Now we'd like to start the fiscal '15 third quarter earnings announcement of Sony Corporation. Thank you very much for coming to this announcement session. I'd like to introduce the presenters to you.

In the middle, Executive Deputy President and CFO, Representative Corporate Executive Officer, Kenichiro Yoshida; and next to him is Kazuhiko Takeda, SVP, Corporate Planning and Counsel and Accounting (sic) [ Corporate Planning & Control and Accounting ]. On the right from your side, Atsuko Murakami, VP, Senior General Manager of Finance Department. .

Yoshida will start with the presentation and then Q&A follows that and in total 40 minutes. .

I'm Sony's CFO, Kenichiro Yoshida. Thank you very much for joining us today. And today, I'd like to explain these 2 topics in the next 15 minutes. In the third quarter, consolidated sales were essentially flat year-on-year at JPY 2,580.8 billion. Consolidated operating income increased 11% year-on-year to JPY 202.1 billion.

This is the first time in 8 years that we have recorded more than JPY 200 billion of operating income for the third quarter since the fiscal year ended March 2008. Net income attributable to Sony Corporation's stockholders increased 33% year-on-year to JPY 120.1 billion. This chart shows the cumulative results for 9 months. .

Now this shows the results by segment. The operating result of the Devices segment significantly deteriorated compared to the same quarter of the previous fiscal year. Every segment, other than Devices segment, had an increase in operating profit.

The decrease in operating income in Devices segment offset by the increase in operating income in Other electronics segment of JPY 35.6 billion and by the improvement in operating result in All Others and Corporate elimination of JPY 33.1 billion, thanks to the contribution of restructuring initiatives.

I will explain the current situation of Device segment in a moment. This shows the 9-month cumulative results by segment. .

Next is the consolidated results forecast for the current fiscal year. Our consolidated sales and operating income forecast remain unchanged from the October forecast. Our foreign exchange rate assumptions are JPY 120 to the U.S. dollar and JPY 129 to the euro. The fiscal year result forecast for each segment are shown on this slide.

In this forecast, we use the same foreign exchange rate assumption for both the consolidated and segment forecast..

Now I will explain the current situation of each segment. First, I will talk about the Mobile Communications segment. During the quarter, operating income was JPY 24.1 billion, an increase of JPY 13.8 billion year-on-year.

Compared to the same quarter of the previous fiscal year, operating income increased because we were able to offset the decrease in smartphone unit sales and approximately JPY 18.8 billion negative impact of the foreign exchange rate by improving the product mix and reducing cost, primarily as a result of restructuring.

We will continue to manage the Mobile business by narrowing our product lineup and geographic forecast. Restructuring is currently proceeding on track. Pursuant to our policy of prioritizing the profitability, we revised downward our initial forecast to 25 million units, primarily for mid-range models.

But our fiscal year forecast for sales and operating income remains unchanged..

Next, I will talk about Game & Network Services segment. Despite the negative impact of foreign exchange rates, the strong momentum of PS4 continues. Also, Network sales are strong, increasing by approximately 50% year-on-year. We revised upward our fiscal year operating income forecast for this segment by JPY 5 billion to JPY 85 billion.

We are preparing for the launch of PlayStation VR. We are trying to create a new entertainment experience by leveraging the approximately 36 million unit installed base of PS4. Both gamers and game creators are looking forward to this product. .

Next, I would explain the Imaging Products & Solutions segment. For the quarter, sales decreased but operating income increased year-on-year to JPY 23.7 billion. We have been successful in shifting to high-value-added models within the shrinking camera market and the business continues to be strong.

We revised upward our operating income forecast for the fiscal year by JPY 5 billion to JPY 63 billion. In the medical business, which is included in this segment, the 4K surgical endoscopy, which was jointly developed with Olympus Corporation and Sony Olympus Medical Solutions, Inc. is being received well. .

Next is the Home Entertainment & Sound segment. We have disclosed the financial results of the TV business, which accounts for most of the segment, and it is below the graphs on the slide. Sales decreased during the quarter, but operating income increased year-on-year to JPY 31.2 billion.

The operating income of the Television business, which is included in the segment, was JPY 15.9 billion for the quarter. We revised upward our operating income forecast of this segment for the fiscal year by JPY 13 billion to JPY 38 billion. The benefit of combining the operations of the Television business with our sales company is revealing itself. .

Next, I will talk about the Devices segment. Sales for the quarter decreased significantly year-on-year and operating results deteriorated by JPY 65.5 billion year-on-year. An operating loss of JPY 11.7 million was recorded.

In the battery business, we recorded a JPY 30.6 billion of impairment charges against fixed assets due to a deterioration in profitability resulting from more severe competition.

The operating results of the image sensor business also deteriorated year-on-year, and we significantly revised downward our operating income forecast for this segment to JPY 39 billion. In light of the situation, we decided to reduce a portion of our capital expenditure plan for the semiconductor for this fiscal year. .

Now I would like to explain the profitability of the Devices segment and what led to the state of affairs. The next slide is not included in your presentation materials, but it shows the breakdown of the Device segment's operating income in the current and previous fiscal years.

It shows the breakdown of 4 categories of image sensors, camera modules, batteries and other. We expected to increase operating income in the image sensor business, but it is currently expected to be flat year-on-year.

This fiscal year, increased research and development expenses and underperformance of the battery and camera module business are negatively impacting the operating performance of the segment. .

The next slide shows the quarterly breakdown for 2 years. Last fiscal year, we received larger orders than expected in the image sensor business, including in the fourth quarter. As a result, our ability to supply the market has been constrained since the beginning of the current fiscal year.

After that, we had an issue with our production equipment for the summer, which resulted in not being able to supply product to certain customers as planned, causing us to decline their orders.

After we resolved our supply problems due to a resolution of the production issue and after we increased our production capacity as planned in the beginning of the fall, demand from our customers started to decrease.

Especially since last November, demand from our major customers decreased due to slower growth of the smartphone market, the main applications for our image sensors in the high-end market.

In addition, since we supply custom-designed products to some of our major customers and there is an approximately 5-month lead time to manufacture an image sensor, it is difficult to switch our production lines over to other customers efficiently. Thus, the impact of the lower demand is quite large..

We believe that the image sensor business will start to recover from the first quarter of the next fiscal year, but we will formulate a business plan based on the assumption that growth of the smartphone market will slow.

In the light of this situation, we decided to revise our plan to increase production capacity even though we will continue to work to increase the sales of our image sensors while we will continue to work to increase the sales of our image sensors.

And we previously announced a plan to reach 87,000 wafers per month by the end of September, a little less than 20% of which was scheduled to be outsourced, and we are revising the plan primarily on this outsourced portion. And we will finalize our capacity road map during the budgeting process that is currently underway for the next fiscal year.

And we believe that image sensor business will be challenged in the short term.

However, there is no change to our view that this business is a growth area for Sony in the long run, thanks to an expected expansion of dual lens cameras and opportunities in areas such as the Internet of Things and automotive use, even though we think that these areas will take some time to evolve. .

As for the Camera Module business, production yields during the first half of the fiscal year did not increase and we were late in supplying products to our customers.

Currently, yields have improved, but due to the deceleration of the smartphones market, that I mentioned earlier, the forecast for future demand is decreasing and we think it's possible that profitability of the business could continue to be negatively impacted.

And it is possible that this business environment could result in an impairment charge against long-lived assets in the camera module business that we may have to record. .

Next, I will touch upon the Pictures segment. Sales and operating income for the quarter increased year-on-year, and operating income stood at JPY 20.4 billion. And our forecast for the full year remains unchanged. .

The next about Music segment. Sales and operating income for the quarter increased since last year and JPY 27.4 billion in operating income was recorded. The reason for this increase in profit was an increase in the proportion of streaming revenues in Recorded Music sales.

We revised upward our operating income forecast for the fiscal year by JPY 10 billion to JPY 84 billion. We think there are 3 reasons for the strong performance of the Music segment. The first reason is related to the conventional artist business. As seen in the success of Adele, we have had hit titles. The second reason derives from the market trend.

We see signs that music market is finally bottoming out due to the rise of streaming services such as Spotify and Apple Music. The third reason has to do with the diversification.

Fate/Grand Order, a smartphone game developed by Aniplex, which is a subsidiary of Sony Music Entertainment Japan, has become a hit and this is contributing significantly to our profitability. .

Next, let me talk about Financial Services segment. Compared with the same quarter of the previous year, sales and operating income increased and JPY 52.2 billion of operating income was recorded for the quarter. Acquisitions of new policies continuing to steadily increase at Sony Life and our forecast for the fiscal year remains the same. .

In conclusion, I will show this chart which displays the forecast of each segment compared with the previous fiscal year. As you can see, the operating income of Devices and Pictures, these segments are expected to decrease year-on-year.

The management team deeply regrets this current situation because we positioned these 2 segments as growth drivers for Sony in the maintenance [ph] plan for 3 years from beginning in the current fiscal year.

On the other hand, operating income of the other segments are expected to increase year-on-year, and the Financial Services continued to be strong if we exclude the impact of the market fluctuations. So although we -- although new challenges have manifested themselves in our growth areas, we believe the profitability of Sony overall is improving. .

And this completes my explanation. .

Now the floor is open to your questions. Those of you who would like to ask questions, please wait for the microphone and please identify yourself by stating your name and affiliation before asking the questions. When your questions are asked in English, there will be interpretation into Japanese consecutively and answers be given in Japanese.

Please confine the number of questions to 2 per person.

Anyone with questions?.

The person in the front row. .

Ayada of Daiwa Securities. There are 2 questions concerning Device business.

First point, again, the numbers for the full year this year, the operating income of Device business was reduced by JPY 82 billion and JPY 30 billion about impairment, remaining JPY 50 billion, the breakdown image sensors, camera module or if you can give us some rough image of the numbers broken down. The second point, Mr.

Yoshida earlier mentioned that there will be a recovery starting in first quarter next year. That I think is the current judgment.

What are the reasons or the ground? There will be a production adjustment or are you expecting new orders coming in? What is the background of your belief that recovery will start in the first quarter next year?.

Thank you for the questions. The first point about the numbers Takeda will explain, so let me answer the second point. The recovery trend starting first quarter next year, the first quarter will be coming soon in terms of timing so we -- based on the order situation, it is, for us, visible that signs of recovery from the first quarter.

And the -- after that, beyond the first quarter, as I mentioned, the growth of smartphone, especially the high-end products may not be very brisk and we are reworking the budget currently. And about the next -- about the direction, the next earnings announcement we can give some explanation. .

And your question has to do with the difference or the decline in the operating income compared to the plan at the beginning of the year. You mentioned JPY 30 billion impairment, the remainder in terms of rough calculation maybe 1/3 each. .

Let us go to the next question, gentleman behind the person who just asked the question. .

Nakane from Mizuho Securities. My question is also on the Devices. Two questions. Camera modules, you talked about the possibility of posting the impairment charges. What will be the size and what are the assets which would be impaired? I think you have a plant in China and also the Kumamoto plant is being constructed.

What are the risks of those locations? And if there are risks, what would be the reason? And also, you have revised downward your forecast of the capital investment. So you're reducing the CapEx and I'm sure you are revisiting the R&D numbers.

How much impact will it have on next year's cost reduction or expense reduction?.

The first question I think was about the module, the scope of the assets that we have in mind. The second question is about the fact that we have revised downward CapEx and how does it lead to the decreased cost next year. Mr. Takeda will respond. .

On the first question, the possibility of taking the impairment charges in camera module is a possibility. We have just stated that there is a possibility. So when it comes to the timing and the amount, we are not in a position to disclose those numbers. But in terms of the size of the scope, we look at the fixed asset.

I think you have the balance which is on Page 16, Device business is approximately JPY 430 billion and of which 15% of such asset is used for camera modules. This is for information. What assets will be covered? Would it be in China or in Kumamoto? That was your question.

Again, it's more an accounting discussion, but we just categorize as a Device business, so both locations would be within that scope theoretically. Now we downward revised our forecast for the next year's CapEx, how would it translate to the reduced expense or cost? The details are now being worked out.

We are still in the process of finalizing the budget and we have yet to determine that. But a part of this revision or what we have downward revised will be shifted or postponed to next fiscal year. And of course, we are having this duration of 5 years, so depreciation will be 5 years, so it will be within that period. .

I'd like to take the next question from the gentleman in the middle. .

Ezawa of Citigroup. Two questions, please. Firstly, Mobile business, you are in black ink this time. Restructuring seems to be successful, working successfully. So restructuring of the Mobile business.

Can you give us a progress report, an update? The performance seems to be better than what you had initially intended, so what's working well for you, if you can tell us, and why is the business profitable now? And by product and by geographical region, perhaps you can give us some detail.

So what has been the problem in the past and what has been the improvement you've made? And also, the recovery in profitability, is it just a, call it, onetime thing or is it going to be sustainable? So the first question on Mobile business. And also, the Electronics business overall. Mr.

Yoshida, at one time before, you said between the third quarter and fourth quarter, there's a seasonal sort of difference. Third quarter tends to be very profitable, fourth quarter not so. And you said you wanted to normalize the profitability of the 2 quarters. And this time, your third quarter results are extremely favorable.

Now what about the fourth quarter? You're expecting a significant deterioration in fourth quarter, but have you been making any progress with regard to your efforts to normalize and even out these seasonal differences?.

Thank you. Your first question Mobile business and also the second question was regarding the profitability to be normalized between the third and fourth quarters. First of all, on your Mobile question restructuring initiatives, they're progressing as scheduled. We're doing them as we planned.

And also, we said earlier that we knew where the losses are being generated by area and said we are taking actions. And indeed, progress has been made in that front as well. So by area, by product, we have a clear focus and also the initiative to -- determination to continue with the cost reductions.

I may say that things are moving according to our plans, and the profits that we generated in the third quarter are results of all those initiatives. And also, the high-end models of Xperia, we're able to successfully ship them out.

And you can just compare the numbers, we have not changed the annual full year forecast which suggest that in the fourth quarter, yes, we are looking at a loss, the red ink in the fourth quarter because the restructuring cost are concentrated -- will be spent in a constant manner during the fourth quarter.

So please understand that much of the negative will come from the spending in restructuring. And whether this performance is sustainable, first of all, it's a function of to what extent we're able to successfully ship out high-end models. In other word, whether our focus in areas as well as in the products will be successful or not.

And also, the normalization and averaging out of the results between the third and fourth quarters, yes, we are taking actions to do this. And for our branded products, we have achieved some results in that respect, but the -- we are still underway to regain the people's confidence with regard to our forecast.

And the business environment is changing particularly with the Mobile business and, therefore, there are risks that we are still looking at. And it's on that basis that we are working on with these forecasted numbers. About inventory, end of December, inventory is large toward the end of the year.

But to reduce that, it tend to lose money in the month of February and March and that seems to be the trend for a long period of time. But this time, as we look at the inventory level, I'm not going to say that inventory is low extremely, but not so high either. .

So January to March, is it going to be like other years? You don't have to forecast a large loss of the money in this period given the current inventory levels.

Is it [indiscernible] because of the buffer you have in the eliminations? In other word, the P&L for your business segments, your message is that there'll be an improvement in all of your business segments for the fourth quarter compared to the practice in the past. .

Well, yes, in the past when we are pursuing the volume of business so that you have to forget about the P&L just to get out -- get rid of the inventory that has been accumulated toward the end of the previous quarter. We have changed -- shifted away from that practice.

Let me add these remarks, we have the annual full year forecast and subtracting the cumulative results of the first and second, third quarters from that which will give you a number. Mobile and HE&S, there has been on those branded products, IP&E and Home Entertainment, there has been some improvement compared to last year. .

The second row?.

Sugiyama of Goldman Sachs. Two points. In Music segment, you made the upward revision and you cited 3 reasons and breakdown.

And especially the streaming, the shift from download to streaming, what is the impact on the Music business profit? So second point concerning Game & Network Services, PlayStation Plus or Game sales are conserved [ph] by accumulation, now when you take up -- take out the Network business alone, what is the profit situation? And what about the fixed expense in this segment and the future forecast and outlook?.

The first point in the supplementary material, I think there are the breakdown numbers, so please refer to them. Well, there are 3 factors I cited, and it's very difficult to allocate the profit for each factor. But clearly, going forward, there will be a shift to streaming in terms of sales and profit, will depend more on streaming.

And also, in other group like animation or major artists. Major artist release are more or less concentrated in the third quarter, so that's another aspect. And in Game business, since we released in summer last year, there is a major hit and a great contribution to the profit. And the Game, Network Services, the number of members appears a plus.

We do not disclose the actual number, but along with the expansion of hardware basis with the similar momentum, number of members is increasing. The investment in infrastructure, we continue to make a current investment and the systems cost is incurred on a continuous basis, but we do not assume a major increase in investment going forward.

But rather, the current fiscal year -- well, because we are preparing for the launch of PS Vue, the multichannel OTT. And we've finished the -- we concluded the agreement with Disney, so the promotion and also investment to secure content. So from the end of current fiscal year on to the next fiscal year such investments will be made. Mr.

Takeda, in supplementation?.

Concerning the first question, the impact of streaming business or the positive impact on our business, well, the increase in sales of streaming business will offset the decline in physical disk business. That's one. And also, by the nature of this business, the cost of physical distribution and so forth will be reduced when streaming increases.

Therefore, there will be the improvement of mix. Thank you. .

There was a mention of supplementary information, and it is not attached to your handout but in the [indiscernible] supplement information on our website and there is a new disclosure of streaming information of business. .

We are going to go to the center. Thank you. .

Ono for Morgan Stanley. Two questions, just 2 questions. Device, the numbers have been revised downward. It was JPY 120 billion originally your plan but you've changed it. Now as you look into the next fiscal year, as of today, I think it's 68k of CMOS capacity.

If things progress, I believe the operating income of JPY 120 billion is quite manageable and is it feasible? Or given the competition and the pricing trend, do you think that you have lost some opportunities? And I think the expectation, if the competitive landscape is the same that you will still be able to generate this level of operating income.

And also recently, there have been news about M&A and your company's name is also mentioned in those news reports.

As you talk about the acquisition in the future, what will be -- how would you look at the acquisition? What would motivate you to go into the M&A?.

Now I think your question first was about the Devices earnings or operating income next year. And the second question was about M&A possibility. The first, next fiscal year earnings, we're still in the process of putting together our budget. Therefore, we can only discuss this after we finalize our budget.

The pricing trend, the commodity is sensor price, it's softened with 8 mega. It's commodity type, 13 mega, the prices has also come down for commodity, but we have a layered, multilayered. And also, we have the custom products made to the specification of the customer, and that portion is fairly large.

Therefore, I think our numbers will be somewhat different from the market trend. What is most important is that the demand became very tight last year and we lost our customers, so we have to recover.

We will have to make efforts to -- so that those customers that we have declined the orders can -- will come back to Sony and we can resume servicing such customers. Now M&A, if there are opportunities? Well, we look at those possibilities in a very sincere manner. That is our basic philosophy.

Electronics, in Belgium, we acquired Softkinetic and also, the Israeli Altair. In doing our businesses and continuing businesses, we look at the business per se or customers, but rather we try to look at the technology that we may be able to obtain to complement and supplement our technological portfolio.

So currently, we are looking more on the technological side. .

Next question, please, in the second row. .

Katsura, SMBC. Two questions, one on Devices, second on GM [ph].

First of all, on Devices business, you made adjustment this time which means that the load factor for the fourth quarter will reduced by -- to what extent? And the impairment on the camera modules that you talked about, you suggested that this could happen, and understanding is that the development processes been completed already, so I understand that next year you'll be launching this.

But you are taking impairment this time, is it because you won't be successfully launching this? Or even though the launch and the development will be made, but profitability will not be realized initially? Is that your understanding? And is that why you are incorporating this as a risk this time? I mean, you suggested about this risk earlier in the second quarter and you posted the impairment in the third quarter.

This time also, you are implying that there could be an impairment also; why is that? And also the second point, SCE and SNE integration was announced recently.

Is the headquarter will be moved to San Francisco? But at one time in the past, SCE business was going to expand outside of the PlayStation as a core, but this time, you're focused on PlayStation and then try to expand the PlayStation base business.

Is that the reason for this decision? And also, Aniplex success -- this animation success is as good as the Monster Hunter. So the spin-off type of a venture-type operation seems to have been successful in your experience.

But what's the strategy for the Game business on console and Mobile?.

I think there are 4 questions. Firstly, the loading factor, the rate of utilization. In the fourth quarter, yes, there's an idle facility now fully loaded for the Master and CMOS in both production in the fourth quarter, they are idled capacities, not -- facilities are not fully used. And the next question concerns the camera module.

So as far as the camera module business is concerned, I think your question was development of these modules has been completed already or have been -- not been successful in the development itself. I think that was the gist of the question.

Well, as you may know, we are a new entrant in module production and initially, yes, we were not successful, we were not able to deliver what we promised to deliver modules. But after that, for the shipment of the next product, there's a significant delay.

But now the yield as well as the quality have improved and they are at the very stable, improved level. However, for those to be newly produced, we have to always bear in mind the demand whether there will be demand. I don't think there's any problem with the development.

But on the demand side, we have to be careful whether there is indeed going to be a demand for what we produce. And also the integration of SCE and SNEI, Sony Network Entertainment, what's the thought behind this integration.

Game will continue to be the main but the music, video and PS Vue, multichannel OTT services or the use of PlayStation Network more extensively and offering global entertainment network services. That's the kind of service that we'd like to develop and establish. That's why we made decision for the integration.

As you know, the game contents creators or people in Hollywood -- for example, Netflix, with the digital contents -- well, changes regarding digital contents always start and begin in the United States and the systems that produce PlayStation-related services are in the United States.

And therefore, upon integration, we feel that it's better to headquarter this new entity in the United States. And also, the Fate animation, thank you for mentioning the success of this. The console games are one and application games another, they are totally in different roles, so to speak.

By discussing with the customers we can increase the business so it changes every day. So on one hand, our services such as the console sales, it's rather different. So console game, servicing that. And also, application of smartphones servicing and smartphone applications are 2 different types of businesses. .

Since time is running out, one last question. The front row in the middle. .

Okazaki of Nomura Securities. One point, about the impact of exchange rates between dollar and euro, you disclosed the impact.

What about the emerging market currency, there has been rapid fluctuation in terms of results of October, December and the forecast from January onward, what is the impact you foresee?.

About exchange rate impact, this was the question. And Mr.

Takeda?.

You talk about the emerging market currencies. During the third quarter or the fourth quarter also, dollar would continue to appreciate vis-à-vis the emerging market currency and we see the impact of it.

And the improvement of dollar-euro rate, that has a positive impact but against that decline in the emerging market currencies and a weak situation would be a negative impact for both third quarter and fourth quarters. .

Thank you very much. With this, we'd like to conclude this earnings announcement session. Thank you for coming..