Kazuo Hirai – President and CEO
Sony Corporation (SNE) Corporate Strategy Meeting April 12, 2012 4:00 AM ET
Unidentified Company Representative
Good afternoon ladies and gentlemen. Thank you very much for coming to this meeting. We will start the corporate strategy meeting. And the first will Kazuo Hirai appointed as President and CEO of Sony Corporation as of the 1st of April will talk about the corporate strategy under the new management structure for about 40 minutes and then answer your questions.
For Q&A session, Hirai will be a main person to respond to your questions but others will be joining in. the Executive Deputy President, Yoshioka and EVP, CFO, Masaru Kato, EVP is Chief Strategy Officer, Tadashi Saito, the EVP Nemoto as well as Executive, the EVP Kunimasa Suzuki they are all Corporate Executive Officers. And we plan to conclude this meeting at quarter past six. So, Hirai-san please.
Good afternoon ladies and gentlemen. Thank you very much for attending today's conference. Taking time out of your busy schedule. Before talking about the corporate strategy, let me say that two days ago we announced the downward revision to our earnings forecast and we are now forecasting a net loss of 520 billion yen for fiscal 2011. The news hit me hard and as CEO I take it very seriously. But at the same time, it strengthened my resolve to transform Sony. Now it’s the time for Sony to change. Since I was nominated President and CEO in February, I have received laurels of encouragement from investors, analysts, the press and other stake holders. They want Sony to change and to support Sony's process of change in transformation. So do the employees. They want to restore Sony to its former glory and go further beyond. Sony will change. I have fully dedicated myself to changing Sony. Everyone at Sony is standing together to make this happen and as a result, Sony will change. Today's corporate strategy meeting is organized too share with you how we will change and what we will do to achieve this.
The Sony Group is comprised primarily of three businesses, electronics, entertainment and financial services. Our entertainment and financial services businesses have stable business foundations and are both poised for future growth. However, the most present issue the Sony Group faces right now is the rebuilding and future growth of the electronics business.
The restoration of the electronics business will not come up out through easy fixes or tricks. Simply put we must attack our problems head on without delay and make plans to resolve our problems and execute those plans definitely and speedily. This is the only way to change Sony.
There are three points I would like to discuss about how to bring about change. The first is acknowledging the issues at hand. The second is the key initiatives to transform the electronics business and the third is the management's structure to execute these key initiatives.
First I'd like to discuss the issues facing the electronics business. There are four key issues that must be dealt with for electronics business to recovery. They are one; speaking of management decision making, two, making full cost and selective investment based on our long-term strategies, three, developing innovative products, services and technology. Four, taking the TV business from eight consecutive years of losses to profitability. These four actions are essential for Sony's revitalization and future growth.
How we'll go about making this happen, we will determine if Sony will be back. And whether or not we can do that lies entirely with Sony strength. They are, one, a business reach and brand reorganization that spanned a globe. Two, technological strength induced our imaging, gain and other fields. Three, content and business know-how in film, music and game. Four, and lastly, something I believe in very strongly, what I call the Sony DNA, the will and drive to generate new value that is in so many of our talented employees.
Sony has always been a company that used its entrepreneurial spirit to create never before seen products that stirred curiosity and assuring new eras of entertainment for so many people all around the world. This spate has not changed. It is my responsibility to create management foundations that allow each employee to make the most of the Sony DNA within them to address each and every one of these use that must be resolved and to continuously deliver results to prove this. This is key to the rebuilding of Sony which I like to talk about key initiatives for transformation.
Together with my management team, we have refined the key managerial transformation areas, I mentioned on February 2nd the day after I was nominated as CEO in to five key initiatives. It is through these five key initiatives that we ask out Sony core businesses and what it takes to succeed within them. This is the most important element in Sony's transformation.
Strengthening core businesses and turning around the TV business are particularly present and we have already started to take these issues and tackle these issues. Above all the world expects Sony to surprise them with attractive and innovative products and services things that represent Sony's return to glory are indeed that creates customer satisfaction is incremental in making this happen. Sony has great engineers breaking on reach portfolio of innovative technologies. We have taken great care to revamp our R&D to allow small and timely transformation of technology to new attractive products.
I will now go through our key initiatives. But first is the strengthening of our core businesses. Winning and clearly defined focus area is critical in transforming Sony. We have positioned imagining, game and mobile as these core areas and we'll focus on investment and technology development going forward in these areas. We anticipate that about approximately 70% of our total R&D budget will be dedicated to these areas. By growing these three businesses Sony aim to generate approximately 70% of total sales and 85% of operating profit for the entire electronic businesses from these categories by fiscal 14.
For digital imaging, for fiscal 14, we are targeting sales of 1.5 trillion yen with a double digit OP margin. We have redefined digital imaging within this Sony Group and it now consists of consumer use digital still camera, digital video cameras, interchangeable lenses digital cameras as well a professional use growth cost cameras and security cameras and image sensors within our semiconductor business unit.
Sony is reinforcing its development of image sensors, signal processing technologies, lenses and other key digital imaging technologies in which we excel. This is especially the case with image sensors where we will continue to make focused investment to expand sales and growth areas such as smartphones.
By leveraging these technologies in both its consumer products and provisional products such as security and medical we will aim to further expand its scope of digital imaging business and create attractive and differentiated products. We acknowledge that it is a realistic assumed high growth in digital still camera and digital video camera markets considering the growth of smartphones. However, we believe that we can maintain a large market share and stable profits in these categories.
On the other hand, the market for interchangeable lenses digital cameras is ruined and we aim to grow faster than the market by leveraging our unique technologies and thereby to increase profits. Furthermore combining these three business units has enabled us to create one platform for development, design and operations that connects the development of key technologies with product development and solution services and this will result in more efficient operations and more competitive products.
Unidentified Company Representative
Secondly let me talk about the game business. The game business includes PlayStation 3, PlayStation Vita and other hardware and their software alignment and the PlayStation Network platform. Our hardware and software provide exhilarating experiences and we plan to grow network services and three fields business combined in fiscal 14 we plan to achieve game business sales of 1 trillion yen with 8% operating profit margin. With the rise of casual and social games and smartphones and PCs, the game business environment is experiencing major changes even in this changing environment, we are determined to offer realistic and immersive entertainment experiences to our customers.
In game business we will target steady profits in the core game business and we also worked to spend in and expend the network services business, the two majors that we've sided already will be implemented steadily. The PlayStation business is a platform model based upon strong and competitive hardware. PlayStation 3 is in its sixth year and is now generating steady profit. We expect PlayStation 3, the newly introduced PlayStation Vita which we reported to the market last year and PSP which still continue to enjoy momentum in developing countries; they together we believe deliver substantial profit. And we are also bolstering our growing network services business and plan to increase sales of downloadable game titles and the subscription services.
We are planning to triple network service sales between fiscal '11 and fiscal '14. We are also planning to expand the lineup of PlayStation suite certified handsets including smartphones and other multi-use portable devices to reach new customers and further enhance our profitability.
The third area of focus is mobile products. For the mobile products business we are targeting fiscal '14 sales of 1.8 trillion yen and we aim to significantly improve profitability. Our smartphone business which is bolstered by the 100% consolidation now of Sony mobile communications will contribute to this improvement. The mobile product business includes our Xperia smartphones, Sony tablet and VAIO PCs.
A Sony mobile communications previously Sony Eriksson has always worked closely with the rest of Sony and used Sony's assets to develop hit products that are differentiated from competitors. Speedy time to market is essentially in a quickly evolving world of mobile products, improved management and improved management speed is necessary for Sony mobile communications to achieve a leading position in a smartphone market and we are already underway with measures to shorten the time from development to product launch.
We plan to reduce product development lead time for key models by more than half and as a result rapidly launch appealing and competitive products into the market. Also we are further accelerating the integration of our Xperia Sony Tablet and VAIO operations which will improve competitiveness in these groups by integrating mobile products into one operating platform, we expect to improve design, engineering and the sales efficiency, effectively allocate a personnel and thereby extract overall cost reductions. As you are all aware, Sony's music, film and game contents are being shared with our customers worldwide over the network and for this to continue and for to this be an entertaining experience, consumer electronics products must become ever more network compatible. This compares to smartphones is truly the hub of the network entertainment world as mobile connection speeds increase further and cloud computing becomes common place, the importance of smartphones will increase further at the same time nearly setting hardware will no longer suffice.
Here at Sony, we are developing products and business models that fully incorporate high speed networks and cloud computing. And Sony mobile communications is now a fully-fledged member of the Sony group, they can combine their communications technology and business knowhow with Sony's digital imaging and game assets, strong assets to create at launch, innovative mobile products that will support our aim of improving our market share. As a result of these initiatives, we are targeting smartphone sales in fiscal '14 to be double that of fiscal '11 levels.
In order to bring about these changes swiftly and management across the Sony Group, I announced change in the management structure recently. As of May 16th I am appointing Kunimasa Suzuki, Corporate Executive Officer and EVP at Sony Corporation to be President and CEO of Sony mobile communications.
The second key initiative is the rebuilding of our TV business. Our profitability improvement plan aims at bringing the TV business to profitability in fiscal '13 is already underway but from now on we will redouble our efforts to accelerate these actions.
And let me talk about initiatives to reduce fixed costs and to enhance product competitiveness. We are currently implementing restructuring measures and in fact restoring the TV business to health can all related cost reductions have been achieved since the end of last year following the dissolution of the LCD panel manufacturing joint venture with Samsung electronics and we expect to reduce fixed costs further through restructuring including further design efficiencies, reducing model counts and shifting to emerging markets. We are also trying to reduce our fiscal '12 model count by 40% compared to fiscal '11 while targeting fixed cost reductions of 60% from fiscal '11 levels in fiscal '13. In addition, we plan to reduce fiscal '13 operation costs by 30% compared to last year of fiscal '11 levels. Along with profitability improvement plans, we must enhance product competitiveness for future growth.
Talk of new user experiences and next generation displays is being heard as a commonplace. They are as a matter of course but as the volume zones still lies squarely in LCD TV, it is crucial must have perform well in this key sector and to that end we are taking steps to enhance the image and audio quality of a range of LCD TVs and take a line up to meet specific original market needs. We also are making strides in the development and commercialization of next generation display technology including OLED where we also are considering alliances and the Sony's unique product crystal LED display. We are also enhancing integration with Sony's mobile products and network services to bring about unique user experiences and drive hardware differentiation and enhance the attractiveness of Sony's television lineup.
The third key initiative is expansion of our business in emerging markets. We are determined to drive sales growth in the rapidly expanding emerging markets and have set a target of 2.6 trillion yen to be achieved in sales for fiscal '14. Sony has long been active in emerging markets and through detailed sales in the marketing plans executed on global basis, we have achieved a solid positioning the AV IT category.
As a portion of sales, we were aiming for AV and IT sales in emerging markets to represent 60% of total anticipated global AV and IT sales in fiscal '14. For instance in India and Mexico and other countries as you see here, Sony has secured the largest share of the consumer AV and IT market and this share is particularly strong for TVs and home audio products.
Sony's success in emerging markets is attributable to several reasons but we track local retail sales conditions accurately and it will keep tight control on inventory, conducting efficient operations and we introduce products tethered to local needs through solid product timing and marketing initiatives and we will also continue to leverage the Sony Group's entertainment assets including pictures, music and television networks to further enhance our hardware and marketing. And this is particularly true in India where Sony Picture's Television has achieved an industry leading position by operating multiple highly viewed television channels including last year the most watched Hindi language movie channel driving awareness of Sony as a leading entertainment company contributes to both the growth of our product sales and to Sony's (inaudible) in India. With success stories like these we continue to work to deploy our group lined assets to other emerging market nations in order to grow our sales there as well.
Next, I'll touch upon the fourth initiative creating new businesses and accelerating innovation. At Sony we are pursuing ever faster innovation based on our mid to long term strategies as all this differentiating technology generates in our products.
And today I will share with you what we are trying to do in both creating of new businesses as well as accelerating innovation. First, we are talking about new businesses. One example is medical business. Medical businesses are great example of new business creation. Our current medical business consists of medical use printers, monitors, the cameras, recorders and other medical peripherals and for these products we are targeting if its reporting sales of 50 billion yen, that Sony also plans to enter the market for medical equipment components where at strength in various core digital imaging technologies are for a significant competitive advantages in applications such as endoscopes. Furthermore, Sony tends to enter the life science industry where we can leverage our expertise and technologies such as semiconductor lasers, image sensors and micro fabrication. To that end, we acquired iSight a manufacturer of several analysis equipment and Medtronics which manufacturers medical and diagnostic equipment and Sony tends to continue to aggressively pursue other M&A opportunities that are for scope for further medical business expansion consistent with Sony's own strength with aim of developing the business in to key of Sony's overall business portfolio with a mid-term annual sales target of 100 billion yen.
Unidentified Company Representative
Next I will discuss our 4K initiatives which are the fine example of accelerating innovation inspiring and moving people through beautiful imagery and sound has always been the key at Sony. We are now aggressively promote the growth of the 4K format which has four times the resolution of full HD for professional and consumer high end products.
4K technology is one of Sony's strengths and we have already launched 4K compatible digital cinema projectors as well as the CineAlta F65, the industry's highest resolution motion picture camera with professional use editing products and consumer use the projector already in our lineup. We are delivering an ecosystem of 4K products. Going forward, we will expand and enrich our compatible 4K professional and consumer use product lineup.
The fifth and last initiative is we aligned the business portfolio and optimizing resources. The purpose of realignment is to accelerate selection and focus of businesses and strengthen the investment in key initiatives and new business areas. We plan to focus our investments in our three core businesses, digital imaging, game and mobile as well as the medical business that I described. Other existing businesses or areas will be evaluated according to the following criteria so that Sony can determine the optimum strategy for this businesses including proactive consideration of alliances business transfer or spin-offs in order to optimize its overall business portfolio. So those four criteria.
The first is they are loss generating have narrative operating cash flow or low revenue businesses and second if they have limited synergies with core businesses, three if commoditization is advanced and prospect for growth are limited and the fourth, if opportunities for revitalization in growth are better enhanced through collaborations with partners better than the independent operation by Sony. Sony has already agreed or is in demonstration to transfer the small and medical size display and chemical products businesses to external partners. Furthermore, Sony is also exploring possible alliances in the e-vehicle battery and energy storage businesses.
In addition to this business strategy realignment, Sony moves to strengthen its core businesses and resources to gross areas. If you will also restructure its headquarters, subsidiaries and sales company organizations in order to further enhance operational efficiencies. As a result of these measures Sony estimate that the headcount across the entire Sony Group will be reduced by approximately 10,000 in fiscal '12. This includes employees expected to transfer outside the Sony group as part of business transfer and other realignment resulting from business portfolio optimization.
Sony anticipates that many of these businesses will have future growth opportunities outside of the Sony Group and Sony will consider measures to a secure continuity of employment for employees of their new destinations. Sony is projecting restructuring cost of 75 billion yen in fiscal '12.
I will now discus Sony's new management structure to execute key initiatives. Through the new management structure, we intend to achieve Sony's transformation business speed for revitalization of electronics business. The key was for our new management structures are one Sony and one management. And to repeat, the Sony Group is comprised primarily of three businesses, electronics, entertainment and financial services as entertainment and financial services businesses have stable business foundations. The focus of today's meeting has been on the electronics business. The rebuilding and future growth of which the most pressing issue the Sony Group is facing.
There are the four key points to the new management structure before the electronic business. The first is that decision making and execution will be down swiftly and as one management. The second point is that bolstering of both our technology development and product IPO are essential to rebuilding our electronics business. Four gentlemen comprised my top management team, Masaru Kato as CFO, Tadashi Saito as Chief Strategy Officer, Shoji Nemoto as Head of Technology and Kunimasa Suzuki as Head of Products Strategy and they have joined me in making the rebuilding of our electronics business our top priority. It is particularly important that our technology development is intertwined with our product strategy. To that end, I have re-bunked research and development leadership by promoting two highly experienced and knowledgably engineers Shoji Nemoto and Tomoyuki Suzuki to Corporate Executive Officer. This not only allows for more efficient technology development for our existing product lines but will also will allow for the development of new conceptions and acquisition of future core technology in corporation with Mr. Kunimasa Suzuki, the Product Strategy Officer.
Thirdly, the management layer that separated our customer and B2B businesses have been eliminated so that businesses can be run under the banner of one management. This will improve our speed and also enhance mutual corporation within the Sony Group.
And finally, until now our medical related businesses have been scattered across several business groups. They have now been combined to form the medical business group which is being led by Executive Deputy President, Hiroshi Yoshioka. Furthermore Michael Lynton, CEO of Sony Pictures Entertainment will assume responsibility for both our music and pictures businesses effective June 27th. We anticipate that joint management of these two businesses will lead to our trove of entertainment assets being better utilized within the Sony Group which in turn will help us produce ever more entertaining user experiences.
I will have to repeat our key initiatives and KPI goals, once again. Strengthening our core businesses, turning around the television business, expanding business in emerging markets and also creating new businesses and accelerating innovation and realign our business portfolio and optimizing resources all under our new management structure.
Through the thorough execution of the initiatives, I laid out, in fiscal '14; we target sales in the electronics business to reach six trillion yen with an operating income margin of 5%. For the Sony Group as a whole we will target sales of 8.5 trillion yen with a margin greater than 5% as well as an ROE of 10%. And as I mentioned at the beginning of my speech, Sony always is industry leading entertainment businesses, highly profitable and popular financial services businesses and an electronic business that is set to be turnaround with digital imaging and game as established leading position categories will be like no other company and we will shine accordingly.
I believe that today I have explained the first step to how Sony plans to restore the electronics business and shift to growth. Furthermore the initiatives I laid out today should be considered as a baseline. We will continue to evaluate and consider additional initiatives.
I strongly believe the strategy initiatives I have laid out, no matter how well conceived and considered will be meaningless unless they bring about results. In other words I know that they only way you all will be satisfied of this true nature of this plan is if we successfully deliver results. Making this happen will require determination on my part and on the part of each Sony employee. But for Sony to be restored and to grow, we cannot shy away from difficult decisions and executions. Sony will not change unless we meet our challenges head-on, increase our business speed, revitalize our business portfolio and bring about innovation inspire curiosity in people around the world and touch our customer's hearts with our products and services. That is a goal for which Sony aims. Sony's employees and I stand together to make this goal reality. Sony will change. Thank you for your time.
Unidentified Company Representative
Now the floor is open to your questions. (Operator Instructions).
This in from JPMorgan. Thank you very much for this occasion. The key message I understand is the concentration on the rebuilding of electronics business.
Unidentified Company Representative
Had a hint of film, music and Mr. Lynton will be in charge the center in the US but why are we concentrating so much on the electronics business but at the same time divert your attention to the US. Might be a tough challenge to you. in actuality would you be more or less dedicating yourself to the electronics business and when it comes to entertainment of contents the business will be more or less separated from Sony so do have such a perception or the plans.
What I mean is that entertainment and content could not be fully monetized nor realized the full synergy. So, in your process of establishing management structure, did you discuss these aspects?
I think there were two points to your question. The first point. On my part for this presentation, this afternoon, I more or less centered my presentation on how to rebuild the electronics business. And when it comes to film or music where headquarters in the US and also we have Sony Music Entertainment Japan in Japan, such entertainment business is very important business for Sony Group. One of the core businesses, core aspect and in view of the appropriate allocation of managerial resources, we decided to appoint Michael Lynton to be in charge of film and music including music publication and as I mentioned during my speech, among entertainment business there will be one management and they work under one management to create a greater synergy.
So, concerning contents in entertainment, the questions is what we will be doing going forward. As I mentioned earlier when we look at the business portfolio it is an ongoing process and there is no sacrosanct area we will not touch, we cover all the areas.
And we are in the process of discussion and we do not have any specific ideas or appliance about the internet business or decided what to do but rather we will continue to talk about the future growth and development of business without any exception. Thank you.
The next question gentlemen (inaudible) is our Citi Group Securities, one question for you Mr. Hirai, core business versus non-core businesses, part of the discussion about selection and focus to be applying to your business and your time Mr. Hirai you are going to identify core and non-core businesses that’s a must for Sony, cannot avoid doing that. But in your presentation today talking about core businesses, the new focus areas, they are clearly identified. But non-core parts of your business potentially where you could for instance divest pull out, it wasn’t too clear.
So you could have probably be specific which business groups would go but what’s the vision or image that you have for fiscal '14 if the business portfolio needs to be switched, shifted in terms of the size of the assets and in terms of the headcounts or in terms of consolidated size of business. How much should be renewal or should I say reverse will we be looking for to happen within Sony in the next three years.
Well I cannot be specific about which business or which lines of business we subject to such a view, I gave you the full criteria that we would use to make decision about the future of the continuation of these operations.
So at this time you cannot say how many businesses are subject to this review or what we will be doing next year for instance is surely to give the specifics but one message that I would like to communicate to you is that core businesses that I talked about which digital imaging, the game business and mobile business and the medical business where growth is expected and of course the TV business where we are going to turn the business into profitability, that will be the core electronics. That will always be the central character of our operation to whatever we may be organizing ourselves and then we will think of other businesses.
(Inaudible) SMBC Nikko Securities. And you talked about the trend, the challenges and the traditional management and traditional Sony, what were the issues and compared to traditional management structure what would be the new change under the new management structure? Can you elaborate on that please?
So in my presentation I talked about the speed of management and focus in selection of the investment innovative the products and services and the TV businesses and those were the four the current issues that we must address and what are the difference compared to the past management. I think that was your question, and as I said, one management one Sony. And I should say the part of that the important concept.
So for business the issues what kind of actions we have to undertake? The first, we'd like to identity some I try to them and make decisions and once decision is reached, the only thing we have to do is execution. So that management speed should be the fastest possible and while we discuss the management team, that process is of essential importance and today, not everybody but we have the major members of the management team alignment among the management team is very important, myself, Hirai.
I will share the programs for the future and we will do that with speed and one decision is made, we will execute this immediately and that the vision is shared with the rest of the management team. And the people who are able to align joined our management team. So we have a thorough discussion and we'll have a very good communication internally and once decision is made, we will put that into the execution immediately and I think that is the things which are quite natural but we should do it quite solidly. So in addressing the issues I believe that that is a very important process confirmed.
And another important point is including myself, the management team shares very strong sense of crisis about the future of Sony and each employee has come to share the same sense of crisis and through different meetings and luncheons that I took with young people and I convey my vision but I also sense the essence of crisis and so rather than depending others to improve the company I think everybody including the mentioned members and employees initiative to improve the company.
Next question please and the right hand side of the room, the third one.
(Inaudible) of Morgan Stanley, thank you for this opportunity. Among the core businesses where you talked about three, digital imaging, game and mobile and in connection with numbers I like to confirm some aspects for mobile, mobile only. You say that major improvement of both stability and even though that is one of the three core businesses but you did not talk about specific number. Well to do the arithmetics, 85% of electronic business to come from core businesses and therefore mobile is simple arithmetics, the operating margin or the profitability will not be that much, 20 billion yen or 25 billion yen whether my arithmetics is wrong.
And for game you say 8% digital imaging through the operating margin. While mobile I think is business of great importance but you did not refer to that. Is it because you have a wide range in assuming the profitability?
Unidentified Company Representative
Now, I would like to ask, Kato our CFO to respond.
In the mobile domain of course it is a very important part of our businesses and a part of our core businesses as we mentioned and the current situation is very severe in stock but now Sony Mobile Communication is 100% consolidated and for fiscal 2011 Sony Ericsson had business in a very severe smartphone business and there is room to go further and how to review this is the management responsibility.
And in the mobile business, VAIO has a stable business foundation even though competition is severe in terms of sales and operating profit, it's not to still to digital about generating profit and also tablet is included in mobile and during the last fiscal year we launched the first product and we are just starting and profitability is not something we could be boastful of which means that the mobile domain is very important but in terms of profitability we have to work step by step with good products and services and the loss making one we will achieve turnaround and then the profitable one we will increase the profit margin. So there are still rooms whether major and that’s why we did not talk about, talk in terms of specific numbers.
I also have one question regarding mobile business, compared to fiscal ’11 in three years' time you are aiming at 700 billion to 800 billion revenue increase by that amount in three years.
So obviously smartphones and tablet, I guess you increase your share and yes you did give us these targets but can you elaborate on this, why again Samsung and Apple compared to them Sony you think will be to come with products which uniquely identifiable as Sony as own and also when now that Sony Ericsson is fully subsidized when time wise are there are we going to be surprised? If safely you can elaborate on these questions or Mr. Suzuki will answer that question.
Unidentified Company Representative
Thank you I will be in charge of mobile business and therefore I try to answer your question firstly.
Towards the fiscal ’14, what are the actions that we have specifically to pursue that growth and figures that he gave you before and the share? Well first of all, 1.8 trillion yen is the sales we are looking at, on the strength of PC, tablet and smartphones three so-called sleek, bolder mobile screens refer to them as three mobile screens and if you look at the statistics, these three segments have a direct figures based on some assumptions and I believe we start that have these three must be viewed in a dynamic way because you are talking about OS, the chipsets, operating systems or applications and also cloud computing, the speed of the (inaudible), how the ecosystem as a whole have changed. All those have to be incorporated in their calculations, people who have different views.
And this is no place for me to give your ideas to make this institution more complex, but fiscal '11, 750 million units have been floated, in fiscal ’14, smartphones, if the smartphone as we know have now issued growth, then we issued will be there to capture a double digit share.
In other words, fiscal ’11 Sony Ericsson if you use that as a basis, we will have doubled their business by then. In market share terms about 4% growth but in terms of volume of business it's doubled, we are doubling the size of our business. It's not just a pipeline because supporting this is the Sony convergence story that we have strength in technologies and assets which can grow to very fully in terms of our smartphone products which we are currently developing, going to develop and then we have the strength of Sony Entertainment Network which can be leveraged fully, region by region the story scenario will be different, but for instance, Xperia is strong in Japan and the top share in Android smartphones, in United States last we will have Xperia product available. The earlier figure I give you is a global figure and so the details should be broken down by visions but that’s the general picture.
And turning to your second question, which should probably be answered by Kunimasa.
Yes the second question, as you heard from Mr. Suzuki just briefly, first and foremost as a Sony Group we decided to acquire the full stake in Sony Ericsson. So it is fully subsidized now. It is a member of the Sony Group, Sony Ericsson or Sony Mobile now it is.
This is because we are looking at the future of our business to have users enjoy a full line of contents, all of them to use all kinds of different mobile devices that Sony is ready to offer because we see solid growth in this business and we need to take a significant market share to make a solid business. We had a strong commitment and strong desire that's why we decide to make this acquisition but there are of course challenges how can we improve time-to-market or how can we improve our relationship with the operators and carriers. Those aside, now that mobile is part of a Sony Group fully, we work on hardware improvement and software network businesses, because there are a lot of untapped or unused assets which can leveraged start up more.
So again, under the banner one management and one Sony, the things are way different from before in terms of discussions and engagement that we already by now.
Now this is time an opportunity to give an ideas about new products specifically but in the mobile space of business Sony can use all different kinds of assets that we have and there a lot of open possibilities and users will actually see them visibly, that’s a combination of content services that we bring to them so they will actually visibly see that was actually true.
My name is Reggie Mori (ph). And the way to interpret the KPI is that is my question and the study from sales up to the LOE. How far you have committed to those numbers and with that question from this change in foreign exchange those figures are likely to change. So with the figures which you are not able to commit very difficult for us to make judgment and so the reform of business the process the change in order to see the change clearly and inventory and headcounts and operating capital et cetera. Do you have any the clear targets that we can understand more visibly?
So now I would like to answer your questions. And answer to your question, for instance some of the management, the figures which are not shown during the presentation, we are not able to disclose but in the close of discussion there are many figures discussed already and the selection in focus and that is a process we will undertake and financially we have to formulate the plan which can be supported financially and of course there is limit to our financial capacity and for investment there are some already putting the place and others which are not projected yet for instance M&A over the next three years, we do not know when it occurs.
So financially we need to maintain the solid operational forecast. So we have to of course the receivable and the payable, we have to have a very good control of inventory and asset and also vertically and the asset like strategy is important in the mid-range plan, asset like strategy will continue to be very important focus.
And then focus and selection what should be included in the balance sheet. That is area we discussed but in which area for details I am not able to disclose. The cash is a very important the way for us to look at the operation. And if I may add, currently and the new management structure, we have conducted the meetings and discussions and Mr. Saito who is the CSO and Mr. Kato who is a CFO but I requested them is to provide us easy-to-understand dashboard.
And that is presented to all the business division and sales and marketing the division which get across the different operations and the mission of each business group needs to be accomplished and so where they are currently are located and so in order to understand that KPI should be set first of all and that should be shared by everybody and then discussion is held.
What is still lacking? What is excessive? And so or just like the dashboard, we are able to use the KPI to understand our positions easily and that but I request Mr. Kato and Mr. Saito and today we are not able to share that with you yet.
But that kind of dashboard with KPI figures, that will be made very clear and based on that we will always monitor the progress situation of the divisions and business groups and that of course turn out to be important way to judge accountability and that will be always monitored by Mr. Kato and Saito.
Thank you for this opportunity. (Inaudible) from Economic Research Institute. My question directly to Mr. Hirai. Now you are the CEO and from electronic centers and game and then you look at the overall business and some say that you may not be able to manage electronics with your background but you have experiences of managing CE and so I am sure you can turn over the current difficulty. So it's my endorsement speech but my question again now goes to game business.
Looking at the MRP numbers you are planning to generate profit in hardware then you have to sell it in large number with a lower cost and then you need software titles. And now we discussed with SEC people, we have not heard much about the software development. You continue to depend on third party developers. What's your view?
And concerning third party with the increase of social gaming and it's very difficult to invest 100 millions of yen for game development and what’s your policy and planning.
Now I think there are two questions in Mr. (inaudible) question yes it is a question and first point generating profits through hardware sales, maybe. I might have talked about this in that occasion in my presentation. Now in discussing a new platform, software or peripherals revenue, we could no longer depend on site revenue without generating a profit from hardware and we cannot survive on such model. I had a sense of crisis in my CDs and PlayStation Vita which is which is now available, accepted and popular.
So in case of PlayStation Vita we did our utmost to reduce the cost to the minimum extent and this is reflected on our business model. So I will refrain from talking about when the timing of it becoming profitable but the PS3 of the past, the relationship between hardware and the software and peripherals. The business model now is different, compared to the earlier PS3 in designing a PlayStation Vita. So the software peripherals and hardware, they are all expected to contribute to the profit. So that’s how we will make it and that’s how we designed the business model.
And the second point has to do with the third party game developers each third-party has its own business portfolio, so it's not for me to say rather they in terms of guidance or directions, but in some cases some of the game publishers in their product portfolio, the traditional cost of gaming including handheld terminals, they have the views of the market growth coming for the future and continue to make investment there and continue to publish game titles. And in some cases some have looked more to casual games in their investment decision. That may happen but also publishers, developers as we explain to you, the PlayStation suite is another opportunity for developing a new games. The casual game domain but the very much uniquely PlayStation and make inroads in there so traditional call games and the casual game domains. These are the areas, see we'll continue to cover both and we will solicit the active participation of third-party developers. Thank you.
(Inaudible) is my name. Concerning mobile business, will it be another case of TV business because in terms of competitive environment, a lot of similarities are there. What’s different about mobile and do you have any view, the first year maybe the last second year maybe profitable but TV has been losing money for eight years.
How and to what extent should the outcome in the next few years be different from your assumptions now for you to decide against continuation of the mobile business?
Unidentified Company Representative
Because I will be responsible for mobile business as such Sony Ericsson lost money last year. And FY ‘12 this year, this is very much a critical year and so I decided to take on this mission because there is a keen sense of a crisis, turnaround from losing money to making money. There is no quick fix so what I can do is to do just routine some of the things very solidly.
I will assume the position official on 16th of May but I think starting today I have a doubt, I have plans and ideas that I am thinking about as a submission in development and sales and marketing these two important parts of the business operation will be improved in other words, there is a lot of room for improvement there in terms of development, in terms of time to market, lead time required for development. I am not saying that we are disadvantaged compared to our internal sort of problem.
So converting from feature phone to smartphones which are completing the conversion process and last year 80% smartphones and this year we will be fully smartphones. So the development (inaudible) was a mixture of smartphone and feature phones but now we have a fully dedicated smartphone infrastructure. So looking seriously welcome reducing time to market on smartphones.
In terms of sales and marketing, the resources that we have maybe limited but we will make maximum use of resources to be most efficient in terms of operator engagement and also this will be bring Sony's assets retailing business will be backed up by Sony’s assets and these are very few things but they are looking, realize synergies between Sony's offering and Sony Mobile and by doing this tying the business around, we make it profitable as the new product development I mentioned some of them earlier.
So as somebody who is assigned with this responsibility, this is my vision. But let me have these words, your question was that we may repeat the history that we had with the TV. I mean how many years of loss making operations we will continue and maybe one question but do we have a solid scenario for growth, that's more important whether we draw a clear picture for growth.
And also I talked about the need for speed in management, when things don't move according to assumptions when results turn out what do we abide for, if these unexpected things happen then decision that we made properly so that we can turn the course around. As I said whatever actions we make will be translated to actions immediately execution, implementation will be done right away so let’s forget about how many years of loss making must be there before we change our course but whatever we decide it should be acted upon immediately is what I will say.
And then do we have roadmap for how many years or when will we become profitable and are we ready now to be able to reach that point in our road map but we are thoroughly discussing all that in detail so that whatever we decide it can be acted upon immediately, sorry to use these words repeatedly.
The speaker is off the microphone, so the interpreter can't hear his question. Let me answer that in terms of one of our business. As I said, as we have been saying, how we can make users happy in terms of products and to do that what are the elements needed or it could be technology, it could be contents, and we use all resources to bring them to bear and I know that Sony products importance be different, differentiation is possible and indeed in the European market new free models that we have available, we have some bit of trouble but they have actually received it very well so that they are actually short of supply.
And there is a lot of Sony technologies there in those products. This is an example of the usage of Sony’s assets so that we are fully competitive with our products in that marketplace.
(Inaudible) from Merrill Lynch. And my question focuses on TV. Over ADS you suffer the negative results and the reason for that is that the volume plan or unit price plan, rather than assuming the loss from the beginning because of the external environment change you suffer from the loss and I understand that you will try to reduce the fixed cost in order to turn into profit but it is always moves against your assumption in terms of price or the market. In the fiscal ’13 you plan to turn to profit but for the mid-year if you still have the deficit, are you going to reduce the cost further or you go in to alliance with other manufactures or as was really already asked, if you believe that you are not able to win.
If during the mid-year you find the big loss, you will make decision to restore from the TV business and at the very beginning you said that the time left is rather short and for TV industry moves against your assumption or projection and if you have a worst case scenario, what is your contingency plan?
Thank you very much for your question, allow me to answer your question. I think I have repeated the same thing again, but for fiscal year ’13 over two years I turned that TV business into profit and so Mr. Nomura and Mr. Thakagi who is the Deputy, the head, the what process, what roadmap, what position is needed in order to turn into profit by fiscal year ’13. So road map is formulated by them in order to address each individual issue and not only cost how to strengthen the product appeal is equally important.
So those issues are addressed by them and they conduct monitoring and so by the end of fiscal year ‘13 if the result takes place and if it moves against our forecast because of who the industry their external environment and what kind of contingency we should introduce and of course the cost-cutting or the strengthening of productive appeal and so the measures that we have to take but of course other options are also included in our programs therefore at this moment we are not able to tell the story about each contingency and whatever happens by fiscal year ’13, it does not mean that the even the situation is totally different from our roadmap, it will continue the TV, it is not the case.
And about TV, I think there are three steps involved. And first, the issue related to fixed cost and this applies to other companies if major loss occurs or try to reduce the breakeven point and 6% fixed cost the reduction and the reduction at breakeven point in order to make our operation quite flexible, that’s what we have to do and second point is how to go about increasing our added value and for instance the change the battlefield is our expression 4K is one thing.
So we make every effort to increase the added value and third, the step also time doesn’t allow me to go into details to change the business model and so we would like to take the challenge so that is what we have to do today but still if things are not successful, what we should do that is the heart of your question I believe. And among the three other core businesses TV is not included and for instance for other industries like the auto industry, there is a history of alliances and we always study the possibility and there seems to be follow the asset like strategy and we did not have LCD factory so for all that entry what kind of product strategy in that kind of alliance we have been studying.
But there is anything that we can announce to you at this moment no, there is nothing and that we can announce to you, we refrain from disclosing that to you as of today.
So the three steps in order are very easy-to-understand, but the remaining two I think will take more time, so the necessary for turning around but for Mr. Hirai and Mr. Saito, by reduction fixed cost by 60% for the new fiscal year third quarter, do you think you see breakeven as a visible target, is it something you have in your viewpoint otherwise increasing 4K or change of the models that takes time and you cannot count on the effects of those latter two to turn around the TV business but by the reduction of 60% fixed cost, do you think in the third or fourth quarters of the new fiscal year do you think you can bring the business closer to breakeven, is that the picture you have in your mind.
Well basically, as we discussed during November meeting, that is the fiscal 2011, we incurred a loss about for fiscal ’12 we were half the margin of loss during the current fiscal year, we are taking various activities and measures that includes cost reduction and also strengthening of the product competitiveness.
So we have already started with by taking measures and then for the current fiscal year, fiscal 2012 we will make sure that that the marginal loss would be a half of the previous year otherwise we will not be able to achieve the profitability during 2013.
Thank you very much. This concludes Q&A session.
Unidentified Company Representative
Thank you very much for coming to Corporate Strategy Meeting of Sony Corporation. Thank you again for your attendance.
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