Ladies and gentlemen, it is now time to start the second quarter fiscal 2020 earnings announcement of the consolidated results. And my name is Kato from Corporate Communications, and I shall be serving as the emcee for this session. This briefing is being held for the members of the media, analysts and institutional investors to whom we have invited. And the session is -- can be viewed on the Internet through our investor website. We have with us the Executive Deputy President and CFO, Mr. Hiroki Totoki, to talk about the consolidated results of the second quarter 2020 as well as the forecast for the full year 2020. And then there will be a question-and-answer session. And we anticipate that this session will last for about 70 minutes. So Mr. Totoki first, please.

Thank you. Major changes are occurring in society and economy as well as in people's lives, primarily due to the spread of the new coronavirus disease and an increase in geopolitical risks. At Sony, the increased export restrictions the U.S. government has imposed on a certain major Chinese customer are having a significant negative impact on our image sensors business, while stay-at-home demand resulting from COVID-19 is having a positive impact, primarily on our Game business. In an operating environment such as this where change is both rapid and broad, our diverse business portfolio augments the resilience of Sony and provides us an opportunity to expand new businesses. Now I'd like to explain the following topics, as you see here. Fiscal '20 second quarter consolidated sales decreased slightly compared to the same quarter of the previous fiscal year to JPY 2,113.5 billion, but consolidated operating income increased JPY 38.8 billion year-on-year to JPY 317.8 billion, which was a record high for the second quarter. Income before income taxes increased JPY 37.5 billion year-on-year to JPY 299.6 billion. Net income attributable to Sony Corporation stockholders for the quarter increased JPY 271.7 billion year-on-year to JPY 459.6 billion. This significant increase in net income was primarily due to the improvement in operating income I mentioned and the JPY 214.9 billion reversal of a portion of the valuation allowances recorded against deferred tax assets and the consolidated tax filing group in Japan. For details of adjusted profit, excluding extraordinary items recorded in second quarter, please refer to Pages 4 through 7 of the presentation materials. Now this slide shows the results by segment for fiscal '20 quarter 2. Next, I will show the consolidated results forecast for fiscal 2020. Consolidated sales are expected to increase JPY 200 billion compared with the previous forecast…

That was CFO, Hiroki Totoki, making the presentation. The question-and-answer session will be starting at 4:20, 20 minutes past 4. In the first 20 minutes, we'll receive questions from the media, and in the next 20 minutes, we'll be receiving questions from the investors as well as analysts. [Operator Instructions] So please wait for a while before we start our Q&A session.

Ladies and gentlemen, thank you for waiting. We would like to now open the questions from the media. The questions will be answered by Hiroki Totoki, the Executive Deputy President and CFO; Naomi Matsuoka, the Senior Vice President in charge of Corporate Planning and Control, Finance and IR; as well as Mami Imada, the VP and Senior General Manager in charge of Corporate Communications. [Operator Instructions] So I would like to now open the question-and-answer session. [Operator Instructions] The first question, [ Takahashi-san ] from Mainichi Newspaper, please. From Financial Times, Inagaki-san, please. Financial Times, Inagaki-san, please. That's -- please ask your question. Inagaki-san, can you hear us? Sorry for that. Due to the connections, I think we need to move on to next person in line. From Bloomberg, Furukawa-san, please.

Furukawa from Bloomberg. I hope you can hear me.

Yes, we can hear you.

Regarding the semiconductor business, I have 2 questions. First of all, regarding the CapEx plan, the Nagasaki plant, it's to start operating April of 2021. Is there any changes to the schedule of the operation? And also, CMOS sensors production capacity by March 2021, I think 138,000 per month, I think that was the plan. So is there a modification to that? So that was the first question. And should I ask one by one?

Yes. No, please ask the second question as well.

Okay. So second question, the semiconductor. There's a certain customer in China, other than that, the customer for North America or other Chinese manufacturers, is there increase in orders that you're receiving? Anything that you can share with us on that, please?

Thank you for the question. I would like to respond to the first question, first of all. The Nagasaki plant has been expanded, and it's a question about the production resumption schedule. And we have always said that we'll be starting our production in April 2021, and that schedule has not been changed as of now. However, after the production has been resumed, the pace at which the production increase will be taking place, that may be revisited in the production plan in fiscal 2021. And as for -- at the end of this fiscal year, the capacity will be 138,000, whether the plan has been changed or not, on that question, yes, we will be introducing a production facility and no changes to that. But whether when it's going to start the production, it will depend on the demand in the fourth quarter from the customers and also the capacity factor of our production facility. And that will be used as a basis for making a decision on when the production facility will start. And also, regarding the customers other than the Chinese major customer. In general, in North America, over the previous year, it has been increased year-on-year. And also for other Chinese customers, there has been some additional orders. And I think we're making efforts to increase orders, and I think it's been effective. This concludes my response.

Going on to the second question. And we had heard from Mainichi, [ Kato-san ], please. [ Kato-san ], do you hear?

Yes.

Kato of Mainichi Newspaper, go ahead.

About anime business is what I want to ask you about. In terms of segment, does it belong to Music? And the Demon Slayer, what is included in anime mean streaming or Internet high distribution, is that the target? Or what about the Pictures -- is it going to be included in the annual Pictures sales?

Thank you for the 2 questions. First question is about the segment, is it -- and is the anime included in the Music segment? And the Demon Slayer is a big hit, and is it going to contribute to streaming of animation? Or is it going to be included in the Pictures side? And Matsuoka will give you the answer.

Thank you for those questions. With regards to anime, the segment is Music, yes, Music segment, and it is in the video image production. And as for the Demon Slayer, anime streaming revenue, as you know, is Netflix and Amazon where they're streaming, and so there's such contributions. And as mentioned earlier, there is the contributions on the Pictures side, too.

Let us take the next question. Nikkei Newspaper, Shimizu-san will be the next.

Shimizu from Nihon Keizai Shimbun. I also have 2 questions. The first question is about the game. Earlier, you said that PS5 in the initial year is expected to sell 7.6 million units. Given this, is it a possibility that it may exceed the JPY 100 million unit that PS4 achieved? The second question is you want to diversify the customer base. You did talk about a specific major customer. But does it mean that you will place more emphasis on commodity products?

Thank you. Let me address the 2 questions myself. First is about the game, PS5. Would it exceed in the long run the accumulated sales of PS4 of JPY 100 million? Yes, it is a challenge, but we are very eager and committed to succeed and surpass the aggregated unit sales of PS4. Now do you think that we would change the direction of development? As I have mentioned earlier, right now, for a particular customer in China, we have provided the high-resolution, high value-added technology. But today, we have to change that direction in the near term. For 2021, we will try to capture more share using the commodity products. On the custom-made products, it enjoys high added value. Once it is on the right track, it has so much potential to grow as a big business. But since it's custom in processes, you have to have a certain developmental lead time. Therefore, as I have mentioned earlier, we believe that earnings recovery in the full scale, we will have to wait until 2022. Thank you.

Next from Nishi Nippon Newspaper, [ Ishida-san, ] please. Please ask your question.

I hope you can hear me.

Yes, we can hear you.

I'd like to withdraw my question because somebody else has already asked the question that I wanted to ask.

Okay. Thank you. So I would like to move on to the next question. From Asahi Newspaper, [ Suzuki-san ], please?

[ Suzuki ] from Asahi. I hope you can hear me.

Yes.

First question, anime business. So the Demon Slayer, you were talking about the Demon Slayer, specific numbers, what is the amount of contribution in the second quarter, also in the full year forecast? What is the amount that you're expecting? And also second question, specific Chinese customer. So you mentioned that customer. Once again, I would like to know more about the numbers, the write-down of the inventory and beyond the next fiscal year -- or the full year forecast for this fiscal year. Do you have any numbers as to how much the impact would be? Could you share that to the extent that you can, please?

Thank you. The first question regarding the Demon Slayer and in terms of numbers, quantitatively, what is the impact. Actually, as of now, it's been a very short time since the release. And so the full-fledged merchandising is only going to start from now. So I will refrain from talking about specific numbers as of now. And regarding the specific Chinese customer and its impact and how much impact there is, that was your second question. And once again, in the first half and the second half, there may be some reductions. And if you look at how much it has degraded, I think you can see that there has been an impact beyond the difference between the first half and the second half. And that gap, as I mentioned in my speech, have been offset by other customers' business. So we have been able to recover for that gap due to other customers' business. Thank you.

Going on to the next question. Sorry, we were disrupted earlier. Financial Times, Inagaki-san, are you with us?

Sorry about the disruption earlier. Can you hear me?

Yes.

Yes. I am Inagaki from Financial Times. And there have been questions about the Chinese customer, and that's what I'd like to ask about. The other day, Samsung Electronics OLED panel, permission was given by the U.S. government, that is, for supplying to the Chinese market. They made that clear. So the similar special transaction, maybe you will get that license? And do you expect to get the license? And in the second half -- will you have an estimate for the second half? And for example, what about the possibility to resume the transaction? And another question, second question that is, about games. In the financial statement, there is a third-party soft -- other company's software is delayed. It was mentioned. And what is the extent of the delay? And in your in-house studio, is there a similar delay that you see? And towards the launch of PS5, I think you are making preparation. And how much impact will the delay have?

Thank you for those questions. About the export license, I would like to refrain from commenting. And with regards to whether the transactions can be resumed, what I can say at the present time is for this fiscal year estimate, after September 15, the transactions have not been included. And about games, that is, third-party software development is delayed somewhat. And in-house too, is there a delay, is your question. And the delay in development is not just due to COVID, but -- well, it happens even without COVID, and you have to recover. And in other development times, we see this happening. So our understanding is that there is no delay that will impact the PS5 launch in a big way.

We would like to move to the next question. Nikkei Asia Review, Nagao-san, it's your turn.

I hope I'm being heard.

Yes, it's clear.

For the full year forecast, as of August, PS5, cost was apparently going to be increased. But overall, the Game business seems to be doing quite well with the contribution of PS5 vis-à-vis the overall performance of this category. And I'm sure the increase of the business of PS4 is contributing the -- compared to first quarter, the second quarter user ARPU has been declining. So this is for the PS Plus -- for PS5 contribution for the full year.

Are you asking about the contribution of hardware sales of PS5? Well, that was my understanding, so let me respond to that question. PS5 hardware, it's not the earnings contribution that we expect, but I think it will be a negative contribution for the time being. But having said that, I would like to state that penetration, the increase of PS5 in the market would urge customers to buy the software. So overall, as a business, the PS5 ecosystem will be activated, and in consequence, would grow earnings. Now MAU, how do we see the decline of MAU from the first quarter. MAU, the total number of hours being played by our customers. I think it was in April when we recorded the peak, where people stayed at home. But more recently, compared to the previous year, I believe that it has come down to 30% increase versus the same period of last year. So that changed trend has been reflected in what you have stated. But things have stabilized. So as far as the second quarter or second half is concerned, we believe that the current level will be sustained.

Thank you. I think we are running out of time. So the next question shall be the last question. From Nikkan Kogyo Shimbun, [ Kunihiro-san ] please.

Kunihiro from Nikkan Kogyo Newspaper. I hope you can hear me.

Yes, we can hear you.

November 3 in the U.S., there will be presidential elections in the U.S. And are there foreign exchange rate or any impact on your business? And how do you view the impact from the presidential elections in the U.S.?

Thank you. Yes, we are monitoring it very carefully. But for now, depending on the results of the election, the full year forecast is not to be impacted. That's our view right now. That's all.

Thank you for the many questions. So it is time to close this session with the members of the media. So those analysts who will be participating in the next session, please wait until 4:46. We need to change the membership of the persons responding to the questions. Starting at 4:46.

Thank you for your patience. We would now like to take the questions from our investors and analysts. I am acting as the emcee, and I am Hayakawa, in charge of Finance and IR. To answer your questions, we have Hiroki Totoki, CFO, Executive Deputy President; we have Senior VP from Corporate Planning and Control, Finance and IR, Naomi Matsuoka; and Hirotoshi Korenaga, Senior General Manager, Global Accounting Division and Senior Vice President. [Operator Instructions] So let us now start. [Operator Instructions] JPMorgan, Ayada-san?

This is Ayada of JPMorgan. I&SS and Games, 2 questions, please. First question, the image sensors, Totoki-san gave an explanation earlier toward next year that you could recover shares on a volume basis. And can you give the reason? In other words, the market doesn't have supply capacity so customers have to come to you? Or maybe you will work hard to regain shares with pricing? So can you talk about this process? And after that, probably, it's going to link to the custom products market share increase. So compared to your competitors, the catalog specification, high-resolution, higher-definition, maybe it's a different customer, and you seem to be a bit behind. So is it a level that can be adjusted? It's not a fundamental problem. I'd like to confirm that. And then the second question, if I may go on, is about games. The slide you showed at the end, next year, it seems that Games is sunny. And so the background of this, next year, stay-at-home demand will decelerate and there will be -- the improvement of cycle the of the new PS5, is that going to be the absorbing factor? And in connection with that, add-ons and software sales, network, next year, it will be maintained at a high level. It will not go down. Is that the right understanding? That's all.

Thank you for those questions. First of all, I&SS question, towards next year to regain share. And next year, as you say, probably, 0.7 micron, this fine scale will be the main battlefield -- fine pixel, and we have to catch up. And if it -- well, it's the commodity, so for price, we will have to make efforts. And so more than higher-resolution, the margin will fall. However, to an extent, we will commit that to get share and we will expand our customer base. And having done that, higher-quality, higher-resolution will be pursued. And there are customer needs in that direction, so it will be supported. And on both fronts and towards 2022, our business foundation will be upgraded. And the second question about Games. So that there's no misunderstanding, I'd like to say upfront, for the next year onwards, in terms of business momentum, we showed the picture. And it's not the results forecast, so please look at this from that perspective. The reason why it's sunny, well, we have very strong PS5 customer demand and reputation. And the lineup, the software strength is there. So next year, the customer base, we believe, can be expanded even more. There's that expectation. So mid- to long term, the service will be reinforced and recurring revenue will be increased. So it's not so much the single year, but rather over the mid- to long term what kind of expansion can be realized. That's where we see the essence of competition.

We would like to move on to the next question. Ezawa-san from Citigroup Securities. Mr. Ezawa-san, can you hear us? Ezawa-sama? Apparently, there is a telecommunication difficulty. So let us move on to the next person. From Mizuho Securities, Nakane-san.

My name is Nakane. I have 2 questions. The operating income for the full year, you made a revision. The second quarter, it went up. Some had been realized already. But in the second half, well, you do expect some upward impact. Can you give the details by segment? That's the first question. The second question. You always stated the number of input, the capacity at the end of the year and the capacity and the prospects for the operation, capacity utilization and the end of the year inventory. The JPY 17.5 billion of write-down, is it for customer products -- rather, commodity product? Can you sell to alternative customers if it's a commodity that you have written down?

The first question, this is on a consolidated basis, I think you're referring to the question of the balance between the first and second half. The numbers, I think, are self-explanatory. The first half was a good half period, and it looks that it will deteriorate in the second half. But most of them are temporary short-term impacts. And let me explain by each segment. First, Game & Network Services, second half, we would incur costs to launch PS5. And stay-at-home demand, of course, that demand was stronger in the first half. So that trend is impacting. Music, onetime impact, there has been a transfer of certain business. Onetime gain was recorded in the Music. Pictures, theatrical release requires marketing costs, and we anticipate that there will be increased marketing cost. There are very few, if any, during the first half, the theatrical release. Therefore, the second half, there will be no merchandising almost. Therefore, the second half numbers would look forward than the first half. EP&S, the first half, structural reform cost had increased. We anticipate the increase of structural reform cost. I&SS, the second half, the shipment has been terminated to a certain Chinese customer. So we are not incorporating any business to that customer during the second half. So there is an inventory adjustment that would affect the capacity utilization of our facility. I shall revisit this later. Financial Services, Sony Bank. There were valuation gains for the securities at the Sony Bank. Others enumeration, first, there has been an increase of new business development. But if you look at the overall picture, the business momentum, the actual strength, I think it is fair to say that to really understand our strength, you should look at the entire year, the full year. Now I&SS, the wafer input…

Next question from Morgan Stanley MUFG Securities, Ono-san, please?

Morgan Stanley, I'm Ono. Two questions. First question, a more general question, and the other one is related to gaming strategy. So in the third -- or in the second quarter, in the results, I think the overall results are very strong and I think it's very favorable. But according to you, Mr. Totoki, in the major segments, the ability to generate profits under this COVID-19 situation, you have converted it to opportunity. And for next fiscal year, are you going to continue to change -- and is there anything that you think that you can continue to make things turn more favorable throughout the next year? Please share with us. Secondly, regarding strategy for Game. You have invested in Epic Games last year. So you're going to have business relationship with publishers. And I think you're going to have some stake with -- are you going to have some kind of action with these publishers? Is it something that you're going to make it a norm? And you've been talking about the content, the gaming content is what you're going to be aggressively acquiring. So that position has not changed? Or are you being a little bit more aggressive than before? Can you share with us the tone with which you are addressing these partners?

So regarding the major segments, the profit-generating capacity and the fell that I have on the businesses. So as I mentioned in my speech, the biggest feel that I have is that under the COVID-19 situation, people cannot report to work, people have to work remotely. Even with that restrictions, it was possible that the business can be executed with a lot of effort by the people. And there's creativity included in it. But I think that is the best finding that I had in the COVID-19 situation. And under these circumstances, people still have this demand for entertainment. And actually, there's increased appetite for entertainment, and that is something that I also felt strongly about during this COVID-19 period. So if I may, for each of the segments, I do feel that there is a good feel. And for Financial Services, Sony Life, the life planners have been working face-to-face. But with the remote consulting services, we are now back in terms of acquiring new contracts compared to the previous year. So I think with remote activities, we can still capture opportunities and grow the business. Regarding your question about the games, the relationship with the publishers and do we have to have a stake in the publisher. No, we don't think so. If you have a lot of items for engagement or alliance or if you have an in-depth alliance, maybe this capital relationship is probably going to be favorable as a strategy. But in any case, we want to have access to high-quality content on our platform so that we can deliver these contents to our customers. And that is a goal and it remains unchanged. So we would like to have access to good content as much as we can. Thank you.

Next question, Ezawa-san from Citigroup.

Sorry, I had some problems. This is Ezawa from Citigroup. I would like to ask 2 questions. First question, Pictures business. In the second half, you have the company plan in terms of results, and I think the view is quite severe. But subcategory, Motion Pictures, what is the profit level? And theatrical and secondaries, along with time, I think that there will be some differences. So if you could talk about the digital aspects, I'd like to hear that. And I think you said it will take a few years for recovery. So for the next year, how are you going to recover the Pictures business? I would like to hear some kind of breakdown. That's the first question. Second question, capital allocation. Now this time, operating cash flow plan has been revised upward, I think. And so you -- this is favorable. On the other hand, capital investment, I think that's been lowered or revised downward. So free cash flow, the way you use money, the money coming out, how is it going to be allocated? Some new additional cash flow, what are you going to do with it? I'd like to hear your present thoughts.

Thank you for the questions. And the first question about Pictures, that is the breakdown of the segments. What's the image of the breakdown is the question. And Matsuoka-san, if you could answer. Matsuoka-san, please.

Yes. Matsuoka speaking. So the image of profit contribution in the future, what will happen, I would have to speak in that way. I cannot really speak quantitatively. The production of Pictures this fiscal year compared to the previous year, there's almost no releases. So that being the situation, you have what came out last year. And those movies can be for home entertainment or for streaming, and there could be sales there or income derived from those routes, which is not coming out this year. On the other hand, the first half, there was no big movies coming out. But in the second half, we expect there will be some resumption. And if that's the premise, then that means in advance of that, there will be marketing costs involved. But it will be marketing and release with a delay, and we will have to recoup. And so you usually have a theatrical release, and with that performance, you have home entertainment profits. And so that will be seeing a delay. Therefore, naturally, after the release, whether we the movie will be a hit, well, that will be one factor. And with COVID, what will happen to the theatrical releases, that's an uncertain factor. But that is the structure. And other segments can make up for that is, my prediction, media networks and TV programming.

Now about capital allocation, let me give you the answer. So first quarter results, that is a change. If I may explain that, this time, cash flow, JPY 80 billion upward revision is same. And CapEx is a reduction from what we showed you last time. And strategic investment, there's no change in policy. And the previous announcement, as we said, is if it's -- other than it being a wholly-owned subsidiary, there's about JPY 300 billion of strategic investment. And in this JPY 300 billion, there's also already Bilibili and Epic investment, JPY 70 million, and we have JPY 100 billion possibility of stock repurchase. So recently, there are increase in M&A opportunities. That's my feel. And so in that sense, in various segments, there are opportunities for strategic investment. Therefore, we have to have a good analysis and conduct the strategic investments in a timely manner.

I'm afraid time is running short. So we will take the last question. SMBC Nikko, Katsura-san.

I&SS and EP&S would be the singular question. I&SS, you've given some numbers. During the July-September period, the master input, can you give me the number for July, September period? The write-downs, JPY 17.5 billion. And since 15th of September, the business is 0. But in the meantime, I believe that you have obtained a license to export. And if you are allowed to export -- of course, in 2016/'19 period, you have had a write-down, but you were able to resume the business and you were able to reverse and revise the forecast. Would the same should happen this time, should you have the license granted? The -- another is EP&S. On Page 19 of the slide, even if you exclude the mobile, both the top and bottom lines are increasing. TV is doing well. The digital cameras, the unit numbers are declining. But the HE&S and IP&S, if you could dig deep into those areas. And also in the last slide, you talk about the momentum. EP&S, there are some sun rays coming out after the cloudy weather. Is this because the COVID-19 would go away? Or are there any other factors that would affect this sector favorably?

I&SS, the second quarter, the actuals, what is the number of wafer. As I have stated earlier, the capacity is 130,000 and the average is 110,000. That's the average. For mobile communication and digital cameras, there has been some production adjustment. And there were special factors during the second quarter. There was statutory inspection in some plants. So for a short period of time, the wafer number has declined because of the inspection. EP&S, second quarter, even without the mobile, the numbers have gone up, earning some profitability. The contributor is TV. TV's contribution is the largest, followed by digital camera. That's by category. The weather remarks, we are looking at the momentum as of today until next year or beyond. It does not represent our forecast or performance or projection performance. Please do not be misled. But why can we improve? That is the first quarter, EP&S negative impact from the corona, COVID-19, was quite significant in terms of revenue and earnings. But this will be alleviated. The adverse impact will be alleviated. Of course, there will be regional differences. There could be the second and third wave in certain geographical areas. But I think we know better how to adapt to such environment. We believe that we can better accommodate the new environment. So overall, there will be an improvement.

Thank you. Ladies and gentlemen, the time has come up to close this earnings announcement by Sony Corporation. Thank you very much for your participation.