Ladies and gentlemen, at this point we will begin the earnings announcement for the third quarter of fiscal 2018. Our speakers today: firstly, Executive Vice President and Chief Financial Officer Hiroki Totoki; and corporate executives, Senior General Manager, Finance Department, Atsuko Murakami; and Senior General Manager, Global Accounting Division, VP, Hirotoshi Korenaga. Today, Mr. Totoki will give you a presentation on the results of the third quarter and also the full year forecast for the entire year. And after his presentation, there'll be time for questions and answers. And we plan to spend 45 minutes altogether. Mr. Totoki, will you please start?

I would like to explain these 2 topics. Fiscal '18 Q3 consolidated sales decreased 10% year-on-year to JPY 2,401.8 billion. The majority of this decrease in sales was due to lower Financial Services revenue. And consolidated sales, excluding the Financial Services segment, decreased 3% year-on-year. Consolidated operating income increased 7% year-on-year to JPY 377 billion. A remeasurement gain of JPY 116.9 billion resulting from the consolidation of EMI Music Publishing was included in operating income. Income before income taxes decreased 1% year-on-year to JPY 340.5 billion primarily due to the recording of a JPY 44.8 billion loss on the revaluation of equity securities in other incomes and expenses. Net income attributable to Sony Corporation stockholders for the quarter increased 45% year-on-year to JPY 490 billion. The primary reason of this increase was JPY 154.2 billion reversal of valuation allowances against a portion of DTA in the United States. As shown in this slide, there were several extraordinary items included in operating income for the current quarter and the same quarter previous year. Excluding these items, adjusted operating income decreased JPY 84 billion. Adjusted income before income taxes, which excludes extraordinary items, is shown here. We have not shown it on this slide, but adjusted net income, which excludes extraordinary items and also estimates and excludes the impact of such extraordinary items on the income taxes, decreased JPY 118.3 billion year-on-year from JPY 276.2 billion to JPY 157.9 billion. Please see Page 5 of our earnings presentation for details of adjusted tax and net income for the quarter. This slide shows the results by segment for Q3. This slide shows the cumulative results for the first 9 months of the fiscal year. Adjusted profit can be found on Pages 8 through 10 of our earnings presentation. This slide shows the cumulative…

Now the floor is open to your questions. Those of you with questions, please wait for the microphones to be brought to you, and please identify yourself by stating your name and affiliation before asking the question. When questions are asked in English, there will be a consecutive interpretation into Japanese, and the answers will be given in Japanese. Please confine the number of questions to 2 per person. Anyone with questions?

Hirakawa, Merrill Lynch Securities. The first question, concerning Semiconductors. The third quarter, what was the rate of operation? And also, for the first half of fiscal 2019, what do you think would be the rate of operation of the plant? And also, compared to the production reduction of smartphone manufacturers in 2015, I think your measures have improved, but how would you reflect the improved response to the management in fiscal 2019?

So the third quarter rate of operation of the Semiconductors, as well as what's our view on the first half of fiscal '19. Currently, for the third quarter fiscal '18, wafers on an average, 99,000, 99k. And this is along the line of October forecast. And the fourth quarter fiscal '18, wafer injection number is on an average 89k. And for fiscal 2019, it is very difficult to cite the specific numbers, so I'd like to communicate to you our basic way of thinking. So the smartphone marketing is for fiscal '19, it is expected to foresee any growth. Probably the unit sales will decline. That is the forecast held by most of the market-related people. But on the other hand, multi-lens cameras as well as the large-size imagers, that's the trend which will be accelerated further over our October forecast throughout the fiscal 2019. So those are both the positive and negative factors for us. So how we forecast the outcome of that: In any case, as far as fiscal '19 is concerned, the market condition will be very tough, so we would like to be conservative and carefully manage the business in a steadfast manner.

And also, compared to 2015, what's the likely profitability on our part?

After 2015, we have continued to go through the process of selection and concentration. And also, our sensitivity towards the market demand has been improved. And we worked on that on a continuous basis, so on those 2 fronts the situation would lead to the improvement of operation of our business.

The second point may sound ambiguous, but for the capital market members like ours, your potentiality and the -- there is a disparity between the stock value and the corporate value. And for 2019, how would you communicate with the capital market to enhance the corporate value, disparity between the value and the sum of the total?

Well, on our part, we place a high value on our communication with the capital market to have a good understanding on our business. So we will make sure to explain our strategy and direction to the fullest extent to the market so that we can enhance the corporate value.

I'd like to invite next question, please.

Ayada, Deutsche Securities. Two questions on game business. Firstly, during the third quarter, the level of profits, I'd like to ask for further explanation because you've made efforts to increase marketing, but it seems that's something you do every year. In the meantime, the network and software, you're increasing the revenue, but the year-on-year profit is down. So I fail to understand this. So if you've [ made ] budget for marketing, how much did you spend? And also, profits by category, can you give us some of the details by category? And also, in the fourth quarter, both top line and bottom line will be up, which is different to the regular seasonality. So your view and position on fourth quarter, can you elaborate on that?

First of all, about the third quarter results, particularly on profit levels. Last year, on a year-on-year basis, the sales of unit of hardware is down by 900,000. So the revenue was down, obviously reflected by that. But elsewhere, in terms of the promotional activities that we did in Japan, the price of PS4 was reduced by JPY 5,000 on October 12. And also, at the year-end season, for PS4 standard model, there was a limited-time-only cuts on our price as well to increase sales. So in the third quarter, through these, we were able to increase the install base to 8.1 million for the month. So the hope is that, in the fourth quarter and beyond, we'll be able to leverage this increase to further expand and increase revenues. So sales of digital hardware and software both contributed to sales of -- the increase of the revenue, and hope that will contribute to a positive performance. For the fourth quarter, what's our view, you ask? So as far as the fourth quarter is concerned, last year, in the fourth quarter, there were onetime factors, some allowances and provisionings were made, but we don't have them this year. So that's the difference. And also in the fourth quarter, mainly with the third quarter -- from third quarter's, strong titles are expected to be released. So we are looking at these factors in detail. But in terms of the figures for the fourth quarter, I think what we are giving you is our best estimate.

A point for confirmation. In the additional document, digital software, add-on content sales, you have the increase of 12 -- JPY 120 billion year-on-year. So you should have increased gross profits tax with this, but you've used all that increase in gross profits for marketing?

Well, first of all, revenue, the sales increased, but -- in which the mix showed that there's a difference compared to last year. So even though revenues increased, profitability was different. And also, as you say, we have used a lot of gains for marketing purposes. So there are 2 factors.

And second question I'd like to ask is mid- to long-term prospects of the game business. Taking a long-term view, there's a [ multi-planned ] transition of the games or the -- your [ competitors are using ], developing new platforms. Also, the games are going to the cloud. So to the extent you can discuss now, please look at the 5 years from now, what are the risks and opportunities going forward.

Thank you. So 5 years in the future, what are the risks and opportunities perspective? First of all, speaking about risks. Currently the open-platform free-to-play games are increasing in the market, which could be a fit for our business; and additionally, games going to the cloud. For example, take an extreme example, people will not be using hardwares. Hardwares will become unnecessary, some would argue, but on this point I think that will take a -- much longer. The time required for games going to the cloud will take much long time -- much longer time. And also, the platforms -- trying to reduce the revenue share percentage. For instance, some of our competitors are going to increase the rates that they are charging. But as far as we're concerned, because we offer the rich and immersive experience on the platforms providing others -- therefore, third-party publishers are very much supportive of what we are offering, which means that what we can do is to continue to offer best immersive experiences so that we will not be affected by these risks, allowing us to continue to see growth in that business. Now what about opportunities going forward? Well, the largest opportunity is in increasing Network Services and also from -- will come from recurring businesses. PS4 is held by 91 million users. The installation base is 91 million already. And also, monthly active users are now in excess of 90 million also, so it's a huge platform, the PS4. So leveraging the strength of this PS4 will -- to continue to expand the business and continue to the -- generate profits from this -- based on this platform.

The next question will come from the third row.

Nakane from Mizuho Securities. I also have 2 questions. The first question is about games, and I may be repeating what the others have asked. Hardware promotion, I think it has been budgeted already, but the consequence was that you were able to increase the membership to subscribers -- the paid subscribers. Is that the right understanding? And other than promotions, what about the other SG&A? Was it as you have assumed or planned? That's the first question. The second question is directed to Ms. Murakami. It's about cash flow. The third quarter, if you look at the segments. And can you explain about the background of the Pages 31 to 34? And for the full year, if you add the seasonality of the fourth quarter, the figure looks somewhat weak. Last year, the game cash flow was quite good, but of course there are changes, so can you talk about the cash flow level for the third quarter and the fourth quarter?

Now the results, the consequences was not far away from what we had expected. In my earlier presentation, I have stated that, for the sixth year, the results were as we had hoped and expected. So the numbers do reflect that. Therefore, for the full year forecast, we have decided not to change our forecast.

So the positive implications on software and networks were as you had expected?

Assumed. Yes.

On the cash flow by segment. Let me talk about the cash flow by segment. We can -- only after the closure of the accounts, we can disclose the numbers, but game and network service was a positive contributor, a high profit; and network service expanding. The collection of cash were accelerated. Therefore, operating cash flow was in a big positive in addition to the operating capital. The semiconductor is positive. There were investments made, CapEx, but the operating cash flow was not bad, it was very smooth as a result. Even if you included the CapEx or if you exclude it or deduct it, the CapEx, it was in a positive. The branded hardware, this is a period when the -- we will need an increased operating capital, and this leads to what I'm going to say later. The account receivables didn't really increase as much. And the inventory level was as such that we did not need high levels of the operating capital. That is why the figure is positive. Now negative is the Music segment. There was a major investment being made. So on the total you see a big negative figure, but the business itself is doing well. And the sales of the Spotify equity resulted in cash-in, but overall the figure was negative. Pictures, the investment and operating cash flow was -- if you combine them together, was in a negative, but the size of the deficit or the negative figure is smaller than before. Now for the full year forecast, why have we not changed the full year forecast? 2018 operating cash flow, if you look at the materials that we have distributed, is JPY 605 billion. Compared to the previous fiscal year, it was JPY 377.8 billion, so compared to the previous fiscal…

Next question. [Foreign Language]

Ezawa of Citigroup. So the adjusted plan and look by segment. In some cases we need some explanation of fourth quarter numbers. The -- about games, you explained, but other aspects, for instance, Music segment and IP&S digital camera numbers. Numbers appeared to be low or have you incorporated risks? Or any reason for further adjustment in the fourth quarter from January to March? Or for Semiconductors, in view of the current rate of operation and inventory, on a quarter-on-quarter basis the decline in profit is nearly JPY 40 billion. Is it due to declining sales? And then the others and corporate and -- elimination, minus JPY 40 billion for the fourth quarter recorded. I think this negative number is very sizable. Is it -- it comes from the actual operation. You said that the contingency reserve is not included, but what's the background behind?

No. I'd like to answer one by one. First, on Music, during the fourth quarter. In the fourth quarter last year, fiscal 2017, there was a onetime factor of JPY 10.5 billion, the sales proceed of real estate. And excluding that, the operating income forecast is about the same level as the previous year. And that's Music. And for IP&S, the first compact digital camera, centering on that, sales unit forecast is revised downward and the impact is incorporated. And also, for the broadcast equipment, especially due to the deceleration of Chinese economy, in the professional equipment we see some deceleration in -- from third quarter on to fourth quarter. And there has been a deferred timing of the expense and also the year-end expenses and the onetime expenses, and that's how we came up with the fourth quarter IP&S number. And next, on Semiconductors. In case of semiconductors, basically the demand immediately around us is weakened. As you know, the -- our image sensors -- it takes about 5 months from the introduction of wafer to shipment, the lead-time 5 months. Therefore, the level of inventory at the end of -- by -- in 2018 was a little heavy, even in view of the smartphone shipment in 2019. We are taking measures to adjust the inventory to the appropriate level, but towards the year-end, in view of the immediate situation, inventory level appeared to be a little heavier. But the peak of the demand for the new model of the smartphone will be the second half of fiscal '19. Therefore, we will adjust the inventory towards that and use that. And also, the headquarters expense or other, Corporate and elimination fourth quarter, we saw a major negative number during the fourth quarter last year also. And for the current fiscal year, there is no particular plan of having the extraordinary factor to increase it, but for the year-end there may be increase in R&D and other expenses. And also, the expense for the event headquarters we have like Sony Open, and slight expense is incurred during the fourth quarter. Those are the main factors behind.

Next question, please.

Okazaki, Nomura Securities. Firstly, about Music business. Looking at the third quarter performance, except extraordinary items, the numbers are weaker than last year. The sales of mobile game is lower, so what's the background to this? And also your forecast outlook for the coming periods.

Yes, the third quarter results for the Music business. One thing is Fate/Grand Order, compared to last year, the revenue was down. So that's the biggest part of the picture.

Is it a temporary decline? Or has this title reached a peak already or peaked out already?

Well, if we look at the third quarter in general, the number of users is not declining, but in terms of the amount used, the billing amount is somewhat lower. So as far as we're concerned, what we have to do most importantly is to continue to raise the lifetime value of this particular title. And so we have to take a long perspective, and for this purpose, we will hold more user events, for instance, to enhance the business.

The second business is the impact from the external environment. You talked about broadcasting professionals business being affected by slowdown in China, for instance, or due to geopolitical risks. Have those risks manifested in terms of your businesses?

Well, the -- in China, the branded hardware business, we feel that there is some slowdown in our business. And relatively speaking, this has been more -- manifest since December, but then again to some extent we had expected this slowdown to happen. So the change -- or so that is not anything that is beyond our earlier expectations.

The next question would be the last question that we can take.

Sugiyama from Goldman Sachs. I have one question about the Pictures business. The media network is being restructured or consolidated. And also, I am looking at the production of programs. The sales have decreased, but the capitalized cost has declined, which bothers me a little bit. But Motion Pictures, the box office income has increased or improved. So will there be exiting? Or there'll be a restructuring cost that would incur just like the media network restructuring in the Pictures segment as well.

The media network, we are talking about concentration, selection and focus. We will continue to do this effort and monitor the development. We booked some cost, expenses. Will there be a major expenditure in the fourth quarter. No. The answer is no, not in the fourth quarter. But in programming -- program production this -- there has been a completion of the series for the digital network. And this is as we have assumed. It is not a major departure from our plan. Now the production of pictures -- motion pictures. I think we are blessed to have some very good films, blockbusters, slate film. One picture, in its life, would generate profit. And that profit, that slate, would be improving year after year. So we'll be monitoring this with expectations. And also strategy by category, did you say? Pictures, Motion Pictures? We will take advantage of the existing IP. As our CEO has stated on a number of occasions, we will capitalize on our IP portfolio and also would strengthen the lineup that will be appealing to the audience outside of the United States and in other parts of the world. Spider-Man, Spider-Man [ Verse ] would be some good examples. And those -- Venom is another example. We'll be using their characters for motion picture production. Now TV programs production, there is an increasing diversity of how people view the TV programming and therefore the belief that the consumptions of the contents would only grow. Therefore, we would have a wide range of programming. And also, we will strengthen relationship with promising or powerful creators. We will take full advantage that we are an independent entity and have good relationship with creators and strengthen our business. That's for TV. Media network, for the foreseeable future, we would continue a review of the channels. That will be our first focus. Thank you.

With this, we'd like to conclude our session. Thank you very much for your participation.