Sony Corp (SNE) on Q2 2020 Results - Earnings Call Transcript

Sony Corp (SNE) Q2 2020 Earnings Conference Call October 30, 2019 4:15 AM ET

Company Participants

Hiroki Totoki - Senior Executive VP, CFO, Representative Corporate Executive Officer & Director

Hirotoshi Korenaga - Member, Audit & Supervisory Board

Conference Call Participants

Masahiro Ono - Morgan Stanley

Yu Okazaki - Nomura Securities

Masaru Sugiyama - Goldman Sachs Group

Mika Nishimura - Crédit Suisse

Junya Ayada - JPMorgan Chase & Co.

Ryosuke Katsura - SMBC Nikko Securities

Yasuo Nakane - Mizuho Securities

Satoshi Sakae - Daiwa Securities

Unidentified Company Representative

Thank you for waiting. We shall start the Earnings Announcement of Sony Group for the Second Quarter of Fiscal 2019. I'd like to introduce our speakers today. We have Senior Executive Vice President, Chief Financial Officer, Hiroki Totoki; and Senior Vice President, Senior General Manager of Finance Department and Corporate Planning and Control Department, Naomi Matsuoka; Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga.

Today Mr. Totoki will make the presentation first, and then we'll follow that with the question and answers. Mr. Totoki, you have the floor.

Hiroki Totoki

Today, I'd like to explain these 2 topics. FY '19 second quarter consolidated sales decreased 3% year-on-year to ¥2,122.3 billion primarily due to the impact of exchange rates. And operating income increased ¥39.4 billion year-on-year to ¥279 billion. Net income attributable to Sony Corporation stockholders increased ¥14.9 billion year-on-year to ¥187.9 billion.

Next is the consolidated results forecast for fiscal '19. Consolidated sales are expected to decrease ¥200 billion compared with the previous forecast to ¥8,400 billion, and operating income is expected to increase ¥30 billion to ¥840 billion. I will explain the breakdown of sales and operating income for each segment later.

Income before income taxes was upwardly revised to ¥800 billion, and the net income attributable to Sony Corporation stockholders up to ¥540 billion. The forecast for operating cash flow excluding the Financial Service segment is ¥760 billion, unchanged from the previous forecast. As for the Forex assumption for the second half, the U.S. dollar remains unchanged from the previous forecast ¥108 to the U.S. dollars, and the euro changed from ¥123 to ¥118 to the euro.

Now first, I will talk about Game & Network Services segment. Sales for the quarter decreased 17% to ¥454.4 billion due to a decrease in sales of PlayStation 4 Game software and hardware as well as a negative impact of the foreign exchange rate. Game software sales decreased because of the absence of the major first-party hit title like Marvel's Spider-Man of the previous year and the significant year-on-year decrease in the contribution from the free-to-play games. Operating income decreased ¥25.6 billion year-on-year to ¥65 billion due to the impact of the sales decline.

And we revised downward our fiscal '19 sales forecast by ¥200 billion to ¥2 trillion and operating income forecast ¥40 billion to ¥240 billion. As we announced last week, we will postpone the sales of the first-party title, The Last of Us Part II, from February 2020 to May 2020. As the result of this, this title will not contribute to the financial result of the current fiscal year and that's the primary reason for the downward revision of our operating income forecast.

This slide shows the analysis of how our fiscal year operating income forecast compares with that of the previous year. The 3 major reasons for the decrease in expected profit year-on-year are the decrease in first-party software sales resulting from the postponement of The Last of Us Part II and the decrease in third-party software sales due to deceleration of free-to-play titles and the negative impact of exchange rates.

PS4 hardware profit increased slightly as a decrease in unit sales is offset by the hardware cost reductions. Profit from Network Services, mainly PS Plus, is expected to increase significantly due to the steady increase in subscribers. Since fiscal year sales are expected to decrease, we plan to constrain various costs including marketing expenses to a level below that of the previous year. However, operating expenses in aggregate are expected to increase due to an increase in development costs for the next-generation console, PS5.

Now I will update you on the mid- to long-term strategy in the G&NS segment and the progress of the initiatives we explained on the IR Day in May this year. First, I will discuss our efforts to strengthen the first-party content and IP. At the IR day, we mentioned the Sony strength lies in first-party content and IP. With the aim of strengthening these, in August, we announced the acquisition of Insomniac Games, the game developer for Marvel's Spider-Man, which sold 13.2 million units worldwide. Through this acquisition, Insomniac Games will become SIE's 14th studio and will contribute to further enhancement of our first-party software development organization. Going forward, we will continue to pursue growth investment opportunities that will enhance our own content IP.

Next is a smooth transition to the next-generation console. The other day, we announced that we will sell the PS5 from the year-end selling season of 2020. This is a most important step in strengthening the PlayStation platform. Development of the PS5 is progressing according to plan, and we believe the development of game titles by our software development partners is progressing smoothly. We anticipate providing highly engaging gameplay experiences that both current users of the PS4 and the potential new users have come to expect.

Thirdly, about our content distribution strategy. In 2014, Sony launched the pioneering cloud gaming subscription service, PlayStation Now. And to further strengthen content distribution strategy, we announced a renewal of the service this month. PS Now has become even more attractive due to global strategic price reduction and the addition of a limited time-only popular game titles such as God of War. Since starting this, the service renewal, subscribers substantially increased and the total number of subscribers has already exceeded 1 million as of this month. This is a great step toward a target we mentioned on the IR Day of growing subscribers by an average of more than 50% per year. Through this renewal, we are aiming to assess the potential of cloud gaming services. The impact of the renewal on the results of this fiscal year is expected to be minimal.

Lastly, let me describe the progress we're making on our cost management initiatives. Our streaming TV service, PlayStation Vue, has provided a differentiated TV viewing experience to customers in the United States since it began in 2015. However, mainly due to diversification of viewing styles and in anticipation of the competition among pay TV services, we do not expect the operating environment for the business to improve going forward.

As a result, we decided to terminate the service at the end of January 2020. We aim to wind down the service in a deliberate manner to minimize any inconvenience to users. The impact of the termination of the service on the result for the fiscal year is expected to be minimal and is already incorporated into our forecast.

Next, the Music segment. The Q2 sales increased 8% year-on-year to ¥219.3 billion and operating income increased 19% to ¥37.5 billion. This increase was mainly due to the consolidation of EMI Music Publishing in the Music Publishing business and higher global streaming revenues, partially offset though by the negative impact of exchange rates and lower sales of mobile games mainly in Japan. The streaming revenues in the Recorded Music business continue to grow at a high rate as they did in the previous quarter, increasing 17% year-on-year or 21% year-on-year if the impact of the conversion to the yen is excluded.

We revised upwards our full year sales forecast by ¥20 billion to ¥850 billion and our operating income forecast by ¥5 billion to now ¥140 billion. This upward revision was mainly due to streaming revenues exceeding our expectations.

Next, our Pictures segment. The Q2 sales increased 8% from last year to ¥260.6 billion and operating income increased a significant 67% year-on-year to ¥39.3 billion. The increase in profit was mainly due to the contribution of Spider-Man Far from Home which, having exceeded USD 1.1 billion in global box office revenue, is the highest grossing film of all time for Sony Pictures Entertainment and an improvement in the profitability of Media Networks due to the benefit of portfolio review and improved profitability in India also contributed.

Our fiscal '19 full year sales forecast has decreased ¥50 billion to ¥1.030 trillion mainly due to a decrease in the number of titles slated for release this year due to the change in the releasing timing of some of the titles. On the other hand, we have revised upward our operating income forecast by ¥5 billion to ¥70 billion due to an increase in the profitability of Motion Pictures and Media Networks and the benefit of the overhead cost reductions, though partially offset by the impact of lower sales.

I will now discuss the collaboration between the Music and Pictures segments in anime business. The anime market outside of Japan has been growing at a rapid rate for several years, and Sony is expanding this business in this important growth area. Sony Music Entertainment Japan Inc. has been very successful in the anime business in Japan and has begun distributing anime content outside of Japan. Sony Pictures Entertainment acquired Funimation Production, the Funimation, one of the largest anime distributors in the U.S. in 2017. In order to further strengthen this area of business, we have decided to integrate the platform of the 3 companies within the Sony Group that distribute anime content.

Funimation will acquire the distribution rights for numerous Japanese anime titles on behalf of these companies, and each company now will then distribute the titles in their own -- their market. In addition, in order to improve the appeal of the platform, Aniplex, owned by Sony Music Entertainment Japan, is joining the effort by enabling each company to distribute on a limited time exclusive basis the first animated TV series of Fate/Grand Order, the major hit mobile game. Through these actions, we are strengthening collaboration across the Sony Group and we are also aiming to contribute to the growth of the Japanese anime industry.

Next is the Electronics Products & Solutions. Sales for the quarter decreased 11% year-on-year to ¥493.5 billion mainly due to a decrease in unit sales of smartphones and TVs and the negative impact of exchange rates. Operating income increased ¥24.9 billion year-on-year to ¥41.4 billion. This increase was mainly due to the benefit of the restructuring that is steadily progressing in Mobile Communications and reductions in operating expenses in the various businesses within the EP&S segment, partially offset by the decrease in sales and the negative impact of exchange rates.

Mainly due to a reduction of unit sales of forecast for TVs, reflecting a deterioration in market conditions, our sales forecast for the full year has decreased ¥50 billion to ¥2.110 trillion, and our operating income forecast has decreased ¥10 billion to ¥111 billion.

Next, I will touch on the TV business. Due to a deterioration in the market for panels, the intensely competitive environment in the TV market continued in the second quarter. Although our unit sales have decreased year-on-year, we're working to maintain our average selling price by focusing on large screen and high value-added models as well as by tightly controlling channel inventory. Since we expect this operating environment to continue through the fiscal year ending March 31, 2021, we plan to prioritize profitability through our supply chain and tightly manage costs.

Next is the Imaging & Sensing Solutions segment. Despite the negative impact of exchange rates, the second quarter sales increased 22% year-on-year to ¥310.7 billion mainly resulting from an increase in unit sales of image sensors for mobile devices and improvement in product mix.

Operating income increased ¥28.5 billion to a ¥76.4 billion due to the impact of the increase in sales, partially offset by an increase in research and development costs and depreciation expense. Both sales and operating income were the highest on record for the quarter in the I&SS segment.

We revised upward our full year sales forecast ¥50 billion to ¥1.040 trillion and our operating income forecast ¥55 billion to ¥200 billion. At present, we are maintaining a cautious view in our forecast for sales in the second half of the fiscal year when demand is usually lower than the first half of the fiscal year. However, we plan to continue to operate at full capacity utilization in order to strategically stockpile inventory to meet demand next fiscal year.

We expect demand for our image sensors to continue to increase from next fiscal year as well due to the adoption of multi-sensor cameras and larger-sized sensors by smartphone makers. In order to sponsor this strong demand, we have further improved the efficiency of space utilization in our existing factories and have raised our production capacity target for the end of March 2021 from 130,000 wafers per month to 138,000 wafers per month.

Moreover, we have decided to move forward in stages with the investment. We had been considering to build new fabs at our Nagasaki facility to accommodate demand from the fiscal year beginning April 1, 2021. Through this action, we are working to continue growing the I&SS business so as to achieve the midrange targets we established on the IR Day this year, that is, 60% revenue share of the image sensor market and 20% to 25% ROIC in FY 2025 ending March 31, 2026.

Next, I will explain the Financial Services segment. The second quarter Financial Service revenue increased 7% year-on-year to ¥377.2 billion, mainly due to a higher insurance premium revenue reflecting an increase in policy amount in-force primarily from single premium insurance at Sony Life.

Operating income was essentially flat year-on-year at ¥38.8 billion. We have made no changes to our full year forecast. In conclusion, I would like to update you on our capital allocation strategy. Sony considers and implements financial measures to enhance corporate value through a balanced and consistent approach to capital allocation. Previously, we showed how we intend to allocate the operating cash flow we expect to generate during the current midrange plan.

Going forward, we will show a more comprehensive allocation of our capital, which incorporates the cash generated from the sale of equity stakes, businesses and other assets such as the proceeds from this quarter's sale of common shares of Olympus Corporation. Capital will be allocated in a manner designed to increase corporate value. There's no change to our policy of engaging in share repurchases in a flexible manner to increase ROE and earning per share, but we will continue to place a higher priority on M&As and organic investments such as capital expenditures and research and development spending.

Lastly, I will show you the results forecast for each of our segment. This concludes my remarks.

Question-and-Answer Session

A - Unidentified Company Representative

Now the floor is open to your questions. [Operator Instructions]. When the questions are asked in English, they will be interpreted into Japanese consecutively and answers will be given in Japanese. Please confine the number of questions to two per person. Anyone?

Masahiro Ono

Ono of Morgan Stanley. Two questions. First, concerning I&SS. This time, sales increased by ¥50 billion and profit of ¥55 billion upward revision. And about this setup, could you further expound on this? Especially after the first quarter, you did produce very good numbers and you mentioned that -- about the second half rather uncertain and so the second quarter upward revision reflected for the second half? Or would you further revise that?

The second point concerning Game. The first-party title release was postponed, and that had a major impact. But strategically, looking at the launch of PS5, so to some extent, the first-party launch schedule going forward would be flexibly adjusted in the course of second half of this year. So the first question concerning I&SS, the upward revision of sales and operating income, what's the setup behind?

Hiroki Totoki

First, the sales increased by ¥50 billion. In the main, the progress of multi-sensor camera and larger-sized sensors was faster and greater than we expected, so it is reflected. And during the second half, we have upwardly revised the forecast at the beginning. And the volume and the unit price with the larger-sized sensors, the product mix has been improved. Therefore, we can maintain the price level more so than the beginning of the year, and that is duly reflected.

And about the sales volume or sales unit, as I mentioned, for the second half, we have a strong inquiry coming from that customers as of now. But at this point, we are trying to be cautious, but still upward revision compared to the forecast at the beginning of the year. About the operating income, there is an increase of profit in the sensors, and there is a good impact of the production operation that is the cost reduction and also the profit and loss improvement due to increase of the year-end inventory.

And the view about the second half, for the second half of the current fiscal year, the probable business situation will be stronger than what we expected at the beginning of the year than the usual years. Leading to the third quarter, in terms of business, we have a certain degree of certainty, and so what remains will be the price trend in the fourth quarter. Our interest is directed to the demand picture in 2020 rather than the fourth quarter this year.

About the Game segment, the postponement of the first-party title launch rather than a strategic consideration, when the announcement was made, the timing is February, but with the further screening by the studio, the quality has not reached to the fully satisfactory level and further time is taken for the polishing up and they wanted to reschedule the timing to May. And that was the decision behind this postponement, well, on our part. The control of development schedule should be done fully, so the case in time, this time, would be a trigger to have a title launch scheduled going forward.

Unidentified Company Representative

Next question, please.

Yu Okazaki

Okazaki, Nomura Securities. The IP -- or the Pictures segment, I have a question. Negotiation you have on Spider-Man with Disney, that's what I was talking about. I know that you cannot talk about specifics of this, but the IP strategy of the Pictures contents going forward, what is your strategy particularly with regard to new distribution done by Disney? I think there's been increase in distributed platforms. In that situation, what is your view and the strategy going forward? The first question.

And secondly, about anime, you've integrated distributed platforms. You said that I think the FGO's hit has been significantly -- has made significant contribution to profitability to the anime business. How has this business fared in the last few years? So even though you don't touch upon this, the significant strategy with the Game business, can you elaborate on the synergy between anime and Game businesses?

Hiroki Totoki

Thank you. The IP strategy in our Pictures division, thank you for your question. Looking at the current competitive environment, there's different platforms enhancing the distribution operation. This competitive landscape itself is there because of the higher needs for contents. So that's a positive for us.

Indeed, there's a lot of encourage -- increasing encouragement about our contents. But on the other hand, because there are a lot of distribution platforms currently asking for quality contents exclusive for themselves, this means that to keep and get the creators, the competition is getting more severe. So specifically the environment, we, as an independent studio, how we can demonstrate our independence and presence, we have to strengthen IP and also better engagement -- enhance the engagement with the creators and those are the areas where we have to enhance our efforts. And about the anime -- animation business, you're right, FGO is the most powerful title currently. But while we continue to develop FGO, Aniplex will surely develop the next titles based on IPs. They've backed on this already. So there are really several titles, which we can place high expectations, promising titles, indeed. So whatever the games, there's a creation of a TV series based on anime series, so we would like to continue with these efforts as well as merchandising goods.

Unidentified Company Representative

Next question, please.

Masaru Sugiyama

From Goldman Sachs Securities, Sugiyama is my name. I have 2 questions, if I may. First, about Games platform transition. PlayStation Vue, you announced the shutdown of PlayStation Vue, which will be a positive for the next fiscal year. On the other hand, PlayStation 5, the development of PlayStation 5 incurs various costs. How do you foresee this going forward?

And then charging of the PlayStation 4, if you could explain a little bit more about how to charge the usage of PlayStation 4, I would appreciate it.

Second, sustainability of the profitability for Pictures. One of the reasons for the revision this time is the Spider-Man Away from Home's box office was very -- wasn't good -- it was not mentioned. Media Network cost reduction, other business' factors contributed you said, but ¥70 billion seems to be a little bit higher than the past. Do you think this level is sustainable? Or this is a high onetime event because of the good pipeline -- as a result of the good pipeline?

Hiroki Totoki

Thank you. About the level of profit of the Game platform, I'm sure you are very much interested in this. To a large extent, it depends on the price, the future price of PS5. We analyze own costs and the acceptable price in the market and platform penetration. We analyze all these factors. In the midrange plan, we are deepening in the midrange plan on this. So at this moment, I cannot go even further. I don't have anything to add.

But about the level of profit, we are very conscious of the level of profit. For investors and for the market players, we would like to keep communicating with you going forward. And PS4's charging for the next fiscal year, well, we have PS Plus and PS Now, those are the Network Services. The membership is steadily increasing. Therefore, this base of the members should be leading into PS5. Higher the base, the volatility of the profit that would be mitigated more. So we continue to strive forward.

Now about the Pictures. The level of profit of this term, well, Media Network, to be sure, restructuring of the Media Network contributed, yes. But improvement of profitability has been progressing. Sadly, as I said at the IR Day, 7% operating profit margin, that's the target I said on the IR Day, it's in line. So as much as possible, Motion Pictures' slates, we have to improve for several years and we continue this. And in addition, on top of it, we review the cost structure, maintain the level of profit by doing so. Far From Home was a big hit, but for the forecast of the results this time, it was in line with the forecast that we had at the beginning of the fiscal year. And the sale itself, we had the downward revision, as I said, there was this -- because of the launch schedule change and the lower-than-expected performance of some of the titles.

And for the Pictures now, the forecast of the profit compared to several years ago, by far, margin has more clarity and less uncertainty going forward. So we can -- we would like to offer stable forecast going forward. Thank you.

Unidentified Company Representative

Next question?

Mika Nishimura

Nishimura, Crédit Suisse. Concerning Game and I&SS, one each. In Game segment, in the supplemental slide step chart, the impact of the decline in revenue other than first-party. And then you talk about free-to-play. What was the impact of free-to-play? And from first half to second half and on to the next fiscal year, how would you see the impact of this? How it will change in Game business? Second point, concerning image sensors. The combination of the numbers, during the MRP, the CapEx of ¥700 billion, any changes there? And also, in 138,000 production, what is the proportion between the internal production and outsourcing? Have you changed the ratio?

Hiroki Totoki

The Game, can you show that step chart? And here, the Game software, other than the first-party production and I think you were asking about it, and as you see here, well, we do not cite the number per se, but rather than the downward margin, the impact of free-to-play decline was larger, which means that, that decline was offset by the contribution from the other titles. And that is our conventional partners' titles and so forth, which means there is something like free-to-play or in-game billing models' titles, the basis is expanding and it's not a bad thing in overall picture.

And from the second half to the next year, what is the impact? We incorporate the deceleration in the first half and then downward revision for the second half. When we had our forecast at the beginning of the year, the spikes and upside of seasonality of the past have been incorporated, but in actuality, there were not such spikes. So it was a modest flat in that sense, which means, for the second half, I think we do not have to make any further revision but this entails some uncertainties. But as I mentioned earlier, when a certain title decelerates, then we see that the customers are shifting to that title -- the other titles and that would mitigate a fluctuation.

About the CapEx of ¥700 billion, any changes there from '18 to '20, for 3 years, ¥700 billion was announced earlier. But in view of the current demand and to respond to that, for the next MRP portion, the investment may be advanced to the tune of several tens of billions of yen. There is a possibility of increase by that margin. And this also is related to the delivery of equipment and so we cannot be certain, but there is such possibility I'd like to refer to. And also the internal production and outsourcing of 138,000 production, the volume of outsourcing remains unchanged. So in terms of proportion, internal production portion would increase.

Unidentified Company Representative

Please raise your hand if you have more questions.

Junya Ayada

Ayada, JP Morgan Securities. I'd like to also ask 2 questions, one of Game and also another one on image sensors. Firstly, about Game business, looking at the additional information that you provide us, I'd like to ask you to elaborate your view of the business environment. Looking at last year, Game software is down by ¥40 million. Spider-Man, the impact is there, but still, that's ¥5 million or ¥6 million. Also, the tie ratio is rather down significantly. I'm concerned about that. Is this just temporary phenomenon? Or is there change in the environment generally?

And also the free-to-play games, is it just a part of the titles -- some of the titles declining significantly? Or is it a more broad sort of a decline -- broader decline for these titles in general?

Secondly, about the I&SS. You're going to increase your capacity for production. But compared to the previous situation, beyond 2021, looking at the applications, is it going to be smartphones or automobile or IoT or HAI? So which application is likely to increase more beyond 2021? Can you give us your feel? And as this happens, your previous plan of ROIC between 20% and 25%, do you think it's going to be more upside, more positive change? Or is it going to be rather difficult?

Hiroki Totoki

Thank you. So the software decline compared to last year, last fiscal year, Spider-Man was there, God of War also, very strong titles were there last year. So that difference is very significant rather. Therefore, in total, we're seeing a shrinkage in the software market. No, that's not our view. So that's the first point.

And secondly, the free-to-play from third parties, there is a concentration. In other words, it's not multiple titles, just a few of concentrated titles performing. And also about I&SS capacity increase, what is our view, well, in essence, for 2020 or 2021, I think it's going to be smartphones. Smartphone demand will still be strong. Because of multi-sensor cameras increasing and the larger-sized sensors being used, the increase is rather significant there and demand from customers for our image sensors will continue to be very strong. This means that other applications are not going to be visibly significant in terms of their percentage in total revenue.

Unidentified Company Representative

Next question, please?

Ryosuke Katsura

SMBC Nikko Security, Katsura is my name. I have questions about I&SS and capital allocation. First, about I&SS, capacity expansion, the actual progress in the second quarter and any forecast going forward on Q3? And for the second half outlook, well, you mentioned briefly on that, that is to say that you're going to have the full capacity utilization. What's your view on the level of inventory on Q4?

On Page 6 of the Annex, this is an inventory situation displayed there. Last year -- compared to last year, what's your take this year? Number of days or the absolute level, what is the assumption you used for the forecast? Second quarter's I&SS and upward revision and full year upward revision was so large.

Hiroki Totoki

First, about the capacity, for the wafers, Korenaga-san will answer.

Hirotoshi Korenaga

For capacity, as of the end of Q2, capacity was 108,000, 1-0-8-K. The previous time, it was 1-0-5-K, so a small increase was there. Now, as of the end of the third quarter, at this moment, 1-1-7-K, 117,000, that is what we expect. After 3 months, gradually, we are going to increase the capacity. For the input, Q2 was based on the full capacity utilization, the same thing with the third quarter.

About the inventory, this is strategic inventory as we call it. Our assumption is that in the second half, among the production, in terms of wafers, 50,000 wafers, that's the strategic inventory we plan for the second half. In the second half, at this moment, it seems the demand remains strong. Whether we can accumulate the inventory to that level or not, it's difficult to foresee.

Ryosuke Katsura

My second question, capital allocation. Going forward, the sales of businesses and other assets and investments are expected here, ¥109 billion -- well, no, ¥190 billion of sales. These numbers incorporated already what has been achieved. Or in the second half, to a certain extent, there are certain things you expect and you factored them in as well in coming up with these numbers?

Hiroki Totoki

Our basic idea, whatever we sell, it's difficult to show you the plans, so we focus on what we have done. About strategic investment, deals are done, but execution is yet to come and we include them as well. So basically, this is how we display our situation. Thank you.

Unidentified Company Representative

Next question, yes?

Yasuo Nakane

Nakane of Mizuho Securities. First, one point concerning Mobile. This time, the second quarter surplus and for full year increased by ¥10 billion. Why the unit number decline? And for the next fiscal year, what is the likely of improvement of the surplus? And domestic market plus alpha would be the forecast. And the cost-reduction is going well immediately. What is the background and the forecast? And also in terms of business, if you could make a strategic update and talk about upside.

Hiroki Totoki

The balance between first half and second half, that is very difficult to see at first glance, and so I'd like to talk about the substance of the first half and second half. For the first half, there are onetime factors, which affected the result upside, pushing up the profit; whereas, for the second half, we have onetime expense giving a downward pressure. So excluding the onetime factors and compare the second half to the first half, the sales increased by ¥13.2 billion and the operating profit, ¥8 billion; the increase of sales, ¥23 billion. And that reflects the current basic strength.

And compared to the initial forecast, how the restructuring progress, the restructuring is progressing earlier than the plan. So in terms of break-even point, it would be lower than initial expectation. So our conclusion is that as we have been saying in the past, for a positive turnaround, in next fiscal year, we should be able to achieve that.

And about the sales units, the number is domestic sales plus alpha. And whether we can make a positive turnaround or not is the issue, and my current view is that they should be achievable. And you talk about upside possibilities. For the time being, the form factors of the smartphones and to pursue an upside over a short period of time would entail too much business risks and rather difficult. Therefore, we would like to make our operations slim and strong and muscular and to look at our very basics in our strategy.

Unidentified Company Representative

We passed our time to conclude, so the next one will have to be the last question, if there's a question.

Satoshi Sakae

Sakae with Daiwa. I just have one question about energy product solutions. Other than smartphones, TV, audio, video as well as video cameras, what's the trend-wise results on a Y-o-Y basis, profit increase or declines, so EPS other than smartphone products?

Hiroki Totoki

I'd like to indicate to you the direction in terms of the profitability. For TV, as far as TV is concerned, both top line and bottom line are down. Revenues and profits are down. And I guess you were asking about the second quarter?

Satoshi Sakae

Yes.

Hiroki Totoki

And as far as the audio and video is concerned, both top line and bottom lines are up.

And also, Digital Imaging, DI, the profits are down, though revenue is up. And Professional Solutions, the revenues are down, and profits also are down.

And if I may give you some narrative description of the situation. For TV, the unit sales are down. Also we're impacted by Forex situation. Audio and video, particularly audio business, true, more or less headsets have done very well in sales, so that contributed significantly to the increase in revenues. Digital Imaging, there's a negative impact of Forex situation, but there's impact of the new product introduction. That's why the revenue is up.

For Professional Solutions, unfortunately, it's a negative impact of Forex and also deterioration in Chinese market. The 2 factors affected us, so that both top line, bottom line at the projectors, for instance, and camcorders have faced very much of a difficulty.

Unidentified Company Representative

Thank you. With that, we will conclude our earnings announcement session today. Thank you for your participation.