increase in competition, LCD TVs trended according to plan. There is no change in our forecast for the business to be profitable in the second half of the fiscal year.

Secondly, overall sales of the semiconductor business for the quarter were approximately YEN 110 billion, flat year on year. Operating loss was about YEN 5 billion, flat year on year. Effective this quarter, due to a change in product classification, low temperature polysilicone LCDs and organic EL panels, which were reported in the semiconductor category, have been moved to components. We maintain our forecast that for the full fiscal year, the semiconductor business will see a significant improvement in its profit performance.

Electronics inventory days of sales at June end increased to 52 days, due to an increase in LCD TV inventory resulting from the expansion of that business and due to an increase in semiconductors for PSIII. Even when we exclude the PSIII chips, the amount of inventory is slightly high. Given the expected growth in the market for LCD TVs, however, we believe this level is manageable.

The next segment is games. Sales in the game segment decreased 29%. Approximately 60% of sales came from hardware and accessories, and the remainder was from software.

Hardware sales decreased as a result of lower PSII and PSP unit sales year on year. Last year, in the same quarter, there was strong demand for the new model PSII. Although sales from PSP software increased, overall sales of software decreased due to a decrease in unit sales and continued price declines of PSII software.

Combined profits for the PSII and PSP businesses was relatively unchanged year on year. However, the segments recorded an operating loss of YEN 26.8 billion for the quarter because charges were incurred in preparation for the launch of the PSIII, including approximately YEN 16 billion in inventory write-downs for semiconductors. Further investments were made in research and development for the PSIII business.

Revenue in the pictures segment increased 42%, a 34% increase on a U.S. dollar basis, primarily due to the worldwide success of the theatrical release of The Da Vinci Code. Despite this increase in revenue, an operating loss of YEN 1.2 billion was recorded compared to operating income of YEN 4.2 billion the previous year, due to higher marketing costs incurred for upcoming second quarter theatrical releases.

Other factors leading to the decline were a lower contribution from the prior fiscal year film slates and a decline in television operating income, mainly due to production expenses incurred on new network series for the upcoming fall season.

Financial service revenue decreased 19%, due to a drop in revenue at Sony Life. Revenue at Sony Life decreased because although revenue from insurance premiums increased, there were lower valuation gains in the general and separate accounts as a result of the downturn in the Japanese stock markets.

Operating income of the segment decreased 79% to YEN 4.6 billion as a result of reduced profit at Sony Life.

Operating profit at Sony Life dropped because although insurance premium revenue increased, there was a significant decrease in valuation gains from convertible bonds in the general accounts as a result of the Japanese stock market’s downturn.

All other sales decreased 5% year on year. This decrease was primarily due to the sale of a portion of our retail businesses, which have been deconsolidated and declining sales at Sony Music Entertainment Japan.

Album and single sales at SMEJ decreased year on year. Operating income decreased YEN 0.5 billion to YEN 4.7 billion, primarily due to the decline in sales at SMEJ.

That concludes my opening remarks. With that, I would like to turn you over to our operator, Michelle.

Question-and-Answer Session

Operator

Thank you.

(Operator Instructions)

Our first question comes from the line of Evan Wilson of Pacific Crest Securities. Please proceed.

Evan Wilson - Pacific Crest Securities

I have two, the first relative to your game business. You reiterated your targets for PSIII shipments in the fiscal year. I was wondering if there is any change in the linearity of the PSIII shipments relative to your previous announcement of 2 million on launch day and 4 million calendar year.

Also, the second question is on BMG. You said in the announcement that a weaker-than-expected operating income came because of a few titles shifting out to the second half of the year. I was hoping you could give us a little more detail there. Thank you.

Takao Yuhara

I will answer the question about the game, and Rob Wiesenthal will answer the BMG matter.

Regarding the PSIII shipments, as you know, back in May, we have announced the launch date of November, simultaneously in Japan, U.S. and the European markets, as of our PlayStation companies. At this moment, we are making every effort to prepare the production of the PSIII shipment at a set date. So far, I do not have new information over this.

Jonathan Bates

Thank you very much, Mr. Yuhara. Maybe we can go over to Rob in Los Angeles for the answer to the second question.

Robert Wiesenthal

Just a point of clarification on Sony BMG. The performance of Sony BMG would not impact the operating income line as we recorded on the equity [inaudible], but with respect to your question, clearly the continued pressure on the core CD business has impacted the numbers and slippage, but there are a lot of important albums that we are expecting coming out past this summer, Christina Aguilera, Bob Dylan, Beyonce, Justin Timberlake, so there has been some slippage in the release pattern that we previously expected, but those albums seem on track and we are excited about the year as a whole.

Evan Wilson - Pacific Crest Securities

Thank you, and to follow-up on the game business, the spike in inventory that you saw there on the game side, does that include finished goods now for the PSIII?

Jonathan Bates

I am sorry, we could not quite catch your question in Tokyo. Could you repeat it one more time, please?

Evan Wilson - Pacific Crest Securities

I am looking for some details in the components of the inventory spike in the gaming business, and whether or not that includes finished goods for the PSIII at this time.

Takao Yuhara

No, this is not included. This game inventory has increased, but mainly this is the PSP, the PlayStation Portable, are the finished goods -- no PSIII.

Evan Wilson - Pacific Crest Securities

Thank you.

Jonathan Bates

I think going forward, we are going to have to limit callers to one or two questions, if you do not mind. Thank you very much for your questions.

Operator

Our next question comes from the line of William Drewry of Credit Suisse. Please proceed.

William Drewry - Credit Suisse First Boston

Thank you. I will be brief. I am just wondering if Rob could talk or Mr. Yuhara about the outlook for the movie margins, which obviously are a little bit depressed with the advertising, the T&A costs that you are incurring right now. Just wondering what we can expect for full-year margins for the movie division. Thank you.

Robert Wiesenthal

We are expecting significant profits in the third and fourth quarter. It is very difficult, as you know, to look at the film business on a quarter-by-quarter basis, and I think some of the impact that you have seen in our recent release has to do with the timing of marketing spend, as you know, from an accounting perspective, you have to book those costs as incurred.

But looking forward, the James Bond film this fall, the Will Smith Pursuit of Happiness, the Nancy Myers film, Holiday, our first major CD release, Open Season -- all those films look very strong. We are very excited about it and I think the pictures company is going to have a terrific finish to the year.

William Drewry - Credit Suisse First Boston

Thank you.

Operator

Our next question comes from the line of [Connor Omara] with HSBC. Please proceed.

Connor Omara - HSBC

Two questions, if I may. First of all, regarding financial services, about a year ago we were thinking that there might be a spinout of that business. I am just wondering what the situation is in terms of spinning that business out at the moment. Secondly, the EU coming back on Sony BMG merger, what is the impact operationally at the moment? Is it curtailing any kind of restructuring, or is that continuing to motor along as you expected?

Takao Yuhara

I will respond first about the financial services. This IPO timing is announced, as you know. We will just see the IPO, the year 2007 and the financial holdings company is just preparing for this IPO at this point. This is no change this period.

Connor Omara - HSBC

Okay.

Robert Wiesenthal

Could you restate that second part of the question, please? We had some technical problems here.

Connor Omara - HSBC

With the EU trying to block the Sony BMG merger, or at least they have ruled in a disfavorable manner, has that impacted the way you are restructuring the business? What should we expect to happen now in terms of the way this plays out?

Robert Wiesenthal

We are studying the judgment very carefully and we are discussing the appropriate next steps with the European Commission, but in terms of our ongoing business, we are operating the business as we should, and we do not expect any impact on how we handle our operations on a going-forward basis in any material way.

Connor Omara - HSBC

That is great. Thank you.

Operator

Our next question comes from the line of Daniel Ernst of Hudson Square Research.

Daniel Ernst - Hudson Square Research

Two questions, if I could. First, you mentioned that on the LCD side, inventory was still high. If you ex’d out the build the PSIII that was in the electronics, can you give me a stab at what the LCD DSOs looks like?

Second question, given that you have reiterated the timing and volumes for PSIII, have you changed at all your forecast for operating loss for the game division, which I think at last count was around YEN 100 billion loss forecast for the fiscal year? Thank you.

Takao Yuhara

In our electronics inventory at the end of June, there was a high level of inventory of LCD, but this is mainly the LCD panels. That inventory was rather high compared to what we have expected. I do not know the [inaudible] LCD days supplies, but as you know, since the inventories have risen [inaudible] materials, then therefore, we could -- the control of those inventory levels towards the second quarter to the third quarter when we expect that the new model, or more quantities are expected. Therefore, this is within our control at this point in time.

Jonathan Bates

Could you just repeat your second question one more time?

Daniel Ernst - Hudson Square Research

Certainly. The second question regarded any changes or not to your operating loss forecast for the game division for the current fiscal year.

Takao Yuhara

Yes, we just mentioned that the operating loss will be expected, you know, the 4-digit [inaudible] between the [inaudible], you know, the YEN 100 billion. So far, we have no change on this estimate for the games segment.

Daniel Ernst - Hudson Square Research

Thank you very much.

Operator

Our next question comes from the line of Ben Atkinson of Gagnon Securities. Please proceed.

Ben Atkinson - Gagnon Securities

I actually have a follow-up, but I will wait to see how long this one takes. I just had some -- trying to tie some things together on the PSIII. You said in the electronics division, one of the reasons for system LSI profit deterioration is because of the decline in sales to the game division. You also had a ramp in electronic inventory related to PSIII production, and then you had a YEN 16 billion inventory write-down.

I am kind of thinking system LSI sales for the game division would be up in anticipation of a ramp for PSII. That was not the case. I am trying to understand then what perhaps the inventory would be for PSIII, and then maybe a little bit of explanation on the YEN 16 billion inventory write-down.

Takao Yuhara

First, as you know, the system LSI categories, because of the low level of production for the chips for games, therefore transferring [product] was a decrease. That is the real meaning of [inaudible] to decrease in LSI categories. This is surely because of the current game systems.

Then, that inventory of the system LSI, name server chips, was sizing up the electronic segment for the PSIII. As you know, there is a [inaudible] margins expected that between our manufacturing costs of PSIII and also the sales price. So therefore, when we adjust the -- have an inventory, then we just record it, the write-down of those inventory values up into the sales price. So that is the reason why we just recorded those write-downs of YEN 16 billion for the first quarter this year.

As you know, the first quarter last year, we also recorded the YEN 25 billion write-down as the same reasons. So we just, you know, we -- [inaudible] increase the [seasonal] [inaudible] inventories for PSIII with write-down will continue until the PSIII launch date.

Ben Atkinson - Gagnon Securities

I see. So the system LSI segment is selling to the game division at a prearranged price, and perhaps has not year achieved the yields in order that it is going to lead to profits on selling at that price? Is that a good way to look at it?

Takao Yuhara

The sales is not realized yet. The inventory stays in the electronic segment. However, those inventories are only used for the PSIII, so therefore we select the amount, it is recorded as a provision in the game segment. So that is what we have done as an accounting [inaudible].

Ben Atkinson - Gagnon Securities

Thank you very much.

Operator

Our next question comes from the line of Jason Mauricio of Arete Research. Please proceed.

Jason Mauricio - Arete Research

Just a couple quick questions. One, can you tell us, you gave an indication on an earlier call of TV profitability. Within that, were LCD TVs, was the Bravia range profitable or was it still in losses? Second, could you also give us an indication of where cell-chip yields are at this point?

Takao Yuhara

The Bravia profitability, and as you know, the first quarter, there is the [approximation] when you include the income of [inaudible], our joint ventures. As you know, the LCD TV was really accepted, and if you compare the [current DP], it was increased 3.5 times year on year, and in amount, it is almost 5 times increase year on year. So therefore, as you know, the [profitability] of LCD TVs [increased] in the first quarter. So we are very much pleased to see this.

Cell-chip yield is not disclosed, unfortunately, but I will say according to the head of the semiconductor division, the cell-chip yield is better than what he has expected originally. That is all I can say.

Jason Mauricio - Arete Research

Great. Just a quick follow-up on PlayStation III. I know it is probably a hot topic these days, but plenty of rumors in the press about contract manufacturers given just a handful of shipments. That seems to be a big departure for Sony, who tends to keep that sort of production in-house. Can you clarify now if you are actually outsourcing production of PlayStation III units?

Takao Yuhara

We plan to manufacture the PSIII simultaneously both in our plant in Japan and those in China. That is our subcontractors. This is what we are planning at the moment.

Jason Mauricio - Arete Research

Thank you very much.

Operator

Our next question comes from the line of Richard Petersen of Levin Capital. Please proceed.

Richard Petersen - Levin Capital

Thank you. A question about foreign exchange and the impact on your electronic segment margins. It looks like almost a quarter of the improvement in operating profit this quarter year over year came from [4X]. I am wondering where you are going to make up the extra margin in your guidance going forward, given that you see foreign currency being flat. Are you going to see more fixed cost reductions? Where is the margin improvement coming from to replace that?

Takao Yuhara

As you know, additionally the [4X], the benefit is obtained from sales [inaudible] difference of the Dollar and the Euro rate of the Japanese Yen, which is depreciated about 6% to each currency.

However, if our product is very strong, you know, the position in the market, we may [detain] our sales, [detain] those would benefit our sales, but if it is competitive, we may release these [loads], the exchange gain to the marketplace as a price reduction. So therefore, please understand this is a kind of a [inaudible] scale benefit from the currency depreciations. That is what we indicated in today’s announcement.

Richard Petersen - Levin Capital

Thank you.

Operator

Our next question comes from the line of [Olga Levintan] of Lehman Brothers. Please proceed.

Olga Levintan - Lehman Brothers

I have a couple of questions about your LCD TV division. I see that you maintained your guidance for fiscal ’06 shipments of 6 million units. Can you talk about how many units you shipped in the June quarter and what you are projecting for September?

Takao Yuhara

We do not disclose [inaudible] quantities. As I said, the quantity for this quarter was 3.5 times, year on year. This quantity itself is exactly in line of the 6 million, which is our expected shipment quantities for the year.

Olga Levintan - Lehman Brothers

Then could you talk about what percentage of output you are taking from the first-gen line of the SLCD JV and how much from the second line?

Jonathan Bates

I am sorry, could you repeat your question one more time please?

Olga Levintan - Lehman Brothers

Sure, in terms of what percentage of output are you taking from the first Gen-7 line of the SLCD TV and how much are you taking from the second line?

Takao Yuhara

60% goes to Sony from the first line, and the second line, I guess you are talking about the 8th generation line? You are talking about the Samsung line?

Olga Levintan - Lehman Brothers

Yes. Are you going to be taking anything from there?

Takao Yuhara

Yes, and we are taking those LCD panels from line two’s, and quite big quantities, but I am not personally sure how much the quantities come from them, but we are taking quite a big number of the LCD panel from the second line of Samsung, yes.

Olga Levintan - Lehman Brothers

Do you plan on expanding your outsourcing to the Taiwanese panel makers, as TV demand ramps into the second-half?

Takao Yuhara

Yes, that is right, and we take 50% from first line, which is under SLCD joint venture, and then another 50% is mainly from the second line of Samsung electronics and also Taiwanese manufacturers who supply us you know the [inaudible] SLCD TVs, yes.

Olga Levintan - Lehman Brothers

Thank you.

Jonathan Bates

Thank you very much, Mr. Yuhara. With that, I would like to move to our next live caller please, Operator.

Operator

Our next question comes from the line of John Taylor of Arcadia Investments Corp. Please proceed.

John Taylor - Arcadia Investment Corporation

Two things, quickly, the reclassification of royalty income into above the line. Could you quantify how much that contributed to the electronics division profitability, specifically in the first quarter? That is the first question. Then, I wonder if you could give us a quick update on the status of PSIII development issues. Are the beta kits available, and are they out there? Do we have final dev kits available? Second, when will we get more information on Sony’s online game strategy? Thank you.

Takao Yuhara

On this royalty income, mostly in the electronics segment, which is more than 90% here, so that is what we have recorded as royalty income.

Jonathan Bates

Could you remind us of your second question? I think you were asking about development kits being sent to game developers, right?

John Taylor - Arcadia Investment Corporation

Yes, I am looking for the status. Do we have complete betas out there? How would you characterize the latest version that is out there? Maybe more importantly, when will we get more details of Sony’s online strategy, because most developers are still trying to figure out exactly what components they are going to be able to put in games for the fall.

Takao Yuhara

In the software issue, Sony Computer Entertainment should announce in the appropriate timing. Could you kindly just wait for their announcement?

You mentioned the online game strategy?

John Taylor - Arcadia Investment Corporation

Yes, the timing of when we will get more details of what is available when.

Takao Yuhara

In May, we just announced that the PSIII is more to the online, which you can have those game contents online, but as you know, since the involvement is very important, and this is not immediate, but again, I should say that the Sony Computer Entertainment will provide this involvement and they [inaudible] continue at an appropriate time.

John Taylor - Arcadia Investment Corporation

Thank you.

Jonathan Bates

Thank you very much for calling in today, John. Operator, I think we have time left for one final question.

Operator

Thank you, sir. Our last question comes from the line of Russell Robelspom of Walter Scott & Partners Limited. Please proceed.

Russell Robelspom - Walter Scott & Partners Limited

Just a clarifying question on something. I am just trying to understand what you said a few moments ago about the LCD TV numbers. You said that the numbers were up 3.5 times year on year in the first quarter. You said that they were in line with your projection for the year, which correct me if I am wrong, is 6 million. Is that correct?

Takao Yuhara

Yes.

Russell Robelspom - Walter Scott & Partners Limited

Does that mean that we have 1.5 million in the first quarter, or does it mean that you expect some further growth in the rest of the year, and what growth are you expecting for the rest of the year to meet targets?

Takao Yuhara

No, you cannot divide by 4, because the third quarter is a high season, so therefore we end up with more, you know, the quantity, to be [inaudible] in the third quarter.

Russell Robelspom - Walter Scott & Partners Limited

Do you expect any continuing growth? How stretched is the target? Do you expect continuing growth year on year at the 3.5 times level, or is it more sedate?

Takao Yuhara

As you know, 3.5 times means that the first quarter in the last year was just before the [inaudible], so therefore this is rather difficult to compare as apple-to-apple, as you know. Therefore, in [inaudible], we are going to, you know, we would like to achieve this 6 million unit as our target for this year.

Russell Robelspom - Walter Scott & Partners Limited

Thank you.

Jonathan Bates

Thank you very much, Russell. With that, I would like to conclude today’s conference call and thank everyone again for joining us today. Also, I would like to thank Mr. Yuhara and Mr. Wiesenthal for also joining us today. Lastly, I would like to take this opportunity to remind everyone of our investor relations contact information. In Tokyo, investor relations can be contacted at 813-5448-2180. In New York, Justin Hill and Mickey [Amura] can be reached at 212-833-6722. In London, Chris Holman and Shinji [Someta] are available at 44-207-444-9713.

Again, thank you very much for joining us today. That concludes today’s call. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference call. This does conclude your presentation and you may now disconnect.

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