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Sony Corporation (NYSE:SNE)

Corporate Strategy Meeting Conference Call for Overseas Investors

April 12, 2012 9:00 AM ET

Executives

Edward Reid – IR

Kazuo Hirai – President and CEO

Masaru Kato – EVP and CFO

Analysts

Daniel Ernst – Hudson Square Research

Takashi Watanabe – Goldman Sachs Japan Co.

Jeff Loff – Macquarie Capital Securities

Karl Hammond

Operator

Good day, ladies and gentlemen, and welcome to the Sony Corporate Strategy Meeting Conference Call for Overseas Investors. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Edward Reid from Investor Relations Department at Sony Corporation. You may proceed.

Edward Reid

Thank you very much for that introduction, Frances, and thank you all for joining us today, April 12, 2012 for the discussion of Sony’s corporate strategy meeting. We hope you enjoyed music from Adele’s 21 while you were on hold. I’m Edward Reid from the Investor Relations Department here in Tokyo and with me on the conference call tonight is Kazuo Hirai, Representative Corporate Executive Officer, President and CEO of Sony Corporation; Marx Kato, CFO of Sony Corporation; and Yoshinori Hashitani, the VP, Senior General Manager, Investor Relations Division of Sony. Thank you all very much for joining us. In just a few moments, Mr. Hirai will go over the main points of today’s announcement. Then we will be available to answer your questions.

Please be aware that statements made during the following remarks and Q&A session with respect to Sony’s current plans, estimates, strategies, press release and other statements that are not historical facts, are forward-looking statements about the future performance of Sony. These statements are based on management’s assumptions in light of the information currently available to it and therefore, you should not place undue reliance on them.

Sony cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. For additional information as to the risks and uncertainties, as well as other factors that could cause actual results to differ, please refer to today’s press release, which can be accessed by visiting sony.net/ir.

Let me remind you that a webcast replay of the meeting held earlier today, along with the slides presented at that meeting are available on our website for your access.

With that, I’m now going to turn to today’s announcement and hand you over to Mr. Hirai.

Kazuo Hirai

Good afternoon, good morning and good evening, everybody, depending on where you are. This is Kazuo Hirai. I’d like to just make several opening comments before we move on to taking your questions and hopefully, you have the opportunity to review the press release and the presentation materials or have had the opportunity to perhaps view the video already. But I just wanted to spend maybe five minutes or so just going through the highlights of what was discussed at the Corporate Strategy Meeting here in Tokyo earlier today.

First, I talked about the key initiatives, five key initiatives that we will be focusing on to transform and turn around the electronics business, and I’m not going to go into detail on each of these, but just to highlight them in bullet point form.

Number one is strengthening our core business, which we have defined as the area of digital imaging, which also includes the image sensor business that we have on the semiconductor side, as well as obviously all of our consumer digital imaging products as well as our professional digital imaging products. Number two is the games business, obviously the PlayStation business PS3, PlayStation beta launched earlier this year in the European and U.S. markets, late last year in Japan, and also continuing strong, especially in the emerging markets, is the PlayStation Portable. The other area of focus is the mobile space, which includes obviously the Sony Xperia smartphone business, the Sony Tablet business, also the VAIO PCs.

The second key initiative is something that I’m sure everybody is very focused on, including ourselves, obviously, is bringing the TV business back to profitability. And as I outlined back in November of last year, I believe, we have embarked on a two-year plan, which has us returning the TV business back to profitability by the end of fiscal year 2013.

The third key initiative is growth in the emerging markets, where we see a huge growth opportunity in these emerging markets, and we expect that about 60% of our fiscal 2013 audio-visual and IT sales will come from the emerging markets. And we want to make sure that we leverage the strength that we have, the knowledge base that we’ve acquired in doing business in the emerging markets. We have some great examples where we command number one market share in certain categories such as in the Indian market as well as the Mexican market, we certainly want to leverage that experience into other markets as well.

The fourth key initiative is creating new businesses and also accelerating innovation. In this space, we talked about our planned entry into the medical space and then as far as innovation is concerned, accelerating our innovation in the 4K space where as some of you probably know, this is a – allows for a new display or monitor that has about four times resolution of the currently available high-definition. And we believe that this is another area of growth and innovation for our television business.

The fifth key initiative is realigning our business portfolio and also optimizing our resources, touch upon some key factors that we will consider for spinning off some of our businesses or perhaps joining forces with other companies. And we’ve done this already, as you probably know, with our small to mid-size display business. We have also made announcements to enter into discussions of the chemical business and obviously, there are other businesses that we will look at for potential activities in this space. Also, talk a little bit about the restructuring that we are planning and in a nutshell, the restructuring is going to be about – impacting about 10,000 head count and will impact – will result in about a ¥75 billion restructuring charge for fiscal year 2012.

Finally, I also talked about the new management team that we have put together here in Tokyo as well as the assignment that I have given Michael Lington to look after not only the music business – sorry the motion picture business, but also the recorded music business, as well as the music publishing business, and some of the changes that we made through the R&D group here in Tokyo as well as other management changes.

Finally, we summed up the meeting by giving some broad strokes KPI summaries, and I’ll just go through them very quickly. For the Sony Group, in fiscal year 2014, we are targeting sales of ¥8.5 trillion, and operating margin that is greater than 5%, return on equity, ROE of 10%; and specifically for the Electronics business, in fiscal year 2014, we are targeting sales of ¥6 trillion, 5% operating income. And obviously, we also outlined other KPIs in the presentation as well, and those can be found in the press release.

Finally, before I turn it back to Edward, I just wanted to share with everybody on the call today about my commitment and the senior management’s commitment, as well as the employee commitment of Sony that Sony will change and now is the time for Sony to change. And I think that one of the most important things, as we outlined our strategy today, is to make sure that once decisions have been made that we execute very quickly, very decisively and keep things on a checks and balances where we are able to, through various KPIs, manage and also understand where we are in the road to turning the business around in the various key initiatives that I mentioned earlier. Again, there’s a sense of urgency certainly within myself, the management team, as well as the employees. And again, the proof is in the pudding and we obviously need to deliver results – or based on the plans that we outline today and again, I’m very committed to making sure that we do exactly that.

And with that, I’ll turn it back over to Edward.

Edward Reid

Thank you very much. We’d now like to turn it over to you and answer any questions which you might have. So, Frances, please, would you queue up the questions?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question is from the line of Daniel Ernst. You may proceed.

Daniel Ernst – Hudson Square Research

Yes, good evening, and good morning as the case may be. Thanks for taking my questions. Hirai-san, I have two questions for you if I might. First, I think with all due respect, a problem that I see for Sony today is that the company lacks any truly hit products I think in the way that your products like the Walkman, Trinitron, HandyCam, PlayStation 2, VAIO notebooks and others have been the number one products not only in sales, but I think in mindset and in many often cases profitability.

And today, you have many excellent products and they generally are well reviewed but none that I believe people stand in line overnight for. So my question is can Sony do that again? Can Sony lead a product category and sort of recapture that spotlight and becoming the leading consumer technology company again? And then I have a follow-up. Thank you.

Kazuo Hirai

Sure. So let me address your first question. I think that one of the most important things that we need to understand when we are embarking on a roadmap to creating truly hit products, there are many factors that come into this. One of them is actually to really understand where the market is going, where the consumer trends are going and this can vary from territory to territory, but really having a pulse on the market.

And I think that even in the past, Sony’s been very good at keeping that pulse of the market. Unfortunately, when it comes to bringing that sort of information and parlaying it into an R&D activity that spans the horizon three or perhaps anywhere between three to five years beyond, that’s where the disconnect fundamentally happens.

So basically, when we have a hit product, we usually are pretty good about coming up with variants of that product, but I think that, again, truly game-changing products that fit the consumers’ wants and needs three to five years in that horizon is a challenge that we’ve always had. One of the things that I have done in the organization change is actually to change the way the R&D organization is set up so that there is people specifically charged with looking at that three to five-year horizon and matching it up with some of the information that we get from the respective markets as to where the consumer mindset is going. And I think it’s important that we marry those two up and so that’s something that we’ve done organizationally.

The other thing that we need to make sure that we continuously keep our eyes on is the user experience, and I think I’ve talked about the unified (inaudible) experience group that we’ve created back in August of last year, and this group is actually charged and chartered with the responsibility of looking across various business groups to make sure that whether we’re talking about Sony televisions, tablets, PlayStations, Blu-ray players, it all has a common user experience and that includes the user interface as well, but it’s bigger than that and to make sure that things like network services play across all these devices and that’s another important initiative that we’ve kicked off already back in August.

So, again just to sum it up, it’s all about keeping the finger – the pulse – keeping the pulse, or understanding where the market is going, marrying that up with R&D activities that look at horizons three to five years and beyond and also making sure that we have a group responsible for the user experience that cuts across all the various product and business units. And I’m not going to spend too much of your time, but obviously, there needs to be a consistent marketing message and also sales and distribution need to come into the picture as well, but for the sake of time, I won’t get into that part for now.

Daniel Ernst – Hudson Square Research

Okay. Thank you, looking forward to seeing the results. And then, secondly, and you alluded to this a bit in the answer you just provided, but a key goal that Sony has had over the last almost decade really is to achieve a true integration of hardware and content to leverage your strong position in Hollywood with your position in living room. Is that still a major goal of Sony to take content and hardware and marry them together and really leverage those two interesting assets that Sony has?

Kazuo Hirai

Sure. I think that taking hardware and software and marrying them together, as you said, is perhaps one – only one aspect of the variety of different activities and/or synergies that can develop between the hardware business and the software businesses. I gave another example this afternoon in a presentation where, for example, in the Indian market, Sony Pictures – Sony Television actually has a variety of different channels in the Indian market.

One is actually a Hindu movie channel that is rated number one in viewership, and they do a great deal to really enhance the Sony brand presence in the Indian market. So, we leverage that or those channels, if you will, to actually promote a lot of our hardware products, and again, so the brand value is additive in the both terms from the software perspective as well as the hardware perspective, and that’s another way that we’re leveraging the various assets that we have.

One of the things that I am focused on now as an initiative between Sony Network Entertainment and Sony Pictures and also Sony Music is really looking at potential collaboration opportunities where we are actually together creating or producing exclusive content for Sony networks and also for Sony devices, so that we are not in a situation where we are the recipients of content that is readily available through a variety of different third-party services, but in fact again leveraging that in-house expertise that we have to create exclusive content for Sony networks and products.

Daniel Ernst – Hudson Square Research

Understood. So, just to clarify, it’s still a strategic importance to have both the content side that the music, publishing and recording and Hollywood and TV studios inside a company that also manufactures TVs and mobile electronic devices, et cetera?

Kazuo Hirai

Yes indeed, absolutely.

Daniel Ernst – Hudson Square Research

Thank you for the answer. Thanks for your time.

Operator

(Operator Instructions) And the next question is from the line of (inaudible) You many proceed.

Unidentified Analyst

Hi, Hirai-san. Thank you for doing this call, and first I have to say it’s refreshing to actually have the CEO present in front of our investors and sell-siders. I hope you continue to do this and be the face of Sony among investors and the sell-siders.

Kazuo Hirai

Thank you.

Unidentified Analyst

My first question is if I may, how do you characterize this restructuring as being different from the past? Over the past several years, Sony has embarked on several different big restructuring. I think this round of layoffs is the third that you guys have done. So, my question to you is, in the past there was a sense of feeling that the restructuring was just trying to catch a moving target, and you guys never really caught up to it. So, can you elaborate a little bit more about how this restructuring is different from the past?

Kazuo Hirai

Let me just ask you a quick question. When you say restructuring, are you just talking about the head count issues or are you talking about something that’s more general in all...

Unidentified Analyst

Just more broadly. I mean, it encompasses 10,000, it also talks about, like you said, change the way R&D department is set up and getting a better feel for the pulse of the market et cetera?

Kazuo Hirai

Sure. I think that in my presentation, I outlined some of the key issues that Sony needs to address in order for the organization, the company, the business to turn around, and let me just go through them very quickly. I’ve outlined four of them, one is the speed of business management, the speed of business decision making or the speed of execution, the speed in general.

Number two, we need to be more focused on selecting or focus on long – based on long-term strategies, and we also need and we kind of got into this already, we also need to have more innovative products, services and technologies that drive those products and services and also quite honestly and realistically speaking, we need to turn the TV business around because it’s been a loss maker for the past eight years. And so those are the things that we’ve identified as being key issues that we need to address.

I think that one of the major themes that I’ve pushed myself and the new management team to focus on through all of these restructuring initiatives, changing the management structure, changing the reporting lines, all of this is again the need to focus, the need to make quick decisions and also the need to execute very quickly.

And again, as I said in my opening comments, the proof is really in the pudding, but where I really focused on is make sure that we are a management team that is about action and not about why we can’t move things forward; and the other thing is in order for us to do that, I talk about the One Sony, One Management concept. That’s where this is really important because I made sure that as I built my new management team, that everybody on the team is 100% fully committed and also aligned as to what needs to get done and how we’re going to get that done and so we have a lot of discussions internally amongst the management team.

Once we make that decision, then everybody moves in the same direction and we execute with speed. And I think that’s another area that’s quite different from some of the restructuring or the changes that we have made perhaps in the past.

Now, the other thing that you may ask is how these many restructuring initiatives are going to impact the organization or the employees, and I think that we spend a lot of time explaining the reasons why we are making some of the hard choices and the hard decisions that we need to make and make sure that we communicate that quickly and efficiently to all of our employees, but I think they also understand again that we are all sharing a sense of urgency and that certainly with some of the situations where we’re moving some of the businesses outside of the company that the new organizations are given an opportunity to grow outside of Sony, which I think bodes well for the employees that are subject to some of these restructuring initiatives.

Unidentified Analyst

Great. Thank you and then if I may with a follow-up both on the mobile and on the gaming side, one on the mobile, can you elaborate a little bit more in terms of what you were talking about the speed and execution and time to market, how do you prevent your mobile business from ending up like the TV business when you’re competing against Samsung, who is vertically integrated, and Sony, who has full control over their content through iTunes et cetera? And then on the gaming side, I know you’re paying a big focus on PS Vita et cetera, and the PS3, but I didn’t hear any strategy toward mobile or social such as to compete with the likes of Zynga or moving toward kind of the Facebook type of games, more of the casual games. So can you elaborate on some of those strategies? Thank you so much.

Kazuo Hirai

Sure. Let me start with the second question. Obviously, we didn’t spend a lot of time drilling down into the strategies for the video game business just due to a lack of time, but certainly, we recognized that the social aspects or that social connectivity between all of our PlayStation network members is a very important and integral part of the gaming experience and that’s something that we will continue to improve upon as we introduce new services, new features on PlayStation network not only just within the community of members that we have on PlayStation network but also with regard to integration with other social networks that are obviously very popular today. So that’s certainly something that we are focused on improving as we increase the features and functionalities of the PlayStation network.

With regard to your first question on the mobile space, now that we have the Sony mobile communications as a 100% subsidiary, again they are completely aligned with where Sony needs to go and their part to play in it, which is obviously a very important part because we see the mobile space as being a very active and growing market and also very integral to the strategies that we have in place to again bring content and services through all of our devices, one of the most important being the mobile device.

I think that there’s really only several fundamentals that really will help us to make sure that we are gaining traction in the market and that is great products that leverage the Sony technologies that we have, that leverage the Continent Network Services that we have, that leverage the connectivity between the Sony Xperia smartphones for example with the other Sony devices and mobile devices, home-based devices and again making sure that we bring the product in a timely manner.

And I talked about some of the initiatives that we’ve embarked on in the time-to-market area where we are literally cutting by half the time to market for the Xperia smartphones. So it’s those kinds of improvements, number one, and again making sure that we have products that really consumers will appreciate and bringing it quickly to market, and that’s going to be very key in making sure that we gain more traction in the mobile space than we’ve had before.

Unidentified Analyst

Great. Thank you so much, Hirai-san.

Operator

Your next question is from the line of Takashi Watanabe. You may proceed.

Takashi Watanabe – Goldman Sachs Japan Co.

Thank you very much. This is Takashi Watanabe from Goldman Sachs. So I have a question about the smartphone. So could you tell me how to differentiate your smartphone in more detail? It seems to me you are supplying the latest CMOS sensors to all the smartphone makers and also delivering game content through PS3 through other smartphone makers as well. So what could be the key differentiator of Sony smartphone going forward to increase market share? Thank you.

Kazuo Hirai

Sure. I think that it’s very important if we take a look at our semiconductor business and to make sure that it continues to garner high market share as well as profitability that they do two things. One is, first and foremost, work with our internal business units, so whether that be the folks that are doing the digital cameras or the handycams or the professional side or in the case of your question with the smartphones to make sure that they are working hand-in-hand to bring the latest and the greatest in terms of image sensors to all of our devices that really help to differentiate the Sony products from those of our competitors.

Now, having said that, again, there’s a lot of business to be had in working with companies outside of Sony and I think there, again, we need to strike a fine balance between making sure that we are leveraging our technologies to bring the latest and greatest to our products but also making sure that we keep a good business outside of the organization.

And, obviously, working together with the business units allows the semiconductor group to really bring together a combination of – a great combination of CMOS sensors, audio technology, battery technology, lens technology, signal processing, all those really come together in addition to the great CMOS sensors, the image sensors which again differentiates our product from those of our competitors.

And I think that if you take a look at the most recent lineup of the Xperia smartphones that we have launched in the European market, the S-P and the U, it’s gotten some great reviews exactly for some of the great image quality that it provides to the extent that unfortunately, it’s out of stock in some of the markets, but again that’s based on Sony’s differentiating technology.

Also with regard to the PlayStation Suite initiative, again this is an initiative that we felt was very important for PlayStation or the SCE business to take advantage of the growing casual games market. Now we’ve always had a great business in the proprietary platform business, which is great and we will continue to grow that, but I think that it was very important for SCE to also understand that we need to get into the casual gaming space and there, the availability of the install base of the Android-based smartphones is the leverage point that we’d like to use to get into that casual gaming space and that’s exactly what we did. So it’s a strategy where we’re trying to keep or address both sides of the market in the gaming space to make sure that we continue to have a healthy business in the game space overall.

Takashi Watanabe – Goldman Sachs Japan Co.

Okay. Thank you very much.

Operator

Your next question is from the line of Jeff Loff. You may proceed.

Jeff Loff – Macquarie Capital Securities

Hi, it’s Jeff Loff from Macquarie. Just in terms of the operating profit guidance for this year, ¥180 billion, does that include the ¥75 billion of restructuring charges or are you looking at more like ¥105 billion on a GAAP reported basis?

Kazuo Hirai

I’m going to have Mark take care of that.

Masaru Kato

Hi, this is the CFO speaking. The ¥180 billion operating profit that was explained two days ago does include the restructuring charges of ¥75 billion. Yes, it does.

Jeff Loff – Macquarie Capital Securities

Okay, great. Second, just in terms of trying to develop a consistent user experience, you’re in a situation where you don’t really own the underlying OS or platform. So on phones and tablets it’s Android, on PCs it’s Windows, for games its proprietary. How much do you think that matters and would you look to adopt Windows phone or use your own OS across non-PC devices?

Kazuo Hirai

Sure, great question, thank you. Yes, in fact, our devices use various operating systems and I think that the user experience certainly is dependent on the OS to a certain extent, but it’s also what you actually place on top of the OS, how much customization that you bring that really makes or brings a differentiation. And that also includes applications as well as services as well. Certainly, as far as a choice of operating systems go, obviously, there is something that we have used before in the proprietary space which is the PlayStation operating system, which is currently being used for predominantly PlayStation products.

And we also work with the Google folks on Android and also a variety of different Windows operating systems as well. And that’s something that we believe is a great choice for the various devices that we have. And obviously, in the future, it’s going to be always independent such as HTML5 as well, something that we’re looking at and so I think it’s a variety of different options that we have at our disposal to make sure that we have a very Sony-unique user experience, which is not dependent completely on operating systems.

Jeff Loff – Macquarie Capital Securities

Okay. And then just a last one real quick, in smartphones in the U.S., what’s been the big challenge there from keeping you in the past from having success in the U.S. market and what do you think is going to change that situation? Thanks.

Kazuo Hirai

Sure. I can put it very succinctly and that is some of the challenges that I may have discussed already, and it’s making sure that we have compelling products that we bring to market on a timely basis. And I think that we’ve been challenged somewhat in meeting those two criteria in the U.S. market in the past. As you pointed out we have ranged some great phones with the U.S. carriers for this year, and I think we’ve overcome some of those challenges but looking back, those are the two points that I think we were somewhat challenged on.

Jeff Loff – Macquarie Capital Securities

Okay, thank you very much.

Operator

Your next question is from the line of Karl Hammond. You may proceed.

Karl Hammond

Many thanks for doing the call. I have two questions related to the job cuts you’ve announced, if I may. You mentioned 10,000 job cuts in your presentation, I wondered how many of those are related to announcements you’ve already made and divestitures you’ve already talked about chemicals and small and medium-sized displays for example and then as a second question, I’m just wondering how much you expect the cost cuts – the job cuts to save you on an annual basis from perhaps two years out?

Kazuo Hirai

Yeah, I’m going to have Mark address those questions.

Masaru Kato

Okay. Of the 10,000 reduction in head count, the divestitures or regarding divestitures, the chemicals business we’re currently in discussion with a business partner, those are the only ones that I’ve included. You might think of the others which is the mid to small-sized displays but this was – kind of deal was done in the last fiscal year, so it’s not included in the 10,000, okay.

Karl Hammond

And how many would the chemical business account for?

Masaru Kato

About 3,000.

Karl Hammond

Okay, thank you. And in terms of annual savings from these measures, how much would you expect those to be?

Kazuo Hirai

Okay. We expect to recoup the costs within two years, so if you divide 750 by two, I mean on an annual basis at least 375 – I’m sorry, about ¥37.5 billion annually.

Karl Hammond

Thanks very clear. Thank you for your help.

Operator

(Operator Instructions) Our next question is from the line of (inaudible). You may proceed.

Unidentified Analyst

Hi, Hirai-san, thank you very much for having this call, it’s very helpful for us. I have several questions, I will ask one at a time. One is regarding the TV business restructuring. You mentioned in the presentation a little bit, but could you give me your understanding of what has been the issue with the TV business? How exactly you’re going to turn it around and where do you think the TV business could go going forward in terms of revenue and profitability?

Kazuo Hirai

Okay. How many hours do we have left? Let me try to be as succinct as possible. I think it really comes down – again, there’s no miracle cure here, and it comes down to cost, and it comes down to great product, and obviously great sales, distribution and marketing. And so those are the areas that I think we’ve been challenged in the past. And also, obviously, external market forces, it’s not as if we did not embark on any cost reduction measures or cost efficiency measures or embarked on a strategy where we’re improving the features and functionalities of our television products year over year, all of that we’ve done.

Now, I think the market dynamics, however, dictated that the market pricing was going down quicker and it became more and more of a competitive and ultimately a very commoditized business. And so, obviously, we’ve embarked on a lot over the past years. We’ve taken a very aggressive asset-light strategy where we have closed a lot of our manufacturing facilities and outsourced our manufacturing, and also we, as you probably know, very recently terminated our joint venture with Samsung that allowed us to free ourselves of carrying the fixed costs as well as the downside, if the factories were not moving or operating at full product capacity. Those all have contributed to the savings, if you will, or a step in the direction of turning the business around.

At the same time, I’ve embarked on a strategy where at least for the very short term, especially with regard to the Japanese market, the North American market and some of the European markets, where we were going to make sure that we had profitability as our first priority as opposed to market share. Because, I think, this game of trying to gain market share at any price had us in a situation where we were paying a large price, and we couldn’t do that.

Now, however, having said that, again, we have some great market share in some of the developing and emerging markets, and there, we’ve been more aggressive in going for more market share. So, the strategy depends on which part of the markets we’re talking about in terms of whether it’s profit-based or whether it’s market share based.

Now, having said all that, I think that we have embarked on a strategy, as I explained last year in November of turning the TV business around in two years’ time by the end of fiscal year 2013, at the time we made the announcement, we had announced that we expect a loss in the TV business of the fiscal year that just ended of about ¥17,050, and that we would in this fiscal year cut that loss in half and then subsequently, in FY 2013, turn the business to back to profitability. And I’m sure we will be able to share some of the details of where things are as we talk about the past fiscal year in several weeks’ time. But I’m very confident that based on what I’m seeing that we are pretty much on track on the roadmap to recovery or the turnaround that we set ourselves back in November of last year.

Unidentified Analyst

Just a follow-up on that. So for U.S., European and Japanese markets, do you have to get volume up from here to be profitable, or are you going to lower the cost and keep the volume same, or do you expect volume to decrease and be profitable?

Kazuo Hirai

Well, I think that, first of all it’s – obviously, we’re looking at a market that is not growing like the emerging markets, and Japan is a great example where because of the transition to digital transmission and the discontinuation of the analog broadcasts, combined with some incentives that the government put in place for purchasing eco-friendly television sets, there was a huge boom in the television business last year and the year before.

And it was such a boom to the extent that some people are saying that we, probably in Japan, as an electronics industry, we probably supplied enough products into the market and probably aid up demand for the next three years. So, basically – and some people believe that other people don’t, but I think the point is Japan as a market is not going to be a growing market and therefore, trying to again get volume or market share at any price is going to be very difficult in this market and you have to be therefore very smart about first of all the kind of television sets you offer and make sure that the lineup is geared in such a way that we are not whittling away the profitability that we generate from perhaps higher margin television sets, larger screen television sets by competing in commoditized smaller sets for example and each market has its own dynamic in just like the Japanese dynamic that I just explained.

So I think we just need to be very careful and smart in our approach to each market and really determine whether again it’s profitability, whether it’s volume or a combination of both, and it’s a very difficult equation that we need to work out, but I think again the market dynamics in the developed markets dictate that we’d be really meticulous in our methodology to again make sure that we continue to be profitable.

Unidentified Analyst

Thank you. And my second question is regarding your target of ¥8.5 trillion yen revenue. Is this necessary for achieving the 5% OP margin or the 10% ROE. It feels a little bit counterintuitive to me that you’re trying to reduce head count and increase revenue at the same time and also increase profitability, but could you elaborate on that?

Kazuo Hirai

Sure. I think that it’s a situation where based – in addition to some of the things that you’ve pointed out, there is a lot of competitiveness out there. Again, I mean, television business being a great example where it’s – the per-unit prices are coming down and so we need to continue to generate higher revenues to make sure that we have a sustainable business and a profitable business. So, I think that the numbers that we talked about KPI that we shared this afternoon, I think, are the kind of the numbers that we need to shoot for.

Masaru Kato

Just to add a few words to what Karl said. The revenue numbers, I think we have to qualify that number a little bit in that, we acquired the remaining shares of Sony Ericsson at the end of the last fiscal year, so going forward, we will account for their revenue on a fully consolidated basis, whereas in the past, we have only included them on an equity method. So, in that sense the revenue is a little bit boosted compared to the past revenue figures. Thank you.

Unidentified Analyst

Okay. Then that’s clear. Thank you. And one last question is on – you’re taking on a lot of key initiatives and going from growth strategy in several regions to strengthening your core businesses to turning around the TV business. Hirai-san, how are you going to divide your time? What are you going to focus on in the next couple of months or six months or 12 months?

Kazuo Hirai

Somebody told me this afternoon, recorded the – I think this was President Obama doing the campaign few years ago I guess where he said the President need to be able to do more than one thing at a time and I kind of think that that’s where I am as well.

Now having said that, and all joking aside, first and foremost, and I kind of mentioned this in my speech as well, the entertainment businesses, the financial services, they obviously need to continue to grow but they are very stable, profitable businesses at this point. And there are several electronics businesses that are kind of in that category as well, for example digital imaging, perhaps the PlayStation business and some others. So it’s very important for me to spend the majority of my time on, again, the television business number one from a business perspective and also just making sure that as an organization that we keep the sense of urgency that whatever decision that we make that we are executing very quickly on and that’s something that is easier said than done given the size of the organization, and I just need to make sure that I am there to drive these initiatives and basically to keep people motivated.

And so that’s going to be where I’m going to be spending the majority of my time obviously I don’t believe that the other profitable businesses can be run in autopilot mode and I don’t intend to do that. But if you are asking me what do I worry about most, it’s about turning the TV business around and some of the other electronics businesses around, and it’s about making sure that we are executing on the key initiatives and strategies that I outlined this afternoon.

Unidentified Analyst

Thank you, Hirai-san.

Operator

And at this time, I’d like to turn the call over to Mr. Edward Reid for final remarks.

Edward Reid

Thank you very much, Frances. We’d like to thank all of you for joining us today to discuss the strategy meeting. Please feel free to contact our London, New York or Tokyo Investor Relations officers if you have any further questions. Thank you all for joining us and good night from Tokyo.

Operator

Ladies and gentlemen, this concludes your presentation. You may now disconnect and have a good day.

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