Q2 2013 Earnings Call
October 31, 2013 4:30 am ET
Masaru Kato - Chief Financial Officer, Executive Vice President, Representative Corporate Executive Officer, Director, Member of Compensation Committee and Member of Nominating Committee
Kota Ezawa - Citigroup Inc, Research Division
Yasuo Nakane - Deutsche Bank AG, Research Division
Takashi Watanabe - Goldman Sachs Group Inc., Research Division
Masahiro Ono - Morgan Stanley, Research Division
Junya Ayada - Daiwa Securities Co. Ltd., Research Division
[Japanese] Thank you for waiting. 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 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 the annual forecast will be presented by Mr. Kato and also overview of the segment results, and the forecast will be presented by Mr. Hashitani. And then we will have time for Q&A.
Mr. Kato, you have the floor.
[Japanese] Thank you very much. I will begin by explaining the consolidated results for this quarter. Consolidated sales increased 11% year-on-year to JPY 1,775.5 billion. This significant increase in sales was due to increase in unit sales of smartphones and the favorable impact of exchange rate. 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 the slowdown of emerging market economies. Consolidated operating income of JPY 14.8 billion was recorded. This JPY 14.8 billion was recorded, and this decrease, year-on-year, was due to a decline in the operating results of the Pictures, Imaging Products & Solutions and Devices segment. Net loss attributable to Sony Corporation's stockholders was JPY 19.3 billion.
I will now touch on the forecast for fiscal 2013. Assumed foreign currency exchange rates for the second half of the current fiscal year are approximately JPY 100 to USD 1 and JPY 130 to the euro, this remains unchanged from our previous forecast. Consolidated sales for the current fiscal year are expected to be JPY 7.7 trillion due to a downward revision in the annual unit sales forecast for certain electronics products. Consolidated operating income is expected to be JPY 170 billion, JPY 60 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 4 electronics segments, including Game and the Pictures segment, are expected to be below the previous forecast. Net income attributable to Sony's stockholders is expected to be JPY 30 billion, JPY 20 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 our stakeholders to better understand Sony's entertainment business. I have -- we have enhanced our disclosure in 3 ways: First, from this quarter, we have established pathways in the Pictures and Music segment and have disclosed sales to external customers on a quarterly basis. The 3 categories in the Pictures segment are Motion Pictures, Television Production and Media Networks. The 3 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 segment, but all segments. We think this will enable an easy calculation of EBITDA to be made.
Third, we have disclosed supplemental information regarding the entertainment businesses on our Web site. This information contains, as in slide, the box office revenue of films released during the quarter and a list of upcoming films 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 U.S. dollar sales and operating income of Sony Pictures Entertainment, which consolidates its global subsidiaries in dollars, since 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 21 at Sony Pictures in the U.S. We will also be holding a business briefing for investors in Tokyo on November 26, where the highlights of the U.S. event will be presented.
Next, I will have Hashitani explain our segment results.
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 & Solutions segment. IP&S segment sales decreased 7%. Although there was a favorable impact of exchange rates during the current quarter, overall sales decrease are primarily due to a significant decrease in unit sales of video cameras and compact digital cameras, reflecting a contraction of the market. Operating loss for the quarter was JPY 2.3 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 a 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 the negative impact of the decrease in sales, but on a year-on-year basis, operating income is expected to increase significantly.
Let me add some comment 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 differentiation of our products to adapt to the market trend. We have -- we are working to increase, in the process, and improve profitability of digital cameras by strengthening high value-added products, such as high-end compact RX series and our first full-sized mirror-less camera, Alpha 7 series. In addition, the lens-style QX camera series, which was announced last month, is receiving critical acclaim. This entirely new concept makes possible high-resolution and rich images when combined with smartphones and will create a new market for this style imaging camera.
Next, Game segment. Sales increased 5% year-on-year, primarily due to the favorable exchange rates. Operating loss was JPY 0.8 billion. This was due to the impact of a strategic price reduction of PS Vita, an unfavorable exchange rate primarily offset by the increase in softer [ph] sales, but there is no change from the August forecast for sales and operating income in Game segment. Preparation for the introduction of PlayStation4 are progressing steadily around the world. We aim for the new PS4 platform to contribute to profitability at an early age [ph] by diversifying its revenue streams through various network services based on PS network and by offering rich user services.
Next is Mobile Products & 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 result. 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 JPY 22.2 billion year-on-year to JPY 0.9 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 PCs, but on a year-on-year basis, sales are expected to 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 since -- globally since February of this year, in September, we globally launched our new flagship smartphone, Xperia Z1, equipped with a leading-edge image sensor and that have caused quite a stir globally. And Sony Mobile will roll out appealing products of smartphones and Tablet Z that combine the technology and management resources of all of Sony to try to improve the -- its operating results.
Now Home Entertainment & Sound segment. This segment's sales increased 12% year-on-year to -- because of the positive impact of exchange rates. Operating loss improved JPY 3.7 billion to JPY 12.1 billion. This improvement was due to a decrease in restructuring charges and an improvement in Televisions 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 Y-o-Y 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 JPY 174.1 billion despite a decrease in unit sales, thanks to the positive impact of ForEx and an improvement in production mix shifting to high-value-added products. Operating loss, excluding restructuring charges, improved JPY 0.9 billion to 3 -- to JPY 9.3 billion due to the improvement in product mix and reduction in expenses. We have revised downward our annual unit sales forecast to 14 million units from 15 million, projected in August, due to a cautious view of economic uncertainties from the third quarter in developing countries like Central and South America and Asia [ph].
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 product business sold in September last year, partially offset by a positive impact of exchange rate and significant increase in sales of image sensors for mobile phone. Operating income was JPY 11.9 billion. Despite the favorable exchange rates, 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 recoveries from the floods 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 decreased unit sales of System LSI for the Game business. Operating income is expected to be below the August forecast due to the decreasing sales, and we expect operating income to decrease year-on-year.
Factors that led to the changes in operating results of electronics are shown here: exchange rate, JPY 19.5 billion; a price decline and demand decline, JPY 33 billion; cost down and [indiscernible], JPY 35 billion; others, JPY 21 billion. The total inventory for 5 electronics segments at the end of September increased JPY 111.2 billion year-on-year to JPY 862.2 billion due to the depreciation of the yen. Inventory increased JPY 110.6 billion compared to the end of June. Inventory has improved -- increased compared with the same time last year. However, we believe there is no problem with the current level because 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 an operating loss of JPY 17.8 billion that was recorded. The increase in sales was due to the depreciation of the yen against the U.S. dollar. On a U.S. 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 U.S. dollar basis also, sales of the Television Productions 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 Spider-Man. 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 U.S. 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 the 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 8 -- JPY 1.8 billion year-on-year to JPY 9.7 billion. The major increase in sales was due to the depreciation of the yen against the dollar. And on a constant-currency basis, sales were essentially flat. Visual 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 cost 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 the full year, there is no change from the August forecast for this segment.
Next is the Financial Services segment. Financial Services revenue increased 6%, and operating income increased JPY 8 billion to JPY 39.2 billion. Both sales and operating income for the segment -- in this overall segment increased significantly due to significant improvement in the 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 expected -- exceeded our expectations, and we expect operating income to increase year-on-year.
This ends my explanation. And as you've just heard, we've had to make downward revisions, unfortunately, but -- analyzing this, it's the electronics segment and traditional -- or the conventional AV/IT business. The business is very challenging and severe. The situation continues. So that's basically a business and economic reason, and also the situation in respect to the -- in the market, the market reasons, and also competitive environment. But TV, PC, digital cameras and camcorders, we have decided to revise the forecast. The number is down, and with that, we are revising downward sales and operating income numbers. But in the meantime, since last year, in the AV/IT [ph] business, the areas that we've identified as the core businesses in mobile, game and digital imaging in these areas, since last year, we have been concentrating our management resources and the results of having done so have appeared in this quarter. So that's one bright spot -- or one bright piece of news.
To be more concrete, in mobile business, we launched the Xperia Z in Spain, which did very well. And now we have the successor to that model, Xperia Z1, that's brought to the market just recently. And again, it's doing very well. It's a very encouraging response that we've gotten from the market.
And in November -- starting November, in the U.S. and U.K. market, PlayStation4 will be launched. Currently, we only have a limited information, but given our experience in the past of introducing new platforms, we can say that this time around, there is a very high response. The level of interest would be high because it's very much a network-oriented game device and the -- socialized sort of game playing is accommodated and therefore, expectation is very high.
In digital imaging, we are losing users and 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 co-exist, to so speak, with the smartphones, this imaging that is compatible with the smartphone's system. In other words, we introduced 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 the last year. And as -- yes, we have challenging businesses and we have to turn them around to be -- to make them profitable. But in the days ahead, particularly after next year, we hope these businesses that will be drivers of increased profitability, and we're all continuing to work very hard on realizing that.
As far as TV business is concerned, again, thanks to all the initiatives that we made for the full year, the profit line saw a significant improvement. So 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, toward 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.
And so as PC is concerned, the market is expected to contract significantly. So the annual unit sales forecast of VAIO has been revised downward but -- and therefore, some time in the future, we believe that the business will continue to be tough. And 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 as far as significant Financial Services are concerned, they are steadily contributing to profit, doing well.
Pictures. As I said, in 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 that we placed. So in the second half, on the momentum of these, we will continue to work very hard. And therefore, the Pictures business, the -- I just talked about the Motion Pictures business. But in other categories of this segment, Television Productions and Media Networks, there, we are continuing to expand our business and are seeing the growth in this business. We will focus our resources in these areas while working on general reduction of our costs. So the P&L for this year, even though we revised the numbers 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 are going to host an Entertainment Business Investor Day next month. And during that time, we'll be giving you a bit more detail about these developments. Thank you.
[Japanese] 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 will be a consecutive interpretation into Japanese and answers will be given in Japanese. And please confine the number of questions per person to 2.
Well, before entertaining the questions, I would like to explain one aspect to you in a 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 JPY 5 billion; Game, plus JPY 5 billion; HE&S, minus JPY 5 billion; Pictures, minus JPY 10 billion; and Financial Services, plus JPY 5 billion; others, plus JPY 15 billion. So as you see, this is the ups and downs compared to our earlier forecast.
And in addition, there is one other aspect we announced during the first quarter announcement and we announced the unit sales. And 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 top, video camera, JPY 2.5 million; digital camera, JPY 12.5 million; and smartphone, unchanged, the same; PC, the August forecast was JPY 6.2 million; and LCD, JPY 15 million; and Game, JPY 10 billion, the home console hardware. And then PS4 unit sales is added from this time onwards compared to first quarter. And the mobile tablet hardware, unchanged -- and software. Last time was JPY 319 billion, and this time, JPY 360 billion. That is because the PS4 software is included; semiconductor shipment, JPY 490 billion. And the CapEx remains unchanged. So this is the supplemental explanation.
Now those of you with questions, please raise your hand. The front row in the middle of the room.
Kota Ezawa - Citigroup Inc, Research Division
Ezawa of Citigroup. My question, addressed to Mr. Sato, one. Another -- this item, Mr. Hashitani or Mr. Kato. The first point, the business development and growth area going forward, and financially, you would need to allocate some resources and the Media performance is one. But a growing area, like Game or smartphone, I'd like to ask you some questions. Smartphones, you are thinking of making new roads 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 concerning the Game business, Mr. Kato earlier mentioned that the PS4 has a higher affinity with a network arrangement and then you will have a network of servers. And what would be the CapEx for such? And in total, will it pose a major cash issue for the capital position of Sony going forward? And in this connection, further, if a part of the electronics business -- well, these are still camera, stagnant, and PC TV also are not that well, then the conventional CE segment or just if 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, then what about the investment into new businesses? Because restructuring or working as a constraint, do you think you may be restricted to making investment in new areas of growth?
Many questions. The first question, about the investment in growth areas and what about the funding, and most likely, we will need resources especially for Game and smartphones. What are the specifics there? Well, with specific numbers and what -- at what time and how much we need, we are not in position to 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, lighter 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 burden is lighter. But then going forward, if we deploy a network business further and investment required there -- well, last year, we acquired a company called Gaikai and placed a foundation for cloud businesses going forward. And when we introduced that into the business and we expand our network businesses, then the investment to server, we might need some. But in terms of size and scale of required investment, like in the past, when we started the 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 servers 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 with 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 resources. 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 businesses through M&A. But at the moment, we do not have any specific cases as such. So it all depends on specific timing and of how much funding would be needed about the smartphone and not the CapEx. But simply, if you start selling devices in the U.S., you'll need a capital -- a working capital like the investment in inventory and marketing. Well, our business in the U.S. in smartphone is not that big in terms of market share. In terms of regional development, we would like to look at the U.S. 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 the second point, I think I answered. With the second point, I like to go ahead in answering and I'd like to ask Kato-san to supplement, if necessary. So the legacy business, DI and PC, you cited as 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, our direction for DI business is to shift further to high-value added products. And on the other hand, to -- in the area where the smartphone has encroached, we have our smartphone business. So smartphone business of ours can absorb that aspect. In other words, basically, shifting of engineering resources, we can do internally, and for R&D. If we go further to high end, the B2B areas are 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 will be to the tune of TV restructuring, but the PC business has an entirely different structure as TV business. Apart from the specific direction we pursue, well, I would say that, of course, the impact may not be 0, but the size or the magnitude of the impact would not be as much as the case of TV. So by taking specific measures -- proactive measures, then we can work to grow a smartphone and Game, and that would not constrain growth of Game nor smartphones.
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 capture of the images -- the better capturing of the images. There are such needs. In another non-consumer business -- so securities camera is another with a growing market and very promising. So we can shift our resources there. And as just 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 -- will there be the -- if the existing marketing forces would lead to a higher growth areas, then if necessary, we will make some adjustment there and improve on that. And in PC, you mentioned -- cited an example of a TV restructuring. It is different by the nature of business. In case of a TV business, we worked very hard. But in terms of the rate of asset, it's very different, the PC business. It's not that we conduct -- we produce the parts and components internally. We leave manufacturing to a large extent to EMS although we do our manufacturing. But in case of TV, we have 13 manufacturing locations. We reduced that down to 4. And the process of reducing that was much harder and heavy and very different from the case of PC. So in terms of our perception, we think there is need for a 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. [Japanese] Next question?
Yasuo Nakane - Deutsche Bank AG, Research Division
Nakane from Deutsche. Two questions, first point, JPY 60 billion downward revision, I would like to know the breakdown by category and the difference between the former plan and the present one. And you talked about developing countries or emerging countries, which amount to JPY 20 billion. How did it change? The second point is Game business, PS4 hardware and software, of course, you tried -- you do not change any numbers, but what about your view about emerging markets? In 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 plan.
I would like to take up the third question first. No, regarding Game, profitability of PS4, I touched upon it in my presentation. In terms of range, it's different from PS3. It is a light platform, which requires less investment. So we would like to turn it to a profitable business earlier. And I said diversification of revenue sources. We shift closer to network. So downloading game and -- but selling -- by downloading games, we are still doing it, but we also have revenue source of subscription model of PS -- from PSN, Plus -- yes, even when PS3, we have been giving value-added services, but in PS4, I think we can expand the sort of business and advertising business. I think there are various sources of revenues. We would like to expand -- and we would like to pursue that possibility as well. And you -- we're talking about the impact of exchange rates on Game -- the major impact of exchange rates on manufacturing in the Game business. So far, of course, certain semiconductors were internally manufactured, but the assembly, at the time of launch, we manufacture them in-house. But the ramp-up and the increase of cost has been actually manufactured in other countries, such as China. So if the yen depreciates, there will be a negative impact. And this trend will not -- the 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 JPY 10 billion impact on sales, as well as on operating profit compared to the previous plan. [Japanese] Second row on the right-hand side.
Takashi Watanabe - Goldman Sachs Group Inc., Research Division
Watanabe, Goldman Sachs. I have 2 questions. So first of all, about entertainment, if you can comment on this, please. So it's been said 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 in network business as high as 40% that others are doing. So why are your numbers so low? If you have comment about that, please give us that. And also, second point is related to Mr. Ezawa's question this time. Smartphones and PS4 and [indiscernible] the applications, some edgy products and then it's positive news that they are very competitive, particularly compared to the situation 1 year ago, but the conventional and traditional lines of business, the business environment is very tough. And this year, you benefit from ForEx deterioration. But aside from that, the digital businesses, both sales and bottom line are down as I look at your numbers. So some of it performed well, but those which are not performing well now are going to see further deterioration, it seems so, plus or minus, it will be neutral at best. So next year, I think the sales revenue from these conventional businesses will continue to decline. So even though you may perform well with a new product, the net results will be, at best, even. Now in time, 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 realize overnight. So this conventional business, it's not transparent. What are you going to do next year? Can you give us some information in terms of actions that you'd be taking for us to be convinced that your profits from the conventional business will be up next year?
First of all, entertainment business, the margin, you say is low compared to what our peers are doing. It's been pointed out. Now if you conducted detailed analysis, the business structure, the business model, may be different. So it cannot be a direct comparison. But aside from that, we will -- regularly, we will enforce to improve our greatest margin like in other lines of business that Sony has. I'm not happy with the current level of the margin -- profit margin, and the management at Sony Pictures share this mind. As to specific measures and actions that may be taking, we are not going to talk about that today because on the 21st next month and on the 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, results will be neutral, and going forward, there does not seem to be any momentum for growth. You pointed that out, and we are aware of that. So as far as core businesses are concerned, I've been saying that we have concentrated resources into core competencies [ph] to make them even more profitable, and I've -- I think we've been achieving results. But in 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 is no time. Time is not on our side. And we've been considering some terms, and we're going to translate our ideas to more concrete forms or plans. And when appropriate time comes, we will be announcing it to you what will be doing in terms of concrete measures. Now as far as TV is concerned, 2 years ago, we are losing as much as JPY 140 billion. Last year, it was down to JPY 70 billion loss. And this year, our idea is to reach breakeven though currently, it's tough going. But the trend is that we are on the improvement -- track for improvement. So next year and onwards, on TV, we will continue to work to make -- turn this around and make it more profitable. Our CEO, Mr. Hirai, has been saying that if things go -- do not turn out to be what we are expecting, we will take some drastic actions. That sense remains the same. And for other business -- and there are many of other businesses, but in general, I think what is key is selection and the focus. So where business is shrinking, we have to make up our mind with a strong determination. Realignment of portfolio is the key. We've been doing that since last year. We may speed that up to realign our portfolio in a more accentuated way. When I take a macroscopic view, this term, in the first half, on a local currency basis, our revenues were down by 9%. So in traditional business -- declined traditional business are not even offset by growth in new businesses. So you need to work on the fixed cost. Fixed costs must reduce further because profits being down, you cannot absorb that with a reduction in your cost. Well, I cited an example of our digital cameras in terms of the structuring reform, and that's how we allocate our engineers, that in the working nonconsumer business or in medical field of business, that's possible. The AV/IT, the business, the market is shrinking now, and long term, Sony's sales in that line of business is declining. That's -- in fact, Device, 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, within inside company, in-house, we have initiated a cost reduction program even though I have not personally talked to you about that, largely, to an outside audience. But since August of last year, we started a cost -- a fixed cost reduction program for internal purposes in Sony. So efforts are underway, and efforts have borne fruit, though the -- such results of the efforts have not yet been disclosed. But I'll give you some size, JPY 80 billion of fixed cost reduction over a 2-year period. And this is what I've been saying to all the people in Sony as -- and also, I'm responsible for these affairs. I know today is not the appropriate time to be saying this, but JPY 80 billion in fixed cost over 2 years in fiscal '12 and fiscal '13, and we know almost for sure that we can achieve those reductions. Thank you. [Japanese] Next question is the person in the middle, the third row.
Masahiro Ono - Morgan Stanley, Research Division
Ono, Morgan Stanley. Two points, first question, during this quarter, the new plan, the operating income of JPY 170 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 JPY 13 billion, and it was not in your original plan. Now you changed the operating income for the current fiscal year to be JPY 170 billion, and that includes JPY 13 billion of M3 sales gain. And other than that, are there any additional asset sales you are contemplating? Or would this include the -- included in JPY 170 billion? So that's the first point. And the second point, TV business, initially, the annual sales unit of 16 million and coming down by and by and down to 14 million market situation, and in view of other manufacturers' plan, 40 million sales unit forecast, it may be challenging. So the actual result of 13.5 million to 14 million, that's about flat. And in order to achieve a profit, you initially mentioned that you have to increase the unit sales, but at this level, for the purpose of breakeven, is it -- 40 million is the minimally necessary to achieve breakeven? That may be difficult, but you have additional measures to achieve a breakeven or the profit. So your determination to achieve profit remains unchanged. Is that right?
First, asset sales, well, I just included our forecast. In your question, as you pointed out, the sales of M3, it was nothing -- it was not included in our original plan and...
Masahiro Ono - Morgan Stanley, Research Division
What about the original plan at the beginning of the year? And how was the -- what about the asset sales?
Well, as we mentioned, we will continue to work on the change of the business portfolio and also to secure funding necessary for our investment and also to make balance sheet further wholesome. So we will think of some transactions in terms of sales or mine of the assets. Now in the course of current fiscal year, asset sales will not still be 0, and some are continuing from last year. But last year, the asset sales was in excess of JPY 200 billion. But this time, we will not be that much for this year -- I can say that. And what's in, what's out? I am not in a position to disclose in specific terms, no, but our direction is as I mentioned. And about TV business, in a nutshell, the -- it is very challenging to achieve our initial goal. Well, in terms of the product, I can say, with the introduction of 4K -- and can we achieve a very big, sizable profit to 4K? Well, it is a flagship product in terms of excellent technology, where the -- most part of our business would be the high-value-added products of 2K LCD. And so in -- 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 will decline accordingly, so there will be back and forth and -- well, I cannot give you specific numbers, but it's still uphill effort, I have to say.
Masahiro Ono - Morgan Stanley, Research Division
Any -- is there anything you like to supplement?
Well, a point of confirmation about the asset sales. There will not be any additional asset sales, but -- for the revision, it comes from the business operation. For the asset business only we have announced already. The addition is just the one we have announced.
Masahiro Ono - Morgan Stanley, Research Division
But TV restructuring, you may -- you talked about DI, and Mr. Hirai has already made a improvement -- a commitment in improvement on TV. Is there any timing to determining what will become of TV business?
Well, the year-end sales season is a very big season, and we will do whatever we can, whatever is needed to achieve the maximum results. So the results of year-end sales will be one of the element for -- which will be taken into account. The time is running short. Maybe one last question, please. Please raise your hand if you have a question.
Junya Ayada - Daiwa Securities Co. Ltd., Research Division
Ayada from Daiwa Securities. Two questions, first question is close to the previous person's question. You've shown a slide, IP&S and HE&S, JPY 5 billion below the plan. Is it reflecting the unit sales decline in proportion to the decline in profitability? And in the second half, I think there is a downside risks for TV and PCs. That's what we believe, but is it because of the -- so 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 is an improvement of profitability rather significantly. Is it because of increased, I think -- 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?
About the first question, yes, IP&S and HE&S, a JPY 5 billion decline from the, actually, forecast. This is -- yes, unique sales have been -- have declined more than we expected. I think that is the right understanding. For the entire fiscal year number, as I have explained, we have reduced unit sales forecast for the entire year. So this is the factor that the operating profit will come down for the full year. And I can't -- 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 were selling quite well, especially software of PS3. And when we compare first quarter and second quarter, there is a cut of error of expenses. That's a partial explanation. R&D, what about R&D? We are not disclosing our R&D for -- by quarter, but we do not have -- 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.
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