Welcome to the Sony Corporation Conference Call for Overseas Investors for the Fiscal Year Ended March 31, 2015. My name is John and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. And now I will now turn the call over to Casey Kuester.

Thank you very much for that introduction, John. And thank you, all, for joining us today, April 30, 2015, for a discussion of Sony's results for the fiscal year ended March 31, 2015. We hope you have all enjoyed Cassandra Wilson's, Going Forth By Day, while you were on hold. I am Casey Kuester in the Investor Relations department here in Tokyo. And with me on the conference call tonight is Kenichiro Yoshida, Executive Deputy President and CFO of Sony Corporation; Kazuhiko Takeda, Vice President and Senior General Manager of Sony's Corporate Control Department; Atsuko Murakami, Vice President and Senior General Manager of Sony's Finance Department; and Steven Kober, Executive Vice President and Chief Financial Officer, Sony Corporation of America. Thank you, all, very much for joining us. In just a few moments, we will review today's announcement, and then we'll be available to answer your questions. Please be aware that statements made during the following remarks and QA session with respect to Sony's current plan, 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 sony.net/ir. 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…

Thank you, Casey. I just wanted to say a few words about where I think Sony is in its evolution, and where we plan to go in the future. Last year, our CEO positioned fiscal year 2014 as the year in which we would finish restructuring. As of today, we have largely accomplished our restructuring goal with the exception of Mobile. We have reduced our sales company costs by 20% and our corporate costs by 30%. And we have stopped the bleeding in Electronics, except for Mobile. A few months ago, we announced our second midterm plan which set us on a path to growth. In order to fuel this growth, we are positioning fiscal year 2015 as a year of investment. One of the largest investments we will make this year is in Semiconductors. Our fiscal year 2015 forecast for Semiconductor CapEx is JPY 290 billion. We expect to use JPY 210 billion of the JPY 290 billion to expand production capacity for image sensors. A large part of the remainder will be used for camera module production capacity. We're also making investments in the Game & Network Services business. These investments include: expansion of the installed base of PS4 and of PS Plus subscribers; enhancement of our service offering, including PS Vue third-party software and original content; and development of hardware such as Project Morpheus. Almost all of these investments will be expensed rather than capitalized, but we view it as investment just the same. I want to make one thing clear. Our investments are not aimed at achieving our fiscal year 2017 target of JPY 500 billion only just once. These investments are part of our plan to transform Sony into a company that can generate high levels of profit on a consistent and sustainable basis. Thank you for your attention. Back to you, Casey.

Thank you, Yoshida-san. I am now going to turn things back over to John, so we can start the Q&A session. Thank you, again, for your attention. John, would you please queue up the questions?

[Operator Instructions] And our first question comes from Richard Kramer from Area Research (sic) [Arete Research].

It's Richard Kramer from Arete Research. I've got a couple of questions. My first -- maybe I'll ask each one, one in turn. First, on the Mobile business. If you look at other peers in the smartphone industry who have made an effort to shrink their platforms to just high-value segments, it's been very difficult to be profitable. And I noticed that you don't have a long-term return-on-invested-capital target for that business or sort of a near-term return invested capital target for that business. Is this a long-term commitment for Sony to stay in Mobile or is this shrinking up the business just to stage on -- a potential exit? And how should we think about that in terms of the investment you might make in the business to try to reach this sort of 8% to 15% target that you have?

Thank you for your question, Richard. Just to recap, your question was concerning our Mobile segment, about how other peers in the Mobile business when they've tried to move to the high-end, have not always been successful, and what our commitment is for long-term regarding the Mobile business?

Well, in our Mobile business, since we are doing good in the high-end mobile business in Japan, we are making double-digit profit margin in Japan. So based on the foundation, we think we can maintain the current business. And in addition to that, as I explained -- as Casey explained, this is the year to make restructuring, trying to reduce the operating cost by JPY 90 billion, and after that, we can count on the full impact from the benefit of the cost reduction beginning from year of '16. I hope this answers.

Okay. And on the -- I was a little surprised in the guidance for the Game & Network Services business, that given that you're entering a very large cycle and obviously, seeing growth in both software and the Network Services business, that the overall guidance for sales is roughly flat and -- as is the operating income guidance. Shouldn't the Game business, as Network Services and software grows, shouldn't that be becoming a much more profitable business? And equally, when we look at the PS3 shipments or non-PS4 shipments for the last few quarters, they seem already to be down to a very low level. So maybe you could explain why you don't have much higher aspirations in the near-term for profitability from the Game business?

Thank you for your question. Once again, just to recap, your question was regarding our Game & Network Services segment. Perhaps your concern was that the guidance that we have recently given is potentially conservative, and we have mentioned in the past that we are going to be growing the PS4 platform and Network Services. And you just wanted to ask about the targets and how we have set them.

Thank you very much for the question. And the purpose of this business is to build an entertainment network platform which is valuable to our customers and has a global presence, and it's a kind of a long-term business plan. And as for this fiscal year, although the Networks business is rapidly growing, but we have a couple of reasons. As we mentioned earlier, foreign exchange, decreasing sales of the PS3 platform, and investment in customer acquisition, customer -- our content and sales offerings and also hardware development. As for the PS3, PS3 is -- last year, was still quite a sizable amount and decline in PS3 is quite significant, because in case of PS3, we cannot reduce the price of PS3 hardware to the same level as prior generation, is the main reason. And again, as for the investment, that includes R&D in Game. As we disclosed in the handout, the R&D expenditure for the Game for last year was JPY 89 billion, and we are currently expecting, say, a double-digit expansion of R&D in both software and hardware development.

Okay. And then my last question is just on Pictures, since that's the area where growth stands out the most. And I'm just wondering, with the 16% growth you have forecast, how much of that is down to FX and why wouldn't we see a much larger impact on the bottom line if that business is, both in sales and in operating income, largely U.S. dollar-based?

Thank you. Once again, just to recap, your question was about our guidance for the Pictures forecast. How much of the growth that we have forecast for next year is due to foreign exchange? And a question just, again, about the guidance of the bottom line for that segment.

For the coming year, the forecast shows a growth of sales as you've pointed out. A portion of that comes from foreign currency rates. However, the biggest piece comes from our Media Networks business, which continues to grow. However, that's a business that we are growing, investing in and the returns aren't coming through as soon as -- as fast as we can. So the margins are still on the lower end, we're working to improve the margins. So that's why you don't see as big an increase as we would like in the short term. But in a few years, we expect to see much better returns as we've shown in the targets that we've set for FY '17 and '18.

And our next question is from Atul Goyal from Jefferies.

I've got 2 questions. Firstly, you shared something last time, in the previous quarter, you had mentioned that there are certain number of downward revisions that Sony had to do, maybe you said 10 quarters or 15 quarters in sequence. This is before you took over, and that was one of the reasons you were very concerned or careful about that guidance. So that's one. And second follow-up question is on Mobile. But if you could just take the first one and remind us what was the concern that you expressed the last time around, which makes you extremely careful when providing guidance?

So just to recap. Your question was about Yoshida-san's thinking about how he decides to create the forecast when calculating the business plan each year.

And also, specifically, he mentioned there were certain of times that certain numbers -- or certain occasions back-to-back that he had -- that Sony had to revise down. And this is something that he does not want to do in the future, that's why. So.

Okay. Thank you very much for the question. Yes, as we mentioned -- well, I think we are still regaining the trust of -- from capital markets because we -- as we mentioned, we have repeatedly downwardly revised our earnings forecast in the past, so one point. And as Casey mentioned, this fiscal year '15 forecast, we put about JPY 70 billion of risk buffer and second -- that's the second point. But having said that, as a whole, this forecast is our best estimate at this point in time.

Got it. The second question is related to Mobile and there was an earlier question, something similar. I wanted to follow up on that one, that we understand your Japan business is very profitable, probably the most profitable of all the regions. And since Totoki-san has taken over, my concerns have subsided. The belief is that he's probably one of the best people to run the business. But that being said, if you don't have a forecast of profits even this year and assuming that in contingency, at what point in time would you actually consider an exit strategy? Because we've been waiting for profits in Mobile for a very long time, and I understand that this is your last year of restructuring. You already completed restructuring in other businesses except for Mobile business; as you're saying this is the last one. But what is the contingency plan and why would you not consider an exit strategy when even this year -- Last year, when we started, we were expecting Mobile to be profitable, which was not the case as a whole. If this year is also a very large loss, what would be the exit strategy going forward, if at all? Or should we not expect an expression of exit strategy because, obviously, that hurts the prospects of exit, strategically? So you should not -- that you don't want to talk about it, obviously -- for obvious reasons, given that it will hurt the possibility of that partnership, if at all there is one?

Thank you for your question. Just to recap. Your question was about what strategic options we are looking at in Mobile, if the strategy doesn't pan out, and what would potentially trigger a contingency plan to exit that business.

Fair enough. Yes.

Thank you very much for the question. Well, in the Mobile segment, our first priority in Mobile is to implement restructuring and create a structure where that profit can be achieved without dependence on large level of scale. As for the contingency plan you mentioned, I believe that, Totoki-san, President -- current President, is thinking about variety of contingent plans and options. I hope this answers your question.

Our next question is from Jon Greenhill from Baring.

I'll just ask a question, just on the line at the bottom there, the corporate and elimination charge. It's still, obviously, a very big charge and you're looking for about JPY 187 billion negative this year. I just wondered, is that a normalized level now or are there still some kind of one-offs going through that number, and should that structurally be lower than that? Or do you have scope to restructure that number lower?

Thank you for your question. Just to recap. Your question is regarding our corporate and eliminations line that we disclosed, and whether or not the current level is the level that should be expected or whether or not there is going to be decrease going forward, or what would be necessary to trigger a decrease in that number as well.

Well, thank you very much for the question. I asked Takeda-san to answer the question.

Yes, this is Kaz Takeda speaking. Thank you for the question. With regard to the other segment, we have JPY 187 billion as the -- in fiscal '15. And out of that, we incorporated JPY 70 billion as the risk buffer from hedge -- headquarter mainly related to the foreign exchange gain -- foreign exchange risks. So apart from that, we have JPY 120 billion or JPY 130 billion in other element -- other segments. I think that is the normalized level of the expenses which we have today. However, having said that, in that JPY 120 billion or JPY 130 billion, we have a slight cost related to the VAIO after-sales service cost. So if we exclude that, probably JPY 110 billion could be the normalized level in the corporate -- the other corporate segment. Thank you.

That's very clear. And just, given that the Chinese were saying to the Japanese tax rate, I just wondered if you could guide us on your corporate-wide consolidated tax rate going forward?

Thank you, once again. Just to recap. Your question is about what kind of consolidated tax rate we are expecting going forward.

Yes.

One moment, please.

Well, I'm going to ask Takeda-san to answer the question. Before that, basically, we have a quite large portion of an -- net operating loss tax position. I don't think our tax ratio will significantly lower compared with the current fiscal year. Takeda-san?

I think that is true that we have a large net operating loss, and also, we have a valuation allowance within the Japan and U.S. and Europe. So until we will have -- we will generate the profit consistently, our tax rate could be higher than the normal level. Thank you.

[Operator Instructions] And we do have a question from Giles Edwards from Lazard.

I just wanted to ask on the CapEx. Obviously, a huge increase in CapEx this year related to -- particularly to the Devices segment. How should we think about the CapEx in future years?

Thank you for your question. Your question was in regards to the elevated level of our capital expenditures this year compared to previous years, and what level of capital expenditures should be expected going forward.

Okay. Thank you very much for the question. And this fiscal year is kind of a exceptional year since we are currently rapidly funding the capacity of CMOS sensor production. And in the past, the peak level of semiconductor CapEx was up around JPY 150 billion, and this year, as we explained, JPY 290 billion. And I think [indiscernible] this level will be reduced beginning from fiscal year '16 and going forward.

Okay. And then secondly, on your -- again, on Devices, in your guidance, JPY 121 billion. If you exclude the benefit from FX, that segment had actually very little EBIT growth. Why is that, please?

Thank you for your question. Just to recap, your question is regarding our Devices segment forecast, and if it excludes the potential benefit of foreign exchange rates next year. It looks like it isn't increasing much and the reason for that.

Thank you very much for the question. There are -- I think, there are 3 reasons. One is, we're expecting R&D expenditure increase, that is one point. And secondly, the depreciation amount will be increased in line with the increased CapEx. And third point is particularly in the fourth quarter of this fiscal year, we are expecting increase in stockpiling inventory. Those are 3 reasons. Thank you.

And our next question is from Mitesh Patel from Baring.

I have a strategic question within your Devices business and how you view CMOS sensor capacity. So you've announced a big capacity increase as part of the CapEx raise. But when you think longer-term and all of the potential of possibly automotives adopting increased cameras, how do you see your need to increase capacity in-house versus potentially continuing some outsourcing arrangements that you currently have? And then what kind of spend would that require over the 3 and 5-year period?

Thank you for your question. Just to recap, it was regarding our Devices segment and how we view future CMOS sensor capacity. With a potential increase in demand from automotive cameras, would we need to increase our outsourcing or increase our internal spending, and if we did, what kind of level that would look like.

Thank you very much for the question. A majority of our CMOS sensor business is currently for mobile use. And for mobile-use CMOS sensor, we use, I think, the technology, so-called, stacked-structure imaging sensor. So that means sensor and logic are stacked. And we are currently 100% outsourcing as for the logic side. And as for the sensor side, say, 10% to 15% is currently we are outsourcing. So except for the sensor side, we actually are a forward-type [ph] of company. And as for the investment level, I'd say around a JPY 10 billion this year, probably, normalized level of capital investment, I think. Thank you.

[Operator Instructions] And we do have a question from Richard Kramer from Arete Research.

Just one other one on the Devices business. Can you say what percentage of the business is your largest customer representing? It seems that you're ramping quite aggressively the capacity, and it would seem there's a -- it's a fairly obvious large customer there. But can you say the customer concentration, since it's notable that internal sales have dropped from about 25% last year to about 21% this year?

Thank you. And once again, just to recap. Your question was to what percentage of our sales in Devices is due to our single-largest customer.

Well, unfortunately, we can't comment on that question. And...

[Operator Instructions] And we do have a question from John Litschke from CREF.

The Mobile comps. The headlines were saying that for the mid-term plan, you had actually raised the revenue target range to a trillion -- JPY 1.25 trillion, I wanted just to confirm that -- what the reason would be behind that, given the declining handset sales targets or is that mostly FX? And then regarding the restructuring, could you sort of provide the timeline as to when we might actually see further more detailed information as to what the restructuring will -- the details of the restructuring, the implementation schedule and how we will get to that JPY 90 billion benefit, and how much do think you'll be able to keep at the net level, i.e., should we expect a substantial improvement from the JPY 40 billion negative budget this year into next year?

Thank you for your question. Just to recap. You commented on the fact that we, today, also filed a new mid-term target for the Mobile business, and in that new target, sales are up, you were wondering the reason for that. As well as at what date we'll be able to give a future breakdown or more detail on our mobile restructuring plan, and how much benefit we'll see from the OpEx, operating expenses, reduction in Mobile.

Well, I think you mentioned that JPY 90 billion was a target. So if that's correct, and then how much would be the net benefit flowing into next year? Should we see the bulk of that coming through and is that the right number? But, yes.

Well, I think as for the last question about the JPY 90 billion target we announced, I can say JPY 90 billion would be the net benefit for the next fiscal year '16. And as for the question 1 and 2, yes, I would ask Takeda-san to handle the question.

Yes. The question 1 related to the sales. This is largely due to the depreciation of yen. And...

One moment, please.

I'm sorry, I misunderstood the question that the increase toward the fiscal '17, that is primarily due to the segment changes that include the So-net business in fiscal -- for '17.

And as far as just additional details on how we get to that JPY 90 billion, would that be coming up at upcoming Analyst Day or when might we get that further detail?

Yes. Sorry for keeping waiting. We have already announced the reduction of headcount, approximately 2,000 employees. So half of that from the -- our European operations, then the rest of the things may -- we may announce when the time comes. Then -- and also, we have already announced the closure of the Chinese R&D site in fiscal year '14. So that was already included.

And our next question is from Giles Edwards from Lazard.

Just on the JPY 110 billion cost base reduction fiscal year '13 to fiscal year '15, please could you give us the fiscal year '14 number?

So thank you for your question. Your question, just to recap, was of the JPY 110 billion benefit from restructuring comparing fiscal year '13 to fiscal year '15, what was the fiscal year '14 benefit number?

That is JPY 100 billion in fiscal '14 and JPY 400 billion in fiscal '15.

Sorry, sorry. Could you say that? I don't understand.

Sorry, JPY 70 billion in fiscal '14 and JPY 40 billion in fiscal '15.

Next question. The R&D, JPY 490 billion, is that all expense or is any capitalized?

That is all expense.

Okay. And the next question, excluding the semiconductors' CapEx, what should the underlying CapEx for the business be going forward?

Thank you for your question. Just to recap. Your question was regarding our CapEx and if we excluded semiconductor CapEx; what is the underlying level of CapEx expected to be going forward?

It's about JPY 200 billion.

And as we're running out of time, I'd like to hand the call back over to Casey Kuester for closing remarks.

Thank you, all, once again for joining us tonight. With that, we have reached the end of our Q&A session. I'd like to just say, once again, thank you, and good night from Tokyo.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.