Sony Corporation Q4 Earnings Call Transcript

123jump.com Staff
25 May, 2009
New York City

The television maker fourth quarter sales fell 22% to 1.524 trillion yen and loss came in at 294.31 billion yen compared to profit of 6.18 billion yen from a year ago. With cost savings of 300 billion yen, 8000 headcount reductions and eight plant closings the company expects to break even this year

Sony Corporation ((SNE))
Q4 2008 Earnings Call Transcript
May 14, 2009 9:30 a.m. ET

Executives

Sam Levenson – Senior Vice President, Investor Relations
Nobuyuki Oneda – Executive Vice President and Chief Financial Officer
Robert Wiesenthal – Executive VP and CFO, Sony Corporation of America
Gen Tsuchikawa – Senior General Manager, Investor Relations

Analysts

Jason Mauricio – Arete Research
Daniel Ernst - Hudson Square Research
Shannon Cross - Cross Research
Daniel Malkoun (ph) - Moore Capital Management
Luke Moosan (ph) - Credit Alcacoa Asset Management
Arvind Bhatia - Sterne, Agee & Leach
Richard Kay (ph) - Cross Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Sony Corporation financial results announcement for the fiscal year ended March 31, 2009 conference call. My name is Dan and I''ll be your coordinator for today. (Operator Instructions) At this time all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference. To enter the question queue at any time please press “*1”. If at any time during the call you require audio assistance please “*0” and a coordinator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today''s call, Mr. Sam Levenson, Senior Vice President of Investor Relations at Sony Corporation of America. Please proceed, sir.

Sam Levenson – Senior Vice President of Investor Relations

Thank you very much for that introduction, Dan. Thank you all for joining us today, May 14, 2009 for the discussion of Sony''s fiscal year results. I''m Sam Levenson, Senior Vice President, Investor Relations at Sony Corporation of America, and with me on the conference call here in Tokyo tonight is Nobuyuki Oneda, Corporate Executive Officer, EVP and CFO of Sony Corporation, Robert Wiesenthal, Group Executive, Corporate Development and M&A for Sony Corporation and EVP and CFO, Sony Corporation of America, and Gen Tsuhikawa, Senior General Manager of the Investor Relations Division. Thank you all very much for joining us.

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. With that, I''m now going to turn to today''s announcement.

Consolidated sales for the fiscal year decreased 13% year-on-year to 7.730 trillion yen. 85% of the decrease can be attributed to exchange rates shifts and, on a local currency basis, the decrease in sales was 2%. Operating loss of 227.8 billion yen was recorded, a deterioration of 703.1 billion yen year-on-year. There was a 126 billion yen impact from lower results of equity affiliates, including Sony Ericsson, and an approximately 28 billion yen increase in restructuring charges year-over-year. Excluding the impact of equity affiliates and restructuring charges, our operating loss on an adjusted basis was 127.3 billion yen, a decrease of 549 billion yen year-on-year. Reasons for the 549 billion yen deterioration include approximately 279 billion yen from the appreciation of the yen, approximately 191 billion yen from a decrease in sales and deterioration of the cost of sales ratio in the Electronics segment, and approximately 54 billion yen from an expansion and loss in the Financial Services segment brought on by the significant decline in the Japanese stock market.

Non-operating income decreased 43% to 52.8 billion yen although net foreign exchange gain increased significantly year-on-year and 81 billion yen gain on change in ownership interest in subsidiaries and investees was recorded in the prior fiscal year as a result of the lifting of Sony Financial Holdings. Due to all these factors, loss before income taxes for the year was 175.0 billion yen compared to income before income taxes of 567.1 billion yen in the prior fiscal year.

With respect to income taxes, Sony recorded an income tax benefit amounting to 72.7 billion yen. This was mainly due to the recording of a loss before income taxes during the fiscal year and the reversal of 55.5 billion yen in deferred tax liabilities on undistributed earnings of foreign subsidiaries and affiliates made possible by the introduction of a measure in Japan to treat the dividends for overseas subsidiaries as non-taxable income. However, mainly due to the reversal of certain deferred tax assets for foreign tax credit at Sony Corporation and an increase in the valuation allowances recorded on deferred tax assets for net operating loss carry forwards in certain subsidiaries, the effective tax rate was 42%. As a result of these factors, net loss was 98.9 billion yen compared with net income of 369.4 billion yen in the prior fiscal year.

Next I''d like to briefly explain the results on a segment basis, first, Electronics. Sales in the Electronics segment decreased 17% year-on-year to 5.488 trillion yen. On a local currency basis sales decreased 6%. This decrease was primarily due to the global downturn in the economy in the second half of the fiscal year. On a product category basis, sales of LCD TVs increased due to an increase in unit sales, but sales of video cameras, compact digital cameras and PCs decreased significantly. The fact that we''ve completely exited the rear projection LCD TV business and the CRT TV business, the sales of which were contained in the prior fiscal year, contributed to the decrease in sales.

An operating loss of 168 billion yen was recorded in the Electronics segment compared to an operating profit of 441.8 billion yen in the prior fiscal year. The largest loss making product category was LCD TVs. The largest profit generating product categories were, in order of magnitude, video cameras, system LSI, and compact digital cameras. Operating income decreased because of unfavorable exchange rates, a deterioration in net income of affiliated companies, primarily Sony Ericsson, a deterioration in the cost of sales ratio resulting from price declines on LCD TVs, PCs and other products, decreased sales and an increase in SG&A.

I''ll now discuss the change in operating income on a product category basis. The categories which had the largest decrease in profit were compact digital cameras, PCs, LCD TVs, and video cameras. Price declines, unfavorable exchange rates and a slowdown in market growth caused sales of compact digital cameras to decline in all regions. While unit sales of PCs and LCD TVs increased, operating income decreased due to the impact of price declines, unfavorable exchange rates and other factors. Operating income of video cameras decreased mainly due to decreased unit sales in all regions, price declines and unfavorable exchange rates. Looking at the TV business, in the first half of the fiscal year sales in the TV business increased and loss decreased due to a significant increase in unit sales, but from the middle of September the rapid deterioration in the economic environment, intensification of price competition and the impact of unfavorable exchange rates caused a 7% decrease year-on-year in full fiscal year sales to 1.274 trillion yen and a deterioration in profitability excluding restructuring charges of 62 billion yen, resulting in a 127 billion yen loss for the fiscal year. Full year unit sales of LCD TVs increased 43% year-on-year or 4.6 million units to 15.2 million units, achieving the unit sales goal we had set for ourselves. Inventory in Electronics at the end of March was 629 billion yen, a significant decrease of 24% compared to the same time last year. We adjusted production in nearly every product category as a result of the downturn in the market in the middle of September.

Next, Sony Ericsson, Sony Ericsson sales decreased 19% year-on-year primarily due to lower unit sales as a result of the global economic slowdown. Loss before taxes of 633 million euro was recorded mainly due to the lower unit sales, the less favorable product mix, pricing pressure, unfavorable exchange rates and the recording of restructuring expenses. Equity net loss recorded by Sony for the fiscal year was 30.3 billion yen compared to equity net income of 79.5 billion yen during the prior fiscal year.

Next, the Game segment, sales in the Game segment decreased 18% year-on-year or 8% on a local currency basis. Of the 231.1 billion yen decrease, 132.3 billion yen was from exchange rates. Approximately 75% of sales came from hardware and accessories and the rest was software. Looking at hardware, overall hardware sales decreased due to unfavorable exchange rates and a year-on-year decrease in unit sales of PS2. This decrease was partially offset by an increase in unit sales of PS3 and PSP. Despite the severe market environment, PS3 unit sales reached our original target of 10 million by offering a comprehensive value to the consumer through introduction of the 80 gigabyte model and enhancement of the software lineup. Network services for the PS3 have also expanded, contributing greatly to the expansion of the PlayStation Network user base.

Unit sales of PSP trended well in the first half of the fiscal year, but due to the slowdown in the economy unfortunately did not meet our goal. While the 14.11 million units sold during the year were less than our original target of 15 million units, they were higher than the previous fiscal year. Sales of the PS2, which has entered its 10th year in the market, have passed the peak, but are still going strong in places like the Middle East and certain parts of Asia. Unit sales of PS2 decreased approximately 5.8 million units to 7.91 million units for the fiscal year. Looking at software, overall software sales decreased due to unfavorable exchange rates and a decrease in sales of PS2 software, although sales of PS3 software increased.

Network Services, the foundation of our Network business is expanding as the PlayStation Network is used not only for games but for new content and services, such as the video download service, Life with PlayStation and PlayStation Home. Users of the PlayStation Network are steadily expanding as the cumulative number of registered PlayStation Network accounts has exceeded 23 million since the service began approximately 2.5 years ago. Operating loss in Game improved 66.1 billion yen year-on-year to 58.5 billion yen. This is mainly due to an improvement in the operating performance of the PS3 business brought on by PS3 hardware cost reductions and increased sales of PS3 software. Inventory in the Game segment at the end of March was 145.5 billion yen, a decrease of 20% year-on-year.

Next, looking at Pictures, sales in the Pictures segment decreased 16% year-on-year. This was mainly due to an accelerated contraction of the home entertainment market brought on by the global economic downturn as well as fewer films being sold into the home entertainment market. The prior year''s revenue also benefited from the sale of a bankruptcy claim against KirschMedia, a former licensee of film and television product. Successful films released during the fiscal year included Hancock, Quantum of Solace, and Paul Blart Mall Cop. Operating income in Pictures decreased 49% to 29.9 billion yen due primarily to the lower home entertainment sales I just mentioned and the sale of the bankruptcy claim in the previous fiscal year as well as 4.9 billion yen in restructuring charges this year.

Financial Services, financial Services revenue decreased 7% due to a decrease in revenue at Sony Life. Although insurance premium revenue increased due to an increase in insurance in force, revenue at Sony Life decreased 7% to 430.5 billion yen primarily due to increased net valuation losses from convertible bonds and increased impairment losses on equity securities in the general account and increased net losses from investments in the separate account, all resulting from the decline in the Japanese stock market during the fiscal year that surpassed the decline in the prior fiscal year.

An operating loss was recorded in the Financial Services segment of 31.2 billion yen primarily due to the deterioration in results at Sony Life. Sony Life recorded a 29.8 billion yen operating loss compared to an 11.5 billion yen operating profit in the prior year. Although insurance premium revenue increased, a loss was recorded mainly due to increased net valuation losses from convertible bonds and impairment losses on equity securities in the general account and the additional recording of policy reserves in a separate account resulting from the significant decline in the Japanese stock market.

All Other, sales in All Other increased to 41% year-on-year. This increase was primarily due to the impact of Sony consolidating 100% of Sony BMG as of October 1, 2008. On January 1, 2009 Sony BMG''s name has been changed to Sony Music. Excluding the impact of the consolidation of Sony Music, sales of ‘All Other’ decreased year-on-year. Although sales at Sony Entertainment Corporation increased due to higher fee revenue from broadband connection services, sales in Sony Music Japan decreased since the prior year fiscal year included the receipt of a settlement payment related to copyright infringement claims. Sales at Sony Music Japan decreased mainly due to a decrease in album sales resulting from continuing decline in the physical music market. Best selling albums released from Sony Music during the six months included albums from AC/DC, Beyonce, Pink, and Britney Spears. Best selling albums released from Sony Music Japan during the fiscal year included albums from Yui, Ikimono Gakari, and Mika Nakashima. Operating income decreased 50% year-on-year on 30.4 billion yen. This was primarily due to the recording of a 10 billion yen gain on the sale of Sony Berlin and the receipt of a settlement payment related to copyright infringement claims in the prior fiscal year.

Having finished the review of last year, let''s turn to an update on our restructuring initiatives. In December of last year and January of this year we announced restructuring plans aimed at improving the profitability of Sony Group. At that time we announced the following measures: 250 billion yen in expense reductions across the Sony Group during the March 2010 fiscal year, and approximately 10% reduction in the 57 manufacturing sites in the Electronics segment by the end of the March 2010 fiscal year, and an 8,000 person headcount reduction from Electronics and an 8,000 person headcount reduction in outsourced personnel also by the end of the March 2010 fiscal year. These measures are moving quicker than our original plan and with regard to the 250 billion yen expense reduction target we are now enacting measures to reduce expenses by more than 300 billion yen.

With regard to the manufacturing facility reduction, we decided to close four plants in Japan and four plants outside of Japan for a total of eight plants, also ahead of our original target. As for the manufacturing sites in Japan, we are stopping production at Sony EMCS''s Ichinomiya Technology Center in June and we plan to stop production at Omigawa Technology Center, Hamamatsu Technology Center and Senmaya Technology Center by the end of December of this year. Outside of Japan, in addition to Pittsburgh in the United States and Dax in France, which have already been announced and already stopped production, we plan to cease production at our Mexicali plant in Mexico and transfer our electronics component factory in Indonesia called Sony Chemical Indonesia to a third party.

As for the headcount reductions in the Electronics segment, through early retirement and other means we are on track to decrease more than 8,000 people and at the end of March 2009 we had already decreased our outsourced personnel by more than 8,000 people. As a result, we''ve already reached our original goal for headcount reduction and we will continue to make efforts to improve efficiency. We forecast 110 billion yen in restructuring charges for the March 2010 fiscal year and continue to implement measures designed to strengthen our financial structure going forward.

Now I''d like to explain our forecast for the March 2010 fiscal year. In creating this forecast we assumed approximately 95 yen to the U.S. dollar and approximately 125 yen to the euro. Since we assumed that the severe operating environment brought on by the global economic slowdown will continue and since our foreign exchange rate assumptions anticipate an appreciation of the yen above the March 2009 fiscal year, we expect consolidated sales to decrease 6% year-on-year but flat on a local currency basis. Consolidated operating loss is expected to improve 118 billion yen year-on-year to a 110 billion yen loss. As I just mentioned, restructuring charges, which are recorded in operating income, are expected to be approximately 110 billion yen compared to the 75.4 billion yen in the prior fiscal year. Operating income on an adjusted basis, which excludes net income of affiliated companies and restructuring charges, is expected to improve more than 150 billion yen during the March 2010 fiscal year to 30 billion yen in profit. If foreign exchange rates were to remain at the level they were in the previous fiscal year, operating income would be approximately 160 billion yen.

For the March 2010 fiscal year we forecast capital expenditures of 250 billion yen, a reduction of approximately 25% year-on-year primarily in the Electronics segment. Now looking at the forecast by business segment, first, in Electronics we''re expecting a decrease in sales due to continuing weakness in the business environment and the impact of the appreciation of the yen. Regarding operating income, we will endeavor to reduce manufacturing costs and operating expenses and, in particular, in the television business we expect operating loss to contract significantly. However, overall operating loss is expected to slightly increase primarily due to an increase in restructuring charges. In the Game segment, a decline in segment sales is expected due to the impact of the appreciation of the yen and a decrease in sales for the PS2 business. Regarding operating income, we anticipate that we will continue to record an operating loss mainly due to the impact of the appreciation of the yen and a decrease in PS2 hardware and software unit sales, although we expect to see further manufacturing costs reductions on PS3 hardware, enhancement of the PS3 software lineup, and steady improvement in the profitability of the PSP business.

In the Pictures segment, despite the appreciation of the yen we expect higher revenue and operating income as a result of the greater number of major films to be released compared to the March 2009 fiscal year and increased advertising and subscription revenues from channels outside the U.S.

Since we don''t incorporate any projected affect in gains and losses on investments at Sony Life due to stock market fluctuations, we expect sales and profitability in the Financial Services segment to improve significantly compared to the March 2009 fiscal year, which experienced the effect of the downturn in the Japanese stock market.

So allow me to quickly summarize a few key points from our announcement. We concluded fiscal 2008 slightly ahead of our most recent forecast. We''ve increased our target for cost savings from 250 billion yen to 300 billion yen. We''ve increased our planned closures of plants to eight, four in Japan and four overseas. We''ve already decreased our outsourced headcount by 8,000 and are on track to decrease headcount of a further 8,000 this year. We anticipate a significant reduction in operating losses in the coming year and on an adjusted operating income basis excluding equity in affiliates and restructuring charges our results should be about breakeven.

We look forward to keeping you apprised of our progress throughout the coming year, and at this time we''d be pleased to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Ladies and gentlemen if you wish to ask a question please press “*1”. If the question has been answered or you wish to withdraw your question, press “*2”. Your first question comes from the line of Jason Mauricio from Arete. Please proceed.

Jason Mauricio – Arete Research

Thank you very much. Just a couple of quick questions, could you update us on PS3 inventory, be it your own inventory or channel inventory, in terms of units and maybe give us an update on the timing of the 45 nanometer cell chip? Second, what is your assumption this year for LCD TV price pressure and maybe if you can talk about large screen size versus small screen size mix? And finally, of the expense reduction of 300 or plus 300 billion yen, can you discuss where the extra cost savings are coming from, whether it''s all from the manufacturing facilities or if there''s some other initiatives that go into that, and how much of the total expense reduction is due to a suspension in bonuses? Thank you.

Nobuyuki Oneda

First of all, we did not disclose a specific inventory level with the PS3, but at the end of March 31, our inventory level of our overall Game business is almost a reasonable level. That''s our understanding. I''m sorry that I didn''t give you the detail of the specific inventory level with the PS3. Again, we don''t disclose the ratio, the big screen size or small screen size, but compared to last year and this year, we''ll emphasize the improvement of the large screen size and also we will emphasize the new features of the high frame rate and eco model of the LCD televisions.

The television, in the case of the price deterioration, last year we could say small size, like less than 32 inch, the price deterioration would be around 25%, and large screen size, which is more than 40 inch, we think that the price deterioration will be somewhere between 25% and 30%. But for the next year, I mean this year, fiscal ''09, the price deterioration would be slightly moderate, like 5% or so. So, in this case a 32 inch is just like 20% to 25% and large screen size is probably somewhere between 25%.

Your last question is cost saving. Originally we told you 25 billion to 30 billion. This 25 billion was a very rough guesstimate when we announced it and then after we reviewed the division by division basis we came up an additional 500. And please also understand that this savings does not only come from the restructuring, but the regular cost saving for the expenses is also included, okay.

Jason Mauricio – Arete Research

Okay thank you very much. Maybe just a quick follow up on the last point. I think before, when you first announced the 250 billion of cost savings, the suspension of management bonuses was a big portion of that. Does that remain a significant portion of your 300 billion cost plan?

Nobuyuki Oneda

Well, it''s not so much, but yes. It is not the extent but I do not see the big impact because of the salary or the bonus cut.

Jason Mauricio – Arete Research

Okay thank you very much.

Operator

Your next question comes from the line of Daniel Ernst from Hudson Square Research. Please proceed.

Daniel Ernst - Hudson Square Research

Hi yes good morning thanks for taking my call, good morning or good evening as the case maybe. Two questions if I may, first, on the profitability of the Television business in your forecast for the fiscal year ending March 2010, you''re looking at flat TV sales year-on-year, presumably there are some additional reductions in pricing, so you''re forecasting recurring loss in the division. In the past you talked about increasing volumes and getting past your large overhead in the television group to bring that back to profitability, but now, with looking at flat sales year-on-year, what are the weavers that you think could eventually take the television group back to profitability? And then I have a follow up question on the Game division. Thank you.

Sam Levenson

Okay, my apologies to everyone; my fault on this end. Dan, please repeat your question and we''re going to ask everyone to limit themselves to two questions. Dan, go ahead please.

Daniel Ernst - Hudson Square Research

Great, thanks. So to repeat the question, in the Television division you''re forecasting a loss in the coming fiscal year. You''re also forecasting flat unit sales and presumably there''s continued erosion in prices, as is natural in the category, year-over-year. So with that in mind, what other weavers do you have available to return televisions back to profitability? Because we used to talk about getting the volumes up in LCD to cover the fixed overhead to bring that back to profitability, but now, as we''re looking at a flattening of sales, as we look beyond the current fiscal year, what are the opportunities to bring television back to profitability? And then my second question on the Game division, after flat sales in the PlayStation 3 for the year you just reported you''re forecasting a 30% increase, which is positive, but does that assume a price reduction in the plan for both the units and the profitability of the group? Thanks.

Nobuyuki Oneda

Okay. In the case of TV, the first half of the fiscal year we think that the loss in TV will continue, but we are hoping that the second half will be the breakeven. So hopefully the next fiscal year, which is the fiscal year 2010, will be the positive, the profit situation for the TV. The reason for this is - I think I can say three things. One is the more drastic restructuring we are taking, and particularly the difference between the last restructuring and this time restructuring. We are now reviewing the cost of engineering resources within TV. We are now trying to cut those people, which we did not do before, and we also reorganized the purchasing organization. That used to be an independent organization by product line by product line basis. In other words, which was like a title type organization; now it is one centralized organization which is headed by Mr. Nakagawa, our Deputy President. And he consolidated not only the Electronics segment but also the Game organization. So therefore, the more bigger purchase amount we could use as the weapon to negotiate with the parts manufacturers. And also we are trying to seriously negotiate the price down of the panel, which is the biggest material cost within the TV operation. We did a very bad purchasing method for the last year, which we will change it. This is number one item, which we are pursuing now. Second is the more speedy operation. We are now reviewing the supply chain cycle. We compare our supply chain cycle with Samsung and we learned a lot, so we will change our supply chain management. And we''re also reviewing the design cycle to be more faster compared to the previous year. And number four, which is a product area, I think that our high frame rate, which is the more smooth fixture for the high speed moving scenes, high frame rate ratio, we''re trying to increase it and also the more large sized ratio, large sized television ratio will be increased so that the we''ll make some money and more money from the large screen size.

So those three will be the difference of the actions which we did not take so seriously in the last several years, but hopefully next year we''ll be breakeven or plus. In the case of the pricing strategy for the PS3, please allow me not to make any comments at this moment. This is a very serious issue. So if I announce, the price strategy, that''s where I''ll fix the inventory level. I''m sorry.

Daniel Ernst - Hudson Square Research

Fair enough. Thank you.

Operator

Your next question comes from the line of Shannon Cross from Cross Research. Please proceed.

Shannon Cross - Cross Research

Hello thank you very much for taking my question. Could you talk a bit about color and channel inventory levels for cameras, both cameras and camcorders? Perhaps you can provide it on a geographic basis, but any trends you''re seeing there. And then my second question is with regard to cameras as well. Do you see any technology changes that might drive a refresh cycle? And I would point to Canon talking about HD video in compact cameras but, again, I''m curious as to your thoughts. Thank you.

Nobuyuki Oneda

The digital camera inventory level, particularly in the channel, we don''t have the exact number, but we think that our inventory level in digital cameras is a reasonable level at this moment.

Shannon Cross - Cross Research

Do you have any thoughts as to where your competitors'' levels are as well and if the channel has been cleared over the last few months?

Nobuyuki Oneda

Yes. One good example is our competitors had to reduce the price toward the end of the last fiscal year. We didn''t do that because our inventory level was relatively healthy compared to the competitors'', so therefore we didn''t lose so much money toward the end of the fiscal year. So that''s a good sign that we didn''t have the extra inventory compared to our competitors.

Robert Wiesenthal

On the technology side, obviously recently there''s been a push by the consumer looking towards more low cost cameras, but obviously innovation is still something people are looking for in a higher priced model. We''re really seeing, in terms of our own lineup, on the smaller cameras better touch screen, larger screen in terms of the size of the camera, and wireless. Wireless is extremely important going forward and you''re going to see a lot of our lineup going forward where you''ll have instantaneous access in terms of uploading your photos to social networking sites, your PC and any type of online service that can manage your photos and that''s going to be very important. Face recognition and smile detection continue to be good sellers as well.

Shannon Cross - Cross Research

Any thoughts on the HD video on compact camera?

Robert Wiesenthal

I think you''re seeing more and more not only in Camcorder side but smaller HD cameras, but the still cameras having better resolution for video quality, so that is something that is going to be a recurring theme.

Gen Tsuchikawa

Video on compact cameras is being introduced by a number of manufacturers and I don''t think it''s something that''s unique with a specific manufacturer. I can only just say what''s unique about us is that on more of the camcorder side we''ve introduced new camcorders with totally new seam up technology which has twice the light resolution and that is - we''ve introduced that in February in Japan and it''s gaining market share immediately and our market share has gone up from the 30s to the mid 40s.

Shannon Cross - Cross Research

Thank you very much.

Operator

Your next question comes from the line of Dan Malkoun (ph) - Moore Capital. Please proceed.

Dan Malcolm - Moore Capital Management

Yeah just a quick question on going back to the panel pricing commentary that you had, I think when you were talking about how to get to breakeven in TVs. Panel recent data, I guess, is that panel prices have been going up, so I''m just curious what''s baked into your forecast for LCD panels? How do you guys get price down in that segment I guess at a time when it seems like the pricing is moving up? That’s my first question.

Nobuyuki Oneda

We''re expecting that even though the data is small, the panel size is a little tight, but throughout the fiscal year I think that the panel capacity may be the reasonable level. Our strategy is to buy the panels, not only one source like our joint venture, but also we''re going to use the Taiwanese manufacturers or we may buy some, the panels, from other competitors, too. So therefore we are expecting the modern the type of two digits from cost reduction that we could achieve within this fiscal year.

Dan Malcolm - Moore Capital Management

Okay so the thought is, then, that you get better pricing as you move away just from JV purchasing?

Nobuyuki Oneda

Well, the JV purchasing is still the majority part of the resources, but we also use the outside to give the big pressure toward our joint venture partner. And also the other part of that is the LCD operation. They''re going to use the new generation made 92 operation. So this would be more cost-effective.

Dan Malcolm - Moore Capital Management

Okay, so that should help lower the price of the panel as well?

Nobuyuki Oneda

Right, right.

Dan Malcolm - Moore Capital Management

Okay, so currently in your forecast for breakeven for the second half of the year, I just want to make sure I got this right, you are assuming panel prices decline?

Nobuyuki Oneda

Yes.

Dan Malcolm - Moore Capital Management

Okay. And then just in terms of PS3 and the unit guidance for the year, just curious, it''s pretty substantial growth, I guess, on a percentage basis, I guess about 30%. So how do you expect to get to that number for this fiscal year? What are the drivers behind that unit growth?

Nobuyuki Oneda

Well, I think that you have to get what our price strategy is, too. And also we''re enhancing not only the package area but also the network-related, the Game business also, we are expanding. So, how we could increase the 30% the increase on PS3 obviously.

Robert Wiesenthal

There''s a very strong lineup of titles, both online and in physical form, making full use of the Dell processor, a lot of eagerly anticipated games – God of War, Uncharted 2, Heavy Rain, Infamous and then also some accessories as well, so I think we''re pretty excited about it.

Dan Malcolm - Moore Capital

Okay thanks very much. I appreciate it.

Operator

Your next question comes from the line of Luke Moosan (ph) from Credit Alcacoa Asset Management. Please proceed.

Luke Moosan - Credit Alcacoa Asset Management

Yeah hi good morning, I had just two questions. The first one is regarding your inventory, the timeframe of inventories. Could we expect according to your comment that you''ll build up a bit in terms of production over the next quarters, which means that inventory level will increase as the usual seasonal patterns for Sony going into the first and second quarters this year? And my second question is just regarding the joint venture, Sony Ericsson. There''s rumors about eventually Sony being interested in taking over Ericsson partly or entirely out from the joint venture, so what could you give us in term of comments with regard to this position and what is the clear benefit of getting Ericsson in the joint venture at this stage and not having phones as an entire business unit inside the consumer electronic?

Gen Tsuchikawa

The inventory level, even though at the end of the last fiscal year we could successfully reduce the inventory level compared to the third quarter end. But I personally think that our inventory level is still relatively high compared to our competitors. So the important thing is not only the quarter, end of last quarter or end of second quarter, but overall inventory level itself. We still have to reduce it. Like I think very roughly speaking 10% of our inventory is probably - should be reduced for the coming fiscal year.

Robert Wiesenthal

With respect to the Sony Ericsson joint venture, our focus right now is on returning Sony Ericsson to profitability and making sure we have the best lineup of phones we can, and we''re pretty excited about the phones that are coming out that are going to be using all platforms, including Android and Symbian, and we''ll continue our work with our partners at Ericsson on the chip side. So that''s really our focus right now, to return Sony Ericsson to profitability.

Luke Moosan - Credit Alcacoa Asset Management

Okay thank you.

Operator

Your next question comes from the line of Arvind Bhatia from Sterne, Agee. Please proceed.

Arvind Bhatia - Sterne, Agee & Leach

Thank you very much. I wanted to go back to the PS3 question of the 30% growth in the fiscal year ''09. Should we assume that 30% is going to be the case for the U.S. and Europe or are there any major differences across various markets? And then I had a question on the PlayStation Portable, where you''re also forecasting about a 6% increase versus I believe the most recent quarter was down, if I''m looking at this correctly, about 30% versus your forecast, just wondering if you could make some comments there as well. And I guess, my related question also is, what is your view on having a motion sensing controller similar to what Nintendo has with its Nintendo Wii remote? Thank you.

Nobuyuki Oneda

I''m sorry, we don''t disclose the regional sales increases or decreases, so just like we disclose the worldwide basis, so I''m sorry that this data has never been released before, so excuse us.

Arvind Bhatia - Sterne, Agee & Leach

The second one was on PlayStation Portable. Are you assuming an increase versus the most recent trend of being down?

Robert Wiesenthal

Again, on the PSP, there are a lot of important titles coming out. Additionally, there are a lot of applications that are now taking advantage of the WiFi capability of PSP. The store is now available for downloads for games, so it''s becoming a much more useful device to people both in terms of getting online games, getting online movies, some of the content LittleBigPlanet, MotorStorm for PSP, these are big titles that we''re excited about. And in terms of motion sensing controllers like the Wii''s, Wii has obviously an important segment of the market and we continue to look at it in terms of opportunities like iToy and others and stay tuned for E3 and see what we have in store.

Arvind Bhatia - Sterne, Agee & Leach

Great thank you, guys.

Sam Levenson

Operator we have time for one more question please.

Operator

Your final question comes from the line of Richard Kay (ph) - Cross Research. Please proceed.

Richard Kay - Cross Research

Oh thank you. I have two questions. Number one, you mentioned your supply chain management comparison with Samsung Electronics and I think Oneda mentioned that Sony had learned a number of things when looking at the comparison with Samsung. I was wondering if you could possibly comment on a comparison of your TV profitability with Panasonic. As you know, Panasonic has had profitability on its television segments for I think three fiscal years of 4% to 5% operating profit margin and I was wondering if you could comment on why you think they''ve achieved that and you have struggled to do that? That''s my first question.

Nobuyuki Oneda

The supply chain management compared to the Samsung, one thing, the supply chain does not mean that only in the physical, you know, the transition timing. The overall order to the shipment cycle has to be considered to the total supply chain. And in our case compared to Samsung, there are so many people involved within the supply chain process. So in Samsung the supply chain, based upon a POP basis, the point of sale data directly goes to the decisions makers. So we have so many decision makers during these regions or the sales branches, those are one of the reasons that we have to change it. And also unfortunately because of the contract with Samsung we have to fulfill the production capacity, otherwise we have to pay the penalty. So that means that regardless of the amount we may have to buy some inventory. So that''s another reason that we may have to have some extra inventory. That''s what we are negotiating with Samsung. So there are many areas that we can improve the supply chain issue.

Richard Kay - Cross Research

Thank you. Is it possible to comment a little bit on your margin comparison with Panasonic/Matsushita because Panasonic/Matsushita has had profits in televisions for two or three fiscal years and I was wondering if you could comment on that a little bit?

Gen Tsuchikawa

Richard this is Gen here. I don''t think we''re in a position to talk about Panasonic''s profitability because we don''t know what''s in the numbers they tell you. Like, I mean, we include all our associated costs, including all the costs of our sales company associates. We don''t know how Panasonic is doing that, so that we cannot comment. But I think it''s fair to say that we''ve been in the LCD camp and I think they''re moving from the positron camp into the LCD camp and so that''s how we see where Panasonic is going.

Richard Kay - Cross Research

That’s very clear thank you. I have one second question. Oneda mentioned that the LCD television could come to profitability this fiscal year, I think second half. Are you able to comment when you think television will break even long-term cumulatively because obviously you''ve had many years of losses already on LCD television? When do you think you''ll cumulatively breakeven on the whole project? And actually same question for PS3 - when will you cumulatively breakeven on PS3 bearing in mind the initial costs you had to put in, which were over 200 billion yen back in fiscal ''06. So breakeven long-term cumulatively for those two products is what I''m interested in.

Gen Tsuchikawa

Yeah for those two key products we are expecting that both the product line will be breakeven on an annualized basis for the next fiscal year, 2010. And in the case of LCD, as I said before, the second half of the fiscal year we are trying to achieve the breakeven. And that''s the same as the Game business, too. This fiscal year still early to talk, but next year more costs reductions will be expected particularly in some of the chips that we are still using, the 65 nano, but in fiscal year 2010 I think that most of the key various sites will use the 45 nano based chip. So in this case the cost of the PlayStation 3 will be drastically changed and the fiscal year 2010 I think we are going to see profit for all those previous years together.

Richard Kay - Cross Research

Okay, so on a cumulative basis do you think it''ll be two or three years that you breakeven on a cumulative basis? Think of your whole investments in the PS3 cycle?

Gen Tsuchikawa

Well, if we include the investment into the - if we include the semiconductor business, even though we sold some of the assets, I think the cumulative basis and ROI may be a little low around three or four years.

Richard Kay - Cross Research

Okay, okay, thank you very much.

Gen Tsuchikawa

Thank you.

Operator

At this time we have no further questions. I would now like to turn the call back over to Mr. Levenson for closing remarks.

Sam Levenson

Thank you, Dan and thank you all for joining us tonight from Tokyo. Please don''t hesitate to call the Investor Relations Department from Tokyo, London or New York. Our phone numbers are included in the press release. We look forward to speaking to you soon.

Operator

Thank you for your participation in today''s conference. This concludes the presentation. You may now disconnect. Good day.