Here’s the entire text of the Q&A from Sony’s (ticker: SNE) Q2 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Question-and-Answer Session
Operator
Ladies and Gentlemen if you wish to ask the question please keep on your touch tone telephone. If your question and answer has been answered or you wish to withdraw your question please press “*” follow by “2” please press “*1” to begin the end and gentlemen please stand by for your first question.
Jonathan Bates
First of all, we would like to an email question to start proceeding, the question is about the PS3. How many video game consoles are currently in development for PS3? First party Sony and third party?
Takao Yuhara
Well as we know the given little of things you know varicose varies from time to time. So I would like to just introduce the Japanese market. Sony Computer entertainment of course internally developing several titles for PS3, a new title for the Gran Turismo series. As you may know in the Tokyo game shows that we had about 500 titles in our developments for the Japanese market. And also about 70 software maker companies committed to develop for the Japanese market for the moment. So when those figures are available for other market and of course I would like to introduce you from. Thank you.
Jonathan Bates
Thank you very much Mr. Yuhara. I would like to move to one more email question, this is the question regarding restructuring of Sony BMG. The question is, when will the restructuring charges at Sony BMG come to an end?
Robert Wiesenthal
We had a very successful integration between the BMG Music Company and Sony Music Entertainment with accumulating over $400 million worth of cost savings that we enjoyed over the next year. In terms of restructuring I think, this fiscal year for Sony the vast majority of all restructuring cost would be behind us, there could be a small amount next year but predominantly the bulk of it will be done this fiscal year.
Jonathan Bates
Thank you. There was additional part for that email question, about restructuring charges of MGM?
Robert Wiesenthal
With respect to MGM, the integration between MGM, MGM operating as a virtual studio leveraging the Sony Pictures, that is the infrastructure for theatrical distribution and home entertainment. Distribution is going very well and we are very excited about the progress we’ve made there. Again like as with Sony BMG, we would expect that the vast majority of that restructuring be behind us in terms of cost by the end of the fiscal year as well.
Jonathan Bates
Thank you. With that I would like to move to a live question.
Operator
Your question comes from the line of William Drewry of Credit Suisse First Boston. Please proceed.
William Drewry
Hi, thank you I have a couple questions actually and I just can’t ask them all at one time. (1) I was just wondering if you could elaborate on the comment that you are airing on the cautious side, for the second half, just wondering if you are seeing anything in market condition in terms of pricing in electronics that makes you cautious and do you think you can hold your current market share and (2) the network Walkman launch, if that product is successful can that return the audio business to profitability and maybe just for more question for Rob, just wondering that with the marketing expense in the second quarter impacting the film division, will there better profitability in the third quarter a result of those firms being in the market and are having the market cost behind you? Thank you very much.
Takao Yuhara
I just answering your first question about the year end focus. And you know as we just announced this list in Tokyo, we have the second quarter results was better than what we anticipated in a global as well as the disclosure of the favorable difference. However, and we are just looking out to consolidate on the second half business particularly the Christmas and the year-end sales is a very weak, the business as far as cover on returns very important. Therefore we are very much anticipating those this season sales, however and we just can see those results, they are coming in January, so therefore this is just our collective look in this business for the third quarter onwards.
Robert Wiesenthal
If there was a question about marketing cost this year for the quarters and Sony’s Picture performance, was below our internal expectations driven largely by the wish dealt in a couple of films that we did not, get to where we really hoped it to be, while all of those the marketing cost are behind us, we really do have a full slate ahead so I don’t think there is going to be necessarily a breather in terms of expenditure but hopefully these films performed better, we are very excited about “Memoirs Of A Geisha”, “Zorro”, “Zathura”, “Fun with Dick and Jane”. So on the cost side we will, I think there will still steady marketing costs and we will do our best to make sure that these films perform their best as possibly can, next quarter though we will also, I mean during this quarter we will have difficult comparison for the next quarter due to the fact that we have Spider-man 2 last year which obviously was an outstanding performing film. That just keeps in mind as well.
Jonathan Bates
Thank you very much.
Takao Yuhara
Your question about Walkman A series, we are going to launch this in November in South East Japan and then this is just a start therefore it is too early to say for this product to contributing (1958) this year. However the audio business is, because of our personnel effort the differential efforts and I anticipated that this business will be profitable toward the end of this year.
Jonathan Bates
Thank you very much Mr. Takao Yuhara. I think we have another live question available.
Operator
Your next question comes from the line of Peter Boardman of NWQ, please proceed.
Peter Boardman
I was wondering if you could reconcile the cash flow statement where you have a large increase in amortization of film cost and then you have this big increase in film cost is a negative. I’m not sure, I understand that you had drop in your profit of films but it seems like the numbers seems a lot a larger here than, what is showing for the cash flow. I wonders sir, if there anything else?
Robert Wiesenthal
You kind of broke up towards the end of your question, the second half if you can repeat it again, we are just having trouble hearing it here.
Peter Boardman
I wonder if you can reconcile the cash flow statement on film cost with your profits on film. Could you have lost film for the quarter. On your cash-flow statement you have a big increase in amortization of film cost of 127 to Yen170 billion and then blowback in networking capital, increase in film cost, shrinkage from 127 to 218 I just sort of wondering how do you reconcile that with your loss?
Robert Wiesenthal
Well it is actually what you doing as your taking a right up, in the way the film accounting works is that when the film is not performing you really got to take that hit right as incurred. So that jump in the amortization is really a right off associated with the under performing films of that quarter.
Peter Boardman
And then the increase in film cost, the shrinkage is that for future film?
Robert Wiesenthal
No it is the same thing for the quarter.
Peter Boardman
Okay. So if you add those things up then they should equal out?
Robert Wiesenthal
I’m not sure what you mean by I equal out.
Peter Boardman
If you add them up then that should equal the loss that you are showing?
Robert Wiesenthal
Some goes to the P&L as well.
Peter Boardman
Okay.
Robert Wiesenthal
It is very difficult to just aggregate.
Peter Boardman
Okay. And then, when you look at your cash-flow and you are definitely not covering your dividend now.
Jonathan Bates
Okay, we have only a limited time today so I think we should be fair our other questioners today.
Peter Boardman
Just one last one. You are not covering your dividend, when do you think, what time would you decide to cut your dividend?
Takao Yuhara
We think, the dividend, year-end and also interim and there is no change of same amount of the dividend.
Peter Boardman
I understand but your cash flow is not covering your dividend therefore, maybe you should be cutting your dividend?
Robert Wiesenthal
There’s been a dividend policy in place for this company for quite sometime, we have strong adjustment in great credit, we’ve full access to the capital markets and the bank markets, there is no plans to make any changes to this dividend right now.
Takao Yuhara
It is also included in our cash flow statement. As you can see the almost bottom line of the cash flow business --
Jonathan Bates
I think we better move on with this, we have other questions available and at this time I think we’d like to re-prompt to call.
Operator
Ladies and gentlemen, once again if you wish to ask a question please press “*” followed by “1” on your touchtone telephone.
Jonathan Bates
Okay. We have one more email question. This question is about the restructuring meeting in September. At the restructuring meeting it was promised that you would give quarterly disclosure of KPI progress. This has not happened this quarter, why not?
Takao Yuhara
We planned to update the financial community on our decision over KPI progress from the third quarter. So therefore we will report you the progress in the January announcement, for the third quarter.
Jonathan Bates
Thank you very much Mr. Yuhara. Let us go another live question.
Operator
Your next question comes from the line of Jason Muenzen, Goldman Sachs, please proceed.
Jason Muenzen
Couple of good questions. You outlined the reasons for the losses in LCD TVs, you pointed that was a positive product for growth, your sourcing channels internally now seems like you should be well into profits there. (2) Can you breakdown the restructuring charges between redundancies, asset right-off or at least indicate what the key portion of restructuring charges are. And maybe a more strategic question, given the troubles in the pictures business understanding that there is a sub-comparable out there, but do you think there might be room for more industry consolidation, there?
Jonathan Bates
I just like to kind of reiterate your question just to check we are understanding it here, your first point is about reason loss in the LCD business right?
Jason Muenzen
Correct!
Jonathan Bates
And then second question is about the kind of mix and the breakdown for the restructuring and your third question was about the pictures business?
Jason Muenzen
Well it’s more strategic, regarding consolidation within film businesses overall and whether strategically you see more room for industry consolidation there?
Jonathan Bates
Okay may be we can---
Takao Yuhara
Let us talk about picture.
Robert Wiesenthal
Sure. In terms of, obviously it’s been difficult market for many of the studios in terms of box office revenues and pressure obviously in the home-video market and DVD in unit pricing. Obviously in the past there has been some consolidation in terms of our joint acquisitions of MGM, I really don’t see, in terms of large cap film studios, any real consolidation coming there. There are couple smaller studio is there like Lions Gate that are independently trading, that possibly could be sold at some point. But in terms of the big guys like WARNER, UNIVERSAL, ourselves and MGM and FOX, my bet is the over the mid-term, you are really going to see that, including Disney, remain with there corporate parents.
Takao Yuhara
Your question about LCD TV and up until now, particularly the learning size, earlier 40 inches, and though priced to be placed is a much, much faster than our cost reduction speed. So therefore currently we are, infact loss on this LCD TV. As we noted that the new series of Bravia TV and that we are expecting more—voice blurred We this Bravia and we just anticipated the cost reduction modalities and that there are channel from FLCD. And also there are more quantities are expected. So therefore the more the growth of Bravia LCD TVs into the market place, but there is Cluster DVD , that currently goes, but though the operation. In the fiscal year ’05 and we are trying to spend Yen140 billion, of which Yen 130 billion is retro mix. And Yen 10 billion for other assignment. But in total Yen45 billion is from the restructuring expense and the Yen95 billion low sense of improvement. So that is the detail of restructuring expenses in this quarter.
Jason Muenzen
In this quarter?
Takao Yuhara
No. This is a whole including the forecast.
Jonathan Bates
Thank you very much for your question, thank you Mr. Yuhara. With that I would like to move to another life like partition.
Operator
Your next question comes from the line of Patrick Gately of CitiGroup. Please repeat.
Patrick Gately
Hi. I just had a quick question about your guidance for production of hardware and software for PS2 and PS3. Can you talk about why you are raising the hardware guidance and not the software guidance?
Takao Yuhara
I am sorry the line wasn’t so clear. Could you repeat your question again one more time?
Patrick Gately
Can you hear me now?
Takao Yuhara
Yeah. I can hear you now.
Patrick Gately
I was just wondering talking about the PS 2 and PS 3 looks like you raised guidance for hardware, but not for software. Can you talk about why that is and what’s your production goals are?
Jonathan Bates
Your question is about why we’ve raised guidance for hardware but not for software.
Patrick Gately
Right.
Takao Yuhara
We are in the fifth year we have already announced our forecast as around $270 million in this fiscal year. So this quantity stays unchanged for the momentum. So that is the reason why I didn’t mention about the software.
Jonathan Bates
Thank you very much for your question. With that I would like to move to an email question. And that question is about “Blu-ray” “HD DVD”. Several former generations of “HD DVD” have not decided to sport both next generation formats. Why is this and can Sony and its partners now deliver on the single standard for the industry?
Robert Wiesenthal
We are very excited about the August report that has come out in recent weeks from all the studios. I think we’ve really had made more than tremendous progress, I think there is really been really a recognition of the superiority of the “Blu-ray” format with respect to level of interactivity provides the higher capacity. There is now an understanding out there that this is PC-friendly format and we now have Paramount Fox, Time Warner, Disney, Lions Gate, ourselves, our family of studios. So on a constant side we are clearly there in terms of why we can’t talk with a single format fro the industry, obviously we would like that and given that, that “Blu-ray” is an integral part of Playstation 3 and that is something that we’re obviously intending to come out in short order.
It is very difficult to continually change the specifications. At some point you have to kind of locked in. And that being said, we are very open and obviously understand the necessity and how good it would be for the consumers to have a single format. Right now we think the best format out there is ours and we will continue to work with all our partners in the hardware and the software businesses to ensure that we have a success on our hands. And so far we are very pleased where we are in this process.
Patrick Gately
Thank you very much.
Jonathan Bates
With that I would like to ask if there is any more live calls remaining in the queue?
Operator
Not at this time sir, there are no audio questions.
Jonathan Bates
Okay. If that is the case then I would like to end our second quarter conference call. And thank you very much for joining us.
Takao Yuhara
Thank you very much.
Operator
We thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.
Related:
- The prepared remarks from this call are here.
- All Consumer Electronics Stock Blog articles on Sony.
- A list of full conference call transcripts available on the Seeking Alpha Network.
- The complete list of consumer electronics stocks (and links to articles about them) covered by The Consumer Electronics Stock Blog.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!