Sony Management Discusses F3Q2010 Results - Earnings Call Transcript

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Sony Corporation (NYSE:SNE) F3Q2010 Earnings Conference Call February 3, 2011 3:30 AM ET


Yoshinori Hashitani – VP, IR Department

Masaru Kato – Corporate Executive Officer and EVP and Corporate Finance Officer


Kota Ezawa – Citigroup Securities

Niko Shiba – Nomura Securities

Anura (ph) – Nico Courier (ph) Securities

Yuji Fujimori – Barclays Capital

Masahiko Ishino – Morgan Stanley

Kadema (ph) – Merrill Lynch

Unidentified Company Representative

Thank you for waiting ladies and gentlemen and thank you for being here for the Announcement of Earnings for the Third Quarter Fiscal ‘10. I’d like to introduce our speaker first.

Saying from your side on the right, we have Corporate Executive Officer and Executive Vice President, Corporate Finance Officer, Masaru Kato and as of January 1st, we have new Vice President of the IR Department, Mr. Yoshinori Hashitani. Mr. Kato will give you an overview of the consolidated results and Mr. Hashitani will be presenting the details by segment. And I will exactly do that and I will start by giving you an overview of today’s announcement.

During the third quarter the yen continues to be significant appreciation than we saw in the prior quarter increasing 9% against the U.S. dollar and 19% against the euro year-on-year.

In this environment, the sales and operating income decreased but due to increased product competitiveness and the benefit of the structure reform every year being undertaking. Consolidated operating income declined only slightly year-on-year and when the impact of exchange rate is excluded, consolidated operating income would have increased more than 20%.

In addition, consolidated operating income for the quarter significant exceed, the October forecast and consolidated operating income for the first nine months of the fiscal year is three times that of the same period the previous year, that’s ¥273.2 billion.

On a segment basis, third quarter operating income of the Networked Products & Services segment increased significantly due to the contributions from the game business, but operating income of the Consumer, Professional & Device segment decreased primary because of the impact of LCD televisions.

Next, I’ll present our consolidated results. Consolidated sales for the quarter increased 1%. On an over currency basis, sales grew by 6%. Consolidating the operating income of ¥137.5 billion was recorded a decline ¥8.6 billion year-on-year, primarily due the impact of exchange rates.

The net effect of other income and expenses was an improvement of ¥16.3 billion which is due to slower foreign exchange loss, but in excess of ¥6 billion. As a result, income before income taxes increased ¥7.7 billion year-on-year to ¥131.5 billion. Net income attributable to Sony’s shareholders increased ¥6.8 billion to ¥72.3 billion.

For the discussion of segment results, there’s Mr. (inaudible) and first, I’d explain about the sales and the operating income by segment, starting with the results for the Consumer, Professional & Devices segment.

Sales were up 4% and sales to outside customers increased by 8%. And this was basically due to higher LCD television sales resulting from increased unit sales, higher semiconductor sales resulting from increased small to mid-sized LCD panel sales and our unit sales or interchangeable single lens cameras.

And this was especially offset lower component sales resulting from a decrease in PC component sales, although gross profit was up breaking higher sales and operating income decreased due to an increase in SG&A expenses, unfavorable exchange rates, deterioration of the cost of sales ratio and an increase in restructuring charges.

The primary factors causing the change in the growth in the Consumer, Professional & Devices segment were as follows and the positive factor was that there was ¥32.4 billion increase gross profit from increased sales, but there were negative factors including ¥23.9 billion increase in selling, general and administrative expenses. ¥17.2 billion negative impact from exchange rates and ¥11.6 billion deterioration as cost to sales ratio.

Excluding the restructuring charges, categories with lower operating results included LCD televisions which were impacted by price declines despite higher unit sales and compact digital cameras impacted by lower sales resulting from unfavorable exchange rates, product categories with an improvement in operating results included home video, which benefited from higher unit sales of Blu-ray disk recorders.

Yoshinori Hashitani

Television business sales increased 19% to ¥407 billion, which is 46% increase in LCD TV unit sales year-on-year to 7.9 million units. Excluding restructuring charges, ¥13 billion in operating loss was recorded for during of ¥20 billion year-on-year, but due significant price declines and unfavorable exchange rates despite a continue cost reduction and therefore improved expenses.

Compact digital camera sales decreased primarily due to price declines and a negative impact of exchange rate, although unit sales increased significantly year-on-year.

Operating income decreased due to price declines unfavorable exchange rates and our (inaudible) investment in sales promotion designed to expand the business. However, primarily due to an increased units sales and cost reduction, we maintained high operating profit margin.

The interchangeable single lens camera X5 launched in Japan in June of last year and now selling globally and Alpha 55 SLR Cameras equipped with translation viewers and high-speed shooting and launched in Japan in September and other areas thereafter continue to sell well.

Video cameras sales and profit decreased due to the negative impact of exchange rates and price decline. But operating profit margin was basically flat due to improved expenses and higher unit sales.

Next I will explain the Networked Products & Services segment. Sales decreased 6% and sales to outside customers decreased 7%, primarily due to sales decline in the Game businesses resulting from our favorable exchange rate excluding (inaudible) sales increased.

Operating results improved significantly year-on-year due to significant improvement in the cost of sales ratio and increase in gross profits from higher sales despite unfavorable exchange rate. Due to significant improvement in the PS3 hardware cost, again, this is contributed to the increase in overall segment operating income.

The primary factors causing the change in the result of Networked Products & Services segment were as follows. Positive factors include ¥37.8 billion improvement in the cost of sales ratio and are ¥16.3 billion increase in gross profit from increased sales. Negative factors are ¥20.3 billion negative impact from exchange rate.

Game sales decreased 9% year-on-year to ¥323 billion, primarily due to the impact of unfavorable exchange rate. Operating income increased ¥28 billion year-on-year to ¥43 billion. This significant increase was primarily due to PS3 hardware cost reduction and higher unit sales of PS3 software resulting from hit titles such as Grand Turismo 5, despite the negative impact of exchange rates.

The Game business has been profitable for five consecutive quarters. PC sales decreased slightly due to the impact of unfavorable exchange rates and price declines, although unit sales increased in every region, expect for Japan. On a local currency basis, sales increased. Operating income was basically flat year-on-year as the increase in unit sales and cost reductions offset the impact of unfavorable exchange rates and price declines.

The total inventory for the Consumer, Professional and Devices segment and the Networked Products & Services segment as of the end of December 2010 increased 17% year-on-year to JPY637.9 billion. We think the end of December inventory is slightly high, but we are thinking we’ll just manage inventory churn above the level by the end of the fiscal year.

Next is the Picture segment, sales decreased 27% and operating income decreased. Although, the Social Network performed well, sales decreased significantly because of the previous fiscal year had such releases as 2012 and Michael Jackson’s This Is It.

Operating income decreased primarily due to the recording a loss on one film, lower home entertainment revenues from catalog product, and higher marketing expenses for upcoming theatrical releases.

Sales in the Music segment decreased 16% and operating income decreased. Sales decreased because of the continued contractions of the physical music market and the appreciation of the yen, partially offset by higher digital sales.

Operating income decreased due to the impact of lower sales, but operating profits margin was basically unchanged year-on-year due to cost reductions, primarily in the area of marketing. What’s contributed the most to the sales for the quarter included albums from ikimono-gakari, Susan Boyle, and Michael Jackson.

Next is the Financial Services segment. Financial Services revenue increased 2% primarily because of an increase in revenue at Sony Bank due to increase in foreign exchange net gains on foreign currency denominated customer deposits.

Operating income in the Financial Services segment decreased primarily due to decrease in operating income at Sony Life. Sony Life’s operating income declined primarily because of a decrease in net gains on sales of securities, partially offset by greater insurance premium revenues driven by steady expansion of an insurance cost (ph).

Sales at our equity affiliate Sony Ericsson decreased 13%. This decrease was due to a decline in unit shipments resulting from the reduction in the size of the product portfolio driven by a greater focus on high profit margin smartphones.

Income before taxes improved significantly due to a decrease in restructuring charges, a rise in average selling price and improved cost structure. As a result, Sony recorded an equity net income for Sony Ericsson of ¥0.4 billion for the quarter, compared to our loss of ¥10.2 billion in the same quarter of the previous fiscal year. That is four consecutive quarters the profit for Sony Ericsson.

Next I’d like to explain our focus for the fiscal year. We’ve revised our yen to U.S. dollar exchange rate assumption for the fourth quarter from approximately ¥83 set in October to approximately ¥82 with no change to yen to euro assumption of approximately ¥110.

We have revised downward our forecast for consolidated sales by ¥1,200 billion because we are expecting those sales in the consumer professional and devices segment for the fiscal year.

Third quarter operating income exceeded our expectations. We have made no change to our fourth fiscal year forecast for consolidated operating results, because we have anticipated operating results in the CPD segment quite severely. The details of the fiscal year operating income forecast for each segment would as follows:

We expect fiscal year operating results in the Network Product and Services segment to exceed our October forecast. This is because third quarter operating income exceeded the October forecast primarily due to favorable results in the game business.

We expect fiscal year operating income in the pictures, music and financial service segment to slightly exceed the October forecast, because third quarter operating income slightly exceeded the October forecast.

We expect fiscal year operating income in the consumer, professional and devices segment to be below of the October forecast. This is because we have nearing the operating environment, primarily what LCD Televisions in the first quarter severely, despite the fact that the third quarter results slightly exceeded our October forecast.

So, I have covered the materials that we have distributed, but let me share the following comments with you. So, there has been slight declines in terms of sales and operating income for the quarter, but again given this very strong yen trend, we believe that, I think, we were able to manage the negative impact of the stronger yen quite well, JPY7 change versus Dollar and JPY20 versus Euro and as it shown here the impact has been marginal. We’re not satisfied, but I think this might – this headwind we were able to deliver steady performance results for the third quarter.

Now in the mean time for the entire fiscal year, we have not changed our forecast. Fourth quarter, we’re trying to be very conservative and severe. Yes, you might think, we’re being conservative, but we’re looking at different markets and also different categories of products. TVs continue to be in the fierce competition and echo point sales benefited the third quarter, but maybe we’re preempting the demand in the future. So the fourth quarter and thereafter, we have to be very cautious. So combining these factors together, we decided to show the forecast that we have to show.

The third quarter I think we delivered some good results. Now if you look at the past two years or so, two years ago in ‘08, we were affected by the Lehman shock. The economy was very weak and efficiently (ph), we have to record the operating loss of 200 million or more. But we decided to rigorously implement the structure fall and from April of 2009, we came out with organization, we strengthened the management and product strength under the new management structure.

So ‘09, I think we were able to deliver certain levels of good results, but of course, we can’t tell, it has to be a full recovery. We did turn around, but if you look at the details of the P&L, it was driven by the good recovery of the Financial Services segment.

Now this year 2010, this fiscal year, the Electronics have continued to deliver better results. So we have the extension (ph) its capability. During the past several years, there were some segments that registered losses, Sony Ericsson, Game and TV.

Sony Ericsson, they have shifted to smartphones and have conducted the restructure reform, so they have come above the breakeven point. Game PS3, I think there are in a very good cycle. So they are not just breaking even, but they have become the contributor the overall consolidated performance.

That leaves us with TV. TV has some still challenges to overcome. But in any case Electronics, Game, Sony Ericsson, we are seeing firm recovery and improvement of the earning structure. I think we are bringing very steady favorable results.

So if you combined those sectors compared to the last year, there will be ¥200 billion plus improvement. Last year, we are more dependent on Financial Services, but this year the driver would be our core businesses, so very collectively push up performance.

As the result of that we have had good cash flow position right now. And excluding financial services, the cash in equivalence reached ¥770 billion.

So from the crisis mode, we have already less the crisis more and now, we come to the point where we have to use this – the cash for the growth in the future, but always to we have consider the investment efficiency and we have to select directly to make investment and of course, here in the manufacturing business, we have maintained the assets light approach and area which does not lead the added value. We try not to look investment for TV assembly, we, for instance, divest the factories (inaudible).

But on the other hand, anyway which leads to differentiation of the product or the good advantages for the vertical integration. We would be more aggressive in investments. And just giving you an example, recently, we made the announcement about investment in (inaudible) Center and during 2011, this was quite large after many years, a ¥100 billion investment was within the center. And so the area which is important makes more investment and looks like area, we have been working on that and a very – this account show that actual results yet, but in a service-related areas, for instance, video distribution service which is called Curiosity was launched, and the regional coverage has expanded. And music distribution has started. And we will gradually expand the regional coverage.

And for devices Sony Ericsson’s smartphone next model will be introduce from SE of next generation, the portable entertainment desire, which is called MGP (ph), which was announced last week.

And the PlayStation game will be deployed on android devices, mobile phones, so the series of new announcements were made. So that we are able to expand area from the point to line, line to side. And so we all eventually launch something like tablet. So mobile world and the network world are quite important for us, and so we’d like to increase investment in those areas.

So cost stability took charge, it enabled us is still important so that we have a very good cycle, a virtue cycle to promote this. That’s what we’d like to achieve. Thank you.

Question-and-Answer Session


Thank you very much. (Operator Instructions).

Kota Ezawa – Citigroup Securities

As I have suggested, I have two questions. One concerning the numbers both equity earnings, Sony Ericsson give explanation in the paper, but LCD what’s the situation. And also the revision of 5 billion for year (inaudible). So with current situation with regard to LCD. And the second question has to do with the TV profitability – profitability of TV business. Please give us your guidance with respect to the current view of the policy – your acquisition in TV business for the year. And secondly, you mentioned that you’ve been pursuing SNI (ph) policy, the impact or effects of SNI policy, do you think you are feeling benefits of that policy now reflected in current numbers or are they yet to be shown in numbers.

2011 going to be profitable with low end, but the key making TV business profitable I think and SNI strategy will be effective I would think in making the low end TV models more effective. Am I right?

Unidentified Company Representative

About the equity earnings question, we don’t have a policy of disclosing the detailed numbers, but Sony Ericsson has been very well planning for the better. S-LCD, it’s a bit lower than our expectations.

And TV business for entire year, well, it’s current estimate, well in the third quarter the cumulative numbers for the first nine month is 26 billion operating loss. Adding to that the fourth quarter whether the annual results, I don’t have the detail numbers to share with you.

But maybe deeper because the fourth quarter given various structure is that a quarter when we will be profitable and TV obviously is no exception. I don’t have number to share with you, but more than three digit operating loss will be posted for the year.

For the year compared to no matter loss last year, we will be ending better this year, but still the number in the year – to be challenge for us. And I think that asset light policy, you can take the various views about the effect, better effect of asset light strategy.

But you question whether that policy is going to work on low end product that we will be selling. As of now, currently, it’s not, may take some time therefore. But we are leveraging the (inaudible) expected an arrangement asset light policy will work in our favor. So immediate positive impact, where is that? In our sales sense as far as they are would require operating and working capital. But as we compare to the use of BNS we’ll have more cash free for us to use.

So that’s one operation that will have negative impact. But speaking about operational impact in general terms, we have sold some operations, but basically we have just sold our parent as is. So the operation is continuing, it don’t mean that once we’ve divested all those facilities away from us, the operations are going to change overnight. Basically, the operation remains the same, so the impact of asset light policy would be felt over time.

And I can do the math easily, but quarter-by-quarter operating income for TV, you have numbers disclosed for the third quarter is JPY13 billion.

Next question, please.


The next question please.

Niko Shiba – Nomura Securities

The next question, please? Niko Shiba (ph) from Nomura Securities. I have a question about Games. I have two questions about Games business. And during the third quarter, operating profit for Games, 43 billion. And that is operating margin is about 13%. So I think you have exceeded certain important mark and for business strategy, since you exceeded 10% profit margin, so this year, next year for MGP perhaps, if we comprise the profit you make investment for further growth, is that the strategy you, while you wish to maintain the operating margin and so when this strategy based on the result of the third quarter. And another question about the gain, and move the controller, how much that contributes the profit? And third, the earlier – next fiscal year, do you think there’s a further room for growth on the move controller?

Unidentified Company Representative

So, gain profitability during the third quarter. There are many factors, for instance, PS3, the hardware cost as we mentioned is no longer lost. In other words, we’ve entered into virtual (ph) cycle, good cycle and (inaudible) and other the software pedals were launched and they have been selling quite well. And the positive factors that support game business and the move also contributed to the increase in sales.

It’s like the all factors to boost the profitability and the next fiscal year onward, we will maintain that small excluding profitability and make investment for the future platform. And if you consider the major gain of the business that is the platform business, other than annual single year business is 3 PSP and NGP, the next generation.

That is the time span of five to 10 years. So that is the length of the model so based on that the structure is built. So at that time any short-term profit, we have to make up investment in a large amount to create platform and as for the software we need to collaborate with third-parties. In words, while we increase profitability we always look at the strategy for the next platform and this time I think there is no exception to that approach. The next year PS3 will be an important factor to stabilize the profitability and RGP (ph), we have to make a solid investment so that we will secure the profit for the future. And therefore we will be willing to make investment for the growth as well.

And your question about Move – the Move that is the accessory, so accessory is only helpful with software. And so our in-house and the third-party titles will be launched to use the Move. And this was launched only for last year so I think still there is a room for growth.

And controller, Move controller itself the shipment, when it is shipped over users, the one round is completed. But the software is the focus of our business and for the future there are more softwares which are expected to be launched using Move. So there is the further growth – the room for growth.

Anura (ph) – Nico Courier (ph) Securities

Two questions please. Number one about TV, the units, the third quarter results and also your plan for the year, how you are doing now against the annual plan? And also the divisional breakdown unit sales and the pricing situation, while it was not in third quarter, there. And another question about TV, you pursued asset right policy. You said that this time you wanted to make it profitable but you didn’t? So is there any room or possibility of actually trying to get this around in the fourth quarter or beyond? Specific key message that you have that you can tell you, you can say confidence that this business will be profitable next year.

Unidentified Company Representative

So let me answer those questions both the volume and the price. Initially this year we are targeting 25 million sales of TV, but currently we don’t achieve that level of 22 million. We are about – this number that we are currently looking at.

And because of competitive factor and market situation this is a case and also the launch of 2011 model has been delayed. So for those few things we are now below our original target, very good attractive analysis of the money we’re losing. The volume, the unit lower than being expected, that’s one factor.

On the price side, figure only now to talk about the recent breakdown, but all in all compare to the original price decline curve we’re feeling at the top end, and actually the prices didn’t decline as half of that curve would have indicated.

So it’s now that we are non-profitable because those declines was greater than our expectations. It hasn’t, but the product decline was we’re doing our function. And one thing that we missed the mark was the material cost. The cost of panels that we secure compared to the total year plans, costs were higher and we had a lot of volume to talk about. So the panel cost was the biggest element.

And our – for the next year, so as you say, yes, we always say we are working very hard on TV units every year, so far better results have been elusive. Only other thing we can say now is that, yes, we’ll continue to work very hard. But the market is always growing volume basically on the strength of the emerging markets growth. So volume will be there, the price will be done.

So the dollar volume will not grow, that’s the environment. So how are you going to compete in that market? We’ll grow in unit, volume along with the growth of the market, while being more profitable. But to the specific numbers we’re targeting next year, well, I’ll say that market share of 20% is one sort of – 20% is one target we have to achieve. But I’ll now talk about unit volumes, but the volume and the profitability are not mutually exclusive, I don’t think.

And we think we’ll try to be successful in adding value to our products, which is success of 3D models will grow, will develop our models to capture share and the profitability.

Anura (ph) – Nico Courier (ph) Securities

As for internet TV, another point is concerning the semiconductor business, looking at semiconductors, I think it is going to the game, and image sensors where the situation in (inaudible) and what is the outlook for the fourth quarter and beyond.

Unidentified Company Representative

Semiconductors, the third quarter did better than our expectations. So it was a good story. For the fourth quarter, this is itself, it’s not turning for the worse, but expenses and costs because of some delay or shift in timing of the procurement what we are going to do, recently in the third quarter – fourth quarter, sorry, third quarter is delayed to fourth quarter so the profitability of the fourth quarter has to be seen more cautiously more carefully.

Anura (ph) – Nico Courier (ph) Securities

And there will be more depreciation next year, but do you think, given the current momentum you will be better topline, bottom line or next year only be stable, no growth. I don’t need numbers, but your view in general.

Unidentified Company Representative

Our view in general profitability – we can grow bottom line to some extent. Semiconductors is going to gain products. The volume is there. So we are contributing to SCEs (ph) business and we have the transfer price regiment and the cost, of course, will reduce. So the Games business where semiconductor concerned top line will be more flat. But image sensor business both in-house production and – in-house sales and outside sales, so outside sales, as far outside sales are concerned – my model is – let me see, the bottom is where and we’re increasing in the production for that. (Inaudible) looking very strong in this, in fact, we didn’t get it – and so next will be hopefully a good year.

Anura (ph) – Nico Courier (ph) Securities

Thank you.

Unidentified Company Representative

Next question.


Sir, the next question please.

Yuji Fujimori – Barclays Capital

My name is Fujimori. And I’d like you to do the figures and also for the entire fiscal year by segment, upside, downside. If you have a more accurate figures for every region upwards, every region downward et cetera, for each segment.

Unidentified Company Representative

So now I would like to explain. As you can see on the screen, for each quarter, we did not disclose, but I’d like to share with you our idea for the third quarter. NPS, CTD plus 5 billion, and PSG plus 15 billion, the picture of plus 5 billion, the music plus 5 billion and the financial services plus 5 billion.

So compared to our forecast – internal forecast 35 billion are upside, in other words approach revised revision, that’s how we look at and as for the fourth quarter, negative ¥35 billion. And if you look at the sales of LCD (ph) segment, so in interchangeable lens camera and semiconductor, they are below the target and to some extent these differ to the fourth quarter and TV is as is expected. And NPS (ph), again, is performing quite well and 15 billion improvement in again business, and that is a major positive factor and pictures, films and financial services, as you can see here, 5 billion, so it’s slightly more than our forecast.

And fourth quarter, as for the fourth quarter the major factor is TV. And in light of market situation, commercial situation we see worsening and for other segments and of course there are more – the figures for each. But these are the major figures I can share with you. And about TV, the third quarter exceeds the forecast and that yearly forecast remains unchanged. TV, yes, very close.

And about the structural thing, and the question was already asked, this year the reduction by JPY5 billion, it’s a small amount why is smaller than last year?

And for the NEX Korea, what is your view, are you going to reduce that restructuring charges next year as well? And in connection with that improvement of the business DTA (ph) for instance dilution allowance, how is that relation in balance, you will change your approach toward financial allowance and how the deferred tax asset will be treated.

Unidentified Company Representative

And the structural is 175 was originally budget in country, the 5 billion in this than our original plan. So because of build-up that charge, restructuring charge has reached this level with no major factors that changed the original forecast.

And from the next year fiscal year 11, it happened – the restructuring charge in terms of size that will be reduced or flat. And restructuring charge how long we can continue, something like metabolic factor. And you have to constantly renew and become zero, but in terms of overall size. Last year JPY120 billion and higher, this year 70 billion, next year that will be lower than this year. That’s what you can understand the trend of the restructuring charges going forward.

And can you repeat the second question or can you answer the first one. Yes.

Yuji Fujimori – Barclays Capital

Differed tax asset, for tax that matters. The manifest (ph) is yet to be made on the impact of the tax for the next fiscal year. But based on the U.S. GAAP, the profit and loss in the past

Unidentified Company Representative

When we look at them, there’s no high likely fit of devaluation in our view. But the most reach, the (inaudible) very difficult for us to give any firm the prospect about this.

Yuji Fujimori – Barclays Capital

And as what valuation allowance, is there any chance of reversal of valuation allowance. Is there any likelihood for that?

Unidentified Company Representative

At this moment, no, there’s nothing that I can tell you at this moment.

Unidentified Company Representative

Thank you. The second row.

Masahiko Ishino – Morgan Stanley

Thank you. Its Morgan Stanley, my name is Ishino. (Inaudible), an increment was 5 billion, so also 1 trillion was a profit of only 20 billion, highly profit. This poor margin ratio is so smaller, if TV will deteriorate just a little bit, then we would also turn to the negative. What is the retrofit of TV improving this performance making a turnaround?

In the meantime, digital cameras, competitiveness has a lot improved. The only factor that is improving is semiconductor, TV, digital camera, semiconductor the resources. So my question is TV business, is it really improving, digital camera will it continue to be competitive and can be profitable?

And the third is other businesses. Other businesses, are there signs of improvement of the profitability? That’s the first point. The second point is on the Games, it so happened that software was selling quite well, but I think it’s temporary phenomenon, first quarter and thereafter, until the advent of the next generation PSPs we have a scenario that can maintain the profitability, the TV profitability, what are the chance – the probability of a turnaround?

Unidentified Company Representative

I don’t think I’ll be able to give an answer. I can say that we have made efforts may be we have not delivered satisfactory results yet. So what are the chances, what percentage of likelihood, well, I cannot guarantee a state that we could definitely get the positive results. I don’t think that will be appropriate for us to answer in that way.

The digital camera competitiveness, if we look at performance in the market through researches of new different factors I think you’re able to understand our business in the area or the space of digital camera. We have brought the new technologies, new features and some are in the pipeline too.

Going back to the image sensors, we have the image sensor in-house, we have the lens, the signal processing semiconductor. We are also working on it. So we have in-house those element technologies that’s the strength, because by combining the evolution of the element technology we can come up the better product, design better products. Anyone can assemble this camera if they purchase parts and modules from outside.

Mainly – there maybe cost competitors, but when it comes to our ability to continue to provide the market with attractive, appealing product, that’s another question. And I would say, that’s we can do, and that’s something that we can differentiate ourselves from the others of course (inaudible). So we probably have to have you look at the product. But in addition to camcorders, we will continue to make available appealing products and I think we have those fixed within our organizations.

Now, of course, there may be concerns in specific areas, but if you look at – we are trying to lessen the losses, we are trying to decrease the number of businesses that are generating losses and overall since we are moving for a better tomorrow. Game is a platform business, so work on the hardware and then we have to put on the software. The software portion is not a business where you can have a very firm outlook. We have in-house software, but unlike Nintendo we also place lot of third party platforms or third party softwares on our platforms. So those video phone how good the portfolio of software would be produce by the other third players, third-party players. But I think you have reached a point where we enjoy the richest circle. So I think our next period is going to be profitable.

Let me supplement. The CPD segment, it’s in your – 26.8 billion for the third quarter, TV minus 13 billion, so you can calculate and identify the risk, the balance. The restructuring charges is the part of it. So other then TV, I’d say it’s profitable, whether profitable – the level of the profit is enough or not is another question.

Now we have the B2B business professional business, therefore the B2B is improving and audio continues to enjoy high levels of profitability. On the conformation, 138.9 billion is the worse for the third quarter except for the (inaudible).

Masahiko Ishino – Morgan Stanley

This year this has crisis. You talk about being profitable, but if you compare the third quarter in the previous year, the third quarter result, the figure that you are delivering today is not good compare to the past. So what is the sentiment the mindset of the management? Do they have the sense of crisis? And the third quarter result what you are announcing today is not a good set of numbers.

Unidentified Company Representative

The management mindset, we share the seasonal crisis, although need to do better. We are now consulted, they’re not being happy days about those results compared to pre results and lot making excuses was before the (inaudible) at peak. We have above 200 billion in terms of corporate earnings.

There is one of type of thing, I’d like to utilize (ph) at that the time the yen exchange rate, against the dollar was 110 yen or euro was 150 yen a euro, 160. So the difference was steady in dollar exchange rate and euro. The yen appreciated by 40 billion to 50 billion. So withstanding these exchange rate fluctuations, we made an effort, we should not be consulted, we should not be reported (ph). But that will, you will don’t say it will like a key and making –- we are continue to make steady efforts over exchange rate impact.

Masahiko Ishino – Morgan Stanley

I have just one question and that related to the numbers you announced today, but recently, that Toshiba or Nagasaki arrangement or this future plant EPSON, this means that we are going back to vertical, the integrated business structure where it is appropriate. So that’s a flexible approach that I’d welcome that Sony has taken, but vertical integration approach for smartphones and other growth business doing it all by yourself to be defiant in technology, technological differentiation, so that you can be more aggressive for the next year. Is that a general sort of stance of your company to go more for vertical integrated model, because if you see from our side, you’re yet to announce a tablet model? The peek over next three years, people complaint that Sony is still vertically integrated, that’s it is so slow launching product. So what is your general policy in strategy? What’s happening in the company and cited example of tablet. But more broadly, looking at the mobile importance – mobile market, what is Sony’s approach?

Unidentified Company Representative

Let me say this, first of all, smartphones, Sony Ericsson is in-charge of smartphones, and there are joint venture to the separate the company. But other mobile devices, PC, SE is portable again devices or the tablet initiative that we’re working on. It’s all under this same – we could have done it in the same department, NPE SE (inaudible). Previously, we had a various work session, where the different groups didn’t collaborate close enough, so that market launch timeless this road. But now we’re under the same route, same management, all integrated and therefore the collaboration, things are improving.

And also concerning vertical integration business model, when we add features for the small size panel protection or image sensitive business, where the market is growing and where we can add value, keeping the assembling and manufacturing process in-house for those purposes. To the extent there is a potential for value to be added by Sony within that process to that extent we try to keep all the operation in-house.

For example, the semiconductors, yes, we left the Nagasaki Operation Corp, producing logic chipset previously for PS3, because it didn’t have to be us, just miniaturizations was the thing to do, the same service could be obtained from outsides, talking about the option we took then. But when it comes to image sensors that kind of process – in that kind of process new technology must be incorporated into their process by us once that is outsourced then we don’t get the results we expect or the products cannot be planned according to our high standards. That’s why we are keeping them in-house.

For smaller panel production, basically the idea is the same. Competition in the market is very tough we know for this. But the unique panels, the differentiation where differentiation is possible only because we produced them that’s why we’re keeping them in-house. And the touch panel – in cell touch panels for instance is going to be technology of the day and it’s key that we have all that within us in-house.

Masahiko Ishino – Morgan Stanley

But that eliminated CMOS sensor, for example. There was huge need for setting this outside of Sony, to outside consumers. Supplying this now to tablet manufacturers for instance, but why don’t you have the uses in-house so that you can come with product unique to Sony, almost same like the CMOS sensors. Do you have any priority – prioritization as to who will be using your technology in the CMOS sensors?

Unidentified Company Representative

Well, we lot of engineers and we are ahead of the curve, we are top of the line as far as CMOS sensor back illumining is concerned. I am not an engineer by the way, so I cannot speak well about this. But this is an area where we can get much steeper in success. We have ideas in our product pipeline. Of course, our competitors will be right – next after us, but we continue to run ahead of them at top of line and we should be able to be profitable in this.

Image sensor business broadly speaking we are doing well, because image sensors with digital cameras, we always had a high share, but recently it’s thanks to the growth of smartphones. The cell phones previously didn’t really require high image sensor quality, but now with smartphones you need high resolution and a better quality image sensors for 3-mega, 8-mega cameras in smartphones, so that’s where our strength counts and that’s where our cable business is waiting up. So our advantage is there and we want to maintain – we will maintain that advantage for us. So that technological development must be done continuously. We do have good ideas in pipeline, but that has to translate into actual production and manufacturing and reduction of cost.

Unidentified Company Representative

Thank you. I think we are running short of time. So I think we can now only accommodate one final question.

Kadema (ph) – Merrill Lynch

Kadema (ph) from Merrill Lynch. At the risk reputation, I would like to focus on TV. I am looking at on page 17 of (inaudible) and if you look at the sales by product for the last nine-month, your strategy, I think the volume has increased during the past nine months by 50%. For the second month of deficit will be reduced year-on-year, given the fact the other companies also running deficit. So what is the differentiated strategy from the others asset light. You reduced and increased the share, you reduced the deficit, but having not known, then the consolidated numbers would however experience lower numbers or very good deficit. I think there was a similar question. As a CFO, using this strategy will successful or not?

Unidentified Company Representative

If you can only get the volume, which is on average of the industry, of course, you will increase the sales of semiconductor. But on the consolidated basis, it’s going to be flat, the performance will be flat.

Kadema (ph) – Merrill Lynch

Now the strategy of TV, what will be the strategy, do you think that the TV should take a strategy where even if the volume will not increase, but it will contribute to your goal of consolidated performance. Given the past nine month performance that do you think?

I think it’s too for mature (ph) to discuss next year, but how do evaluate what has been achieved by (inaudible). I think it’s the questions, will increase the model, secure the margin, and reduce the fixed cost. I think that really an obvious simple statement. The resale completing together are planned, the operation, I don’t think so. We executed a plan in the external and internal factors, size reduction. We approach this panel from our side, its element (inaudible) what according to our budget of plan or some in a wrong in some focus. We will continue to reduce the fixed cost, so we’re delivering tangible results. The pricing pressure, it’s a market factor, so we cannot work against it on our own. Product-wise, we have come out with better products in the high peer, 3G is one. I think we were able to risk – but the others were not able to. So we were pioneering in new product. So price, cost, volume, I think that’s one of the more direct one. We did not spill (ph) it, but when it comes to extension (ph), some are not influenced as we had anticipated, particularly the cost of panels. The cost tended to be higher that we had assumed that is my personal view.

Kadema (ph) – Merrill Lynch

What about next-gen and beyond.

Unidentified Company Representative

I think it’s still to mature (inaudible) solution. But personally, in electronics what we need to do is of course, to increase index of the topline, but in addition, I think we have improved the ordering structure, more and more emphasis is on improving the structure. That’s one of the clear point of view of investment. Investment, the return on investment what we have expensed or what we have invested will be very stringent and demanding in securing the right level of return on the investment upstream, downstream, the (inaudible) everything upstream, downstream, but during the past several years that is no longer possible. That’s how the markets have changed; the environment is becoming more severe.

So if you look at the different places of the value chain, we’ll make investment where it’s essential that we have a command or we have the control of right what other forces would take advantage of the availability of the other suppliers. So we look for efficiencies. We’re trying to put together different structure which is more efficient. I think that’s our focal point.

It’s not that we are aiming for growth. In the network and other areas, we’re going to grow, but when it comes to existing business, if we limit – that for existing businesses, I think more emphasis would be to improve their earnings power.

If you look that the next 12 months, what products and what segments would provide promising results to earnings? Do we have to wait until 2013? 2011, there will be new product. It is not place to announce new products, but network, mobile space there will be new products. You said that we’re too slow in coming up with tablet products. But we’re working on it and there will be new products with fully like distinctive features, (inaudible) and it will come in the new fiscal year. So new products are coming up, but I cannot say that in 2011 there will be these products and in 2012 timing wise it’s not the right time to make any definitive statements.

Thank you. I am afraid the time has come for us to close this session. Thank you very much for you attendance despite your demanding schedule. The meeting is closed.

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