Sony Corporation (SNE)
F2Q10 2010 Earnings Call
October 29, 2010 8:00 am ET
Sam Levenson - SVP of Investor Relations
Masaru Kato - CFO
Robert Wiesenthal, Group Executive, Corporate Development and M&A for Sony Corporation and EVP and CFO of Sony Corporation of America
Tsuchikawa - Senior General Manager, IR division.
Daniel Ernst - Hudson Square Research
Kota Ezawa - Citigroup
Yuji Fujimori - Barclays Capital
Mark Harding - Maxim Group
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As a reminder, this conference is being recorded for replay purposes. I would now turn the presentation over to your host for today’s call to Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America. You may proceed.
Thank you all for joining us today, October 29, 2010 for the discussion of Sony’s second quarter results. I am Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America.
With me on the conference call tonight is, Masaru 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 again Tsuchikawa Senior General Manager of Investor Relations division.
Thank you all very much for joining us. In just a few moments, we will review today’s announcement, then we will be available to answer your questions. Please be aware that statements made during the following remarks and Q&A session with respect to Sony’s current plans, estimates, strategies, press release and other statements that are not historical facts are forward-looking statements about the future performance of Sony. These statements are based on management’s assumptions in light of the information currently available to it, and therefore you should not place undue reliance on them.
Sony cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements. For additional information as to 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 www.sony.net/ir.
Let me remind you that a webcast replay of the investor meeting held earlier today, along with the slide presented at that meeting and our detailed earnings release are available on our website for your access. With that, let me turn to today’s announcement.
The results for the second quarter and our upwardly revised earnings forecast for the full fiscal year are reflective of the strong operational turnaround that the company is experiencing. Unlike a year ago, when the bulk of our earnings and our earnings growth came from the financial services businesses, we are experiencing expanding margins in our core businesses with substantial improvement.
In particularly this past quarter from both game and VAIO. In fact, this is the fourth consecutive quarter that the game business has been profitable and the third consecutive quarter the Sony Ericsson has been profitable. As a result, we are on track to achieve ¥170 billion year-over-year improvement in operating profit.
The recent successes of innovative products as well as building momentum in new products are helping us to achieve the success. For example, Sony Ericsson Xperia X10 smartphone achieved 21% market share shortly after its launch in Japan. Our new NEX-3 and NEX-5 cameras with interchangeable lenses have met with great success and the recent launch of both Sony Internet TV powered by Google TV and the PlayStation move are both off to a very strong start.
Similarly, our entertainment businesses continue to generate earnings in line with our plan, and we have a very strong pipeline of upcoming movies and music in the next six months. In addition, the video game pipeline has a number of image titles including Gran Turismo 5, LittleBigPlanet 2, and Killzone 3.
Clearly, challenges remain. Certain geographies such as the US and Europe, certain products such as the TV category, and obviously foreign exchange rates are creating a strong headwind for us. Given this, we have a very cautious view on the second half of the fiscal year, but despite that, we have raised our full year operating profit forecast to ¥200 to reflect the strength of the results achieved in the second quarter. Let’s discuss those results in more detail.
Consolidated sales for the quarter increased 4%. On a local currency basis, sales increased 13%. Consolidated income of ¥68.7 billion was recorded, an improvement of ¥101.2 billion compared to the same quarter of the previous fiscal year, primarily due to improvements in operating results in the network products and services segment. Net income attributable to Sony’s shareholders was ¥31.1 billion, an improvement of ¥57.5 billion, compared to the same quarter of the previous fiscal year.
On a segment-by-segment basis, let’s start with the Consumer, Professional and Devices segment. Sales increased 1% and sales to outside consumers increased 3%, primarily due to an increased in LCD TV sales brought on by an increase in units.
Operating income increased primarily due to an increase in gross profit, resulting from the sales increase, an improvement in the cost of sales ratio and a decrease in restructuring charges.
SG&A expenses increased due to aggressive advertising and promotion efforts designed to support our strong product line up.