Sony Management Discusses F3Q2010 Results - Earnings Call Transcript

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Sony Corporation (SNE)

F3Q2010 Earnings Conference Call

February 3, 2011 3:30 AM ET

Executives

Yoshinori Hashitani – VP, IR Department

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

Analysts

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

Presentation

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.

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