Sony Corporation (SNE)

F1Q 2011 Earnings Conference Call

July 28, 2011 09:00 ET


Sam Levenson – Senior Vice President of Investor Relations

Mark Kato – Chief Financial Officer

Robert Wiesenthal – Group Executive, Corporate Development and M&A and Executive Vice President and Chief Financial Officer

Yoshinori Hashitani – Vice President of Senior General Manager of Investor Relations Division


Daniel Ernst – Hudson Square Research

Andy Hargreaves – Pacific Crest Securities

Kota Ezawa – Citigroup

Louis Schreurs – LS Consultancy



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Good day, ladies and gentlemen and welcome to the First Quarter Fiscal Year 2011 Sony Corporation Conference Call for Overseas Investors. My name is Jeremy and I will be your operator today. At this time, all participants are in a listen-only mode. We will later conduct a question-and-answer session. (Operator Instructions)

I would now like to turn conference over to your host for today to Sam Levenson. Sir, you may proceed.

Sam Levenson – Senior Vice President of Investor Relations

Thanks so much for that introduction Jeremy. And thank you all for joining us today July 28, 2011 for the discussion of Sony’s first quarter results. We hope you enjoy the Adele’s latest hit while you were on hold.

I am Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America. And with me on the conference call tonight is Mark Kato, CFO of Sony Corporation; Robert Wiesenthal, Group Executive, Corporate Development and M&A for Sony Corporation, and EVP and CFO of Sony Corporation of America; and Yoshinori Hashitani VP of Senior General Manager of Investor Relations Division at Sony. Thank you all very much for joining us.

In just a few moments, we will review today’s announcement, then we’ll be available to answer your questions. Please be aware that statements made during the following remarks and Q&A session with respect to Sony’s current plans, estimates, strategies, press release and other statements that are not historical facts are forward-looking statements about the future performance of Sony.

These statements are based on management’s assumptions in light of the information currently available to it and therefore, you should not place undue reliance on them. Sony cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. For additional information, as to risks and uncertainties, as well as other factors that could cause actual results to differ, please refer to today’s press release, which can be accessed by visiting

Let me remind you that a webcast replay of the investor meeting held earlier today, along with the slides presented at that meeting, and our detailed earnings release are available on our website for your access. With that I am now going to turn to today’s announcements.

I am pleased to report that the company was successful in posting ¥27.5 billion in operating profit for the quarter despite the greatest Japan earthquake and the duration in electronics business environment. Each of the reportable segment posted results, which exceeded our main forecast. While the yen continues to strengthen and the business environment remains challenging particularly for TVs. We believe that the outperformance across most of our businesses will be sufficient to offset the pressure and as such, we are maintaining our full year outlook for operating profit to be approximately ¥200 billion. We’re also pleased to note that the recovery process from the earthquake is proceeding well ahead of our initial expectation.

Let’s discuss the first quarter results in detail. First I’ll explain the results of the consumer, product and services segment. CPS segment sales decreased 18%. This is primarily due to lower sales of LCD TVs and PCs resulting from price declines. Operating income decreased ¥26.9 billion to ¥1.7 billion. This was driven primarily by lower gross profit resulting from a decrease in sales and a deterioration in the cost of sales ratio partially offset by lower SG&A. And excluding restructuring charges, the product categories for the deterioration and operating results included LCD televisions reflecting a decline in prices and video cameras reflecting a decrease in unit sales resulting from the market trends.

In the TV business sales decreased 17% to ¥243 billion due to price declines and the impact of exchange rates. During the quarter, LCD TV unit sales decreased 4% year-on-year to 4.9 million units. Unit sales decreased because of challenging market in Europe and in North America where competition increases. On the other hand, unit sales increased significantly in Japan and other regions including developing countries. Excluding restructuring charges, an operating loss of ¥14 billion was recorded in the TV business. That’s down ¥17 billion year-over-year. This was due to pricing of declines I just cited partially offset by the impact of material cost reductions, expense improvement and the benefit of restructuring activities.

Next in CPS is digital imaging business. Compact digital cameras and video cameras experienced a decline in sales and operating income due to a decrease in unit sales resulting from the earthquake, unfavorable exchange rates and price declines. However, we maintained a high operating profit margin due to further cost reductions.

Turning to game business, game business sales, which include network service revenues decreased year-on-year due to the impact of PS3 hardware which did not have as much momentum from hit titles at the same quarter over the previous fiscal year Red Dead Redemption was released. And due to the PS2 business as a whole, which continues to have steady demand that is picked up in insurance. Although sales decrease and results were impacted by our efforts to deal with the unauthorized network access. Operating performance of the game business as a whole including our network business was basically unchanged year-on-year because of the reduced in the hardware cost of the PS3.

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