Ladies and gentlemen, it is time to start the briefing of Sony Corporation's consolidated financial results for the third quarter ended December 31, 2020. I'm happy to serve as I see my name is Kato from Corporate Communications. This event is for the media and analysts and institutional investors to whom we have sent invitation. And it is being streamed online via websites, Investor Relations page. First, our Executive Deputy President and CFO, Totoki, will announce the consolidated results for the FY '20 Q3 and the forecast for the full year FY '20, and it will be followed by Q&A session. We expect a total of 70 minutes. Mr. Totoki, please.

Thank you. Today, I will explain the following. FY '20 Q3 consolidated sales increased 9% year-on-year to JPY 2,696.5 billion and consolidated operating income increased a significant JPY 59.1 billion year-on-year to JPY 359.2 billion, mainly due to an improvement in valuation gains and losses on investment securities in other income and expense. Income before income taxes increased JPY 167.1 billion year-on-year to JPY 477.4 billion. And net income attributable to Sony Corporation's stockholders increased JPY 142.4 billion year-on-year to JPY 371.9 billion. This slide shows the results by segment for FY '20 Q3. Next, I will show the consolidated results forecast for FY '20. Consolidated sales are expected to increase JPY 300 billion compared with the previous forecast to JPY 8,800 billion, and operating income is expected to increase JPY 240 billion to JPY 940 billion. We have also upwardly revised the forecast for income before income taxes to JPY 1,120 billion and net income attributable to Sony Corporation's stockholders to JPY 1,085 billion. Our forecast for consolidated operating cash flow, excluding the Financial Services segment is JPY 850 billion, an increase of JPY 220 billion compared with our previous forecast. As for dividends this fiscal year, we expect to issue an year-end dividend of JPY 30 per share, which, when combined with the interim dividend already paid, will make our expected annual dividend JPY 55 per share this fiscal year, JPY 10 more than last fiscal year. This slide shows our forecast by segment. I will now explain the situation in each of our business segments. First is the Game & Network Services segment. Sales in FY '20 Q3, during which we started selling the PlayStation 5, increased a significant 40% year-on-year to JPY 883.2 billion. Operating income increased a significant JPY 26.7 billion year-on-year to JPY 80.2…

That was Hiroki Totoki, Executive Deputy President and Chief Financial Officer. Starting at 16:25, we will have Q&A session for media and from 16:50, Q&A session for investors and analysts will start. Each session is expected to be about 20 minutes. [Operator Instructions]

[Operator Instructions] Thank you for patience. I'd like to now start the Q&A session with the media. The respondents are our Executive Deputy President and CFO, Hiroki Totoki; Senior Vice President in charge of Corporate Planning, Control and Finance; Naomi Matsuoka; and VP and Senior General Manager from Corporate Communications Department, Mami Imada. [Operator Instructions] I'd like to now start the Q&A session. [Operator Instructions] The first person to ask question is from Nikkei, Ms. Shimizu-san.

My name is Shimizu from Nikkei. I have 2 questions. First, about the Game business. You said that the PS5 has a lower inventory. Is it because of the shortage of semiconductors, which is being talked about? And in your view, when do you expect the dissolutions of this problem of low inventory of semiconductors? Second question, you talked about image sensor for Huawei. The resumption of the deal resumed -- took place last year, but on a long-term basis, do you expect this to go back to the previous level? Or is it going to be higher than before? Or you don't believe that the level of the shipment to Huawei may not recover? So please tell us your long-term view.

Thank you for your questions. About your first question on PS5 about the supply situation of PS5. Your second question is about the image sensors shipment to major Chinese customer. Allow me to answer both of the questions. First, about the supply situation of PS5, originally, our plan was that at the time of the PS4 launch, we try to exceed that level by 7.6 million units this fiscal year, and we are on track to achieve this. And for next fiscal year, we believe that there will be strong demand to continue. But compared to the original time, we try to procure components and the level of the second year of the launch of the PS4 at 14.8 million, we would like to exceed that level of PS4 when it comes to PS5. However, the level of demand by customers is so high for PS5, therefore, for various devices, we try to procure larger volume. However, we have to look at the global shortage of semiconductors. When we try to increase our capacity, we face difficulties because of this global situation. However, we are doing our best to exceed the original plan in terms of shipment. Now about your second question about the image sensor. Going forward, on a long-term basis, can we recover to the original level? We do not believe so because there are several issues, complex -- complicated issues, that's what brought us here. Therefore, what we can do is to deliver our image sensors to various customers, wide variety of customers. So when we look at the issues from external environment, we try to be resistant to such shocks and mitigate such negative impact from external situations in our endeavor. And we are on track in this endeavor as well. Thank you.

Question from Toyo Keizai, Takahashi-san, please.

Takahashi speaking. So first of all, regarding image sensor. So you talked about the topping up of inventory, stockpiling inventory. The number of wafers that are input, I think in the first the quarter to next fiscal year, what is going to be the number of wafers that are going to be input? And also the second question regarding capital allocation for fiscal 2021, are you going to continue with your strategic investment? But in the last 3 years and going forward, is there going to be any kind of a difference between what you have done in the past and the next year?

Thank you for the question. So first question was related to the image sensor, the number of wafers that are to be input, so that's the capacity. And secondly, the overall investment strategy for next fiscal year. And is there any difference from what we have done in last 3 years? So please allow me to respond to both of these questions. First, regarding the number of wafers for the image sensors, in the third quarter, it was a simple average it was 117,000 in the last 3 months on average. And at the end of second quarter, our forecast was 110,000. So it was above that projection. So the capacity of the plant is -- we're working at full capacity because it's for mobile devices and digital cameras, there has been a lot of demand for these applications. Now looking at the next quarter, the fourth quarter, so the average -- 3 months average is 127,000. So 127,000 is what we are projecting at the moment. And of course, our -- the capacity is going to be at full capacity. And because we have strong demand, plus in the next fiscal year, we may have increased demand, so I know to respond to that, we are going to further increase our stockpile or inventory, and that is the option that we're going to take. Thank you.

Yes, there was a second question regarding the investment activities in the next fiscal year. So in a difference between what we have done in the last few years. Well, for us, in the last 3 years, we have been supported by a very good demand. So we are very able to have a good capacity for investment. So in the entertainment area and so on, we have more opportunities for good investment opportunities. So compared to the last 3 years, I think we are going to scale up our efforts to implement strategic investment in the next fiscal year. Thank you.

We'd now like to go on to the third question. Asahi newspaper, Suzuki-san.

I'm Suzuki from Asahi. And first of all, first question, image sensor. So there's a certain customer in China, Huawei, and their resumption period and scale, what is it like? And compared to before, higher price -- is there a shift from the higher to the mid-range price? And also, in specific terms from the U.S. government, you received the permission and when was that? And how are you able to resume the shipments?

Thank you for the question. This certain customer the size of the deal, we don't disclose that information. So we would like to refrain from that. And naturally, in resuming the transaction, we went through the proper approvals and procedures, and it is being done appropriately. Thank you very much.

Next question, the fourth person to ask question is from Nikkei BP, Nezu-san, please.

Do you hear me?

Yes. We hear you.

I have 2 questions in the field of Entertainment. First question, as has been discussed, Crunchyroll acquisition or business with Crunchyroll. In Animation and Games, they have high affinity between these 2. Going forward, Animation and Game, how are you going to merge these 2 and expand them? Through the acquisition of Crunchyroll, what do you expect foresee? Second, last year, the Fortnite game by Epic Games, you invested in Epic Games, not only in games, but motion pictures and music areas, you are collaborating with them for new type of entertainment. But this year, if you have any updates for this fiscal year or any policy going forward, I would appreciate it very much.

Thank you for your questions. First question is about the acquisition of Crunchyroll. And going forward, how are we thinking about fusing or merging Animation and Games? And the second is the investment in Epic and the new entertainment in motion pictures and anime and games? For this, allow me to answer your questions about the acquisition of the Crunchyroll, one of the major motives for that is that the Japanese anime market is showing such high-growth for the last 5 years, it increased -- have grown by 1.5x, and especially overseas sales was the driver, 19% sales year-on-year was achieved for overseas market. When the markets are growing, we try to enter such market to create our growth. But according to our internal investigation, those game players, the users that enjoy games and animation, it seems that there's high level of affinity between these 2 groups. So we can expect cross-sell opportunities going forward. We have high expectations for cross-sale. For a specific way to how to do it, we are discussing internally for the next fiscal year. In the early period in the MRP discussion, I think we can give you more information when that time comes. Now investment in Epic, as you rightly said, motion pictures and music that's new kind of entertainment in music and motion pictures. On a real-time basis and 3D and social entertainment, those are the keywords. It's a new business domain. And the technology Sony has contents that Sony has and the platform the Epic has, we have such high affinity and compatibility in various -- through -- across various groups, we are consulting with them, discussing with Epic. At a certain point in time, we can give you more specifics. Thank you.

Thank you. We move on to the next question from Nikkan Daily -- Nikkan Kogyo Shimbun, Mr. -- [ Ms. Kunihiro ].

I'm [ Kunihiro ]. Regarding image sensor, I have a question. In Nagasaki, I think you're going to have additional capacity. And I think we start in April this year, no change in schedule. And also regarding camera, the environment has not recovered yet, but what is the situation or projection for fiscal '21? And how about the sales of the new product that they have announced?

Thank you for the question. One, the image sensor Nagasaki plant added production capacity, when it's going to start? And also regarding camera, the projections for the next fiscal year and also the reaction to the new product? So first of all, regarding the Nagasaki production facility. We have added capacity in April 2021. April 2021 is still the schedule to start the plant. However, after the production starts, the increase or the timing and the rate of capacity increase and that is something that will be reviewed -- that is being reviewed in the 2021 investment plan because the external environment is changing very rapidly. So throughout this fiscal year, we have felt that the change is very rapid. So for us, we want to increase our flexibility to respond to the changes in the external environment and the production capacity will be set accordingly and also the timing for the further production is also going to be determined flexibly. Your second question regarding camera. So as you said, under COVID-19 situation, there is a trajectory for recovery of mirrorless cameras. And there was a strong demand, especially in the year-end holiday season. Now regarding next fiscal year, yes, we do have high expectations. But under this pandemic situation, it's very important to predict accurately about the demand. So just as with the image sensor situation, we want to be flexible, we want to be agile to be able to respond to the changes in the situation. Regarding the reaction to this new product that we have launched, the Alpha-1 camera was a very high end product, our flagship product. So it is really for a professional photographer use. So -- and it was -- the reaction is we are expecting from those professionals who are using these high-end products.

Going on to the next questioner, [ Mr. San ] who is a freelancer.

Can you hear me?

Yes. We can.

About games, I would like to ask 2 questions. First question, volume, you are producing according to plan. And in terms of the market reception, there's a shortage. In other words, you have not been able to fill the demand. So perhaps in terms of the market, the image might not necessarily be positive. So you have good sales, but the impact on the market could be negative. So could it impact your platform going forward? Secondly, with regards to games, right now, hardware cost thinking is very proactive. And there could be a negative margin. And how long are you going to continue this? And what will be the impact on the performance, if you have any ideas on this, I'd like to hear them.

Thank you for those questions. Well, first question -- and we have not been able to fully respond to customer demand, and therefore, we seriously think about this so that we would like to produce as many units as possible as quickly as possible. And will it negatively impact the platform going forward? Well we are going to do our best and hardware, not just PS5 hardware, right now, there are PS4 players -- many PS4 players. And so we have that community and user universe, which we try to place importance on so that they can have a good gaming experience. And now second question about the negative margin on the hardware. For example, in terms of the next fiscal year, it's true. PS5, you have a negative margin, but we have other peripheral devices and controllers, so we think about hardware overall and the impact on the P&L is pretty much neutral. Now negative margin, of course, should be minimized. But right now, it's not the only measurement that we make. We have software and network services, which are getting bigger, and so we had add that in aggregate, so to speak. Thank you very much.

Now it's time to close the Q&A session for media. In order to change the group, we would like to start the Q&A session for analysts at 4:50, 16:50. [Operator Instructions]

Thank you for your patience. We would now like to start the Q/A session for investors and analysts. I am from Finance IR. My name is Hayakawa, and I'd like to act as the moderator. We have as respondents, Executive Deputy President and CFO, Hiroki Totoki; Senior Vice President in charge of Corporate Planning and Control, Finance and IR, Naomi Matsuoka; and Senior Vice President, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. [Operator Instructions] We have the first question from JPMorgan, Ayada-san.

I'm Ayada from JPMorgan. I have 2 questions. First, about image sensor. In your discussion earlier, according to -- well, compared to the October forecast, the demand remains strong China. What's the background or backdrop in your analysis? For example, on the customer side, they are accumulating -- stockpiling the inventories at a higher level than the real demand, there may be a risk. And the competitor are not increasing capacity or Sony is decreasing price, for example, the situation in customers or competition and your internal situation, those are factors involved. So if you could elaborate on this, I would appreciate it. Second, about games. In your discussion earlier, you said that the PS5 users, the 87% is subscribing to PS Plus. Now those PS Plus subscribers were the initial purchasers? Is that the reason? Or on the other hand, those who have not joined PS Plus, but through the PS Plus collection service pushed up the subscribers numbers? Is that the reason? Well, so what's your analysis? What's your take on PS5 subscriber base?

Thank you for your questions. First question is about the image sensor. Compared to the previous forecast, the demand seems to be stronger in your analysis. And second question is about how do we see the subscriber base of PS Plus when it comes to PS5? Now about your first question, basically, the difference from the previous forecast is as follows: major customers, new models are selling very well compared to the previous forecast, they are stronger. And Chinese customers -- well, the shipment to certain China's customer has resumed and so this reversal of the valuation loss, but we were not assuming the resumption of the shipment at the previous forecast. So the sensors unit sales is increasing and growing steadily.

What about the average price, unit price? Well, we -- there's no major change of the selling -- average selling price, it's just a sheer volume increase.

Well, this is not so evident, but the digital cameras image sensor its increase in profit is pushing it upward. Camera market is recovering faster than we thought. And the unit sales in this segment is increasing and that pushed up the Primes sales increase. And PS5, as you rightly said, this is a very early stage for a detailed analysis. 87% of the subscriber -- subscription is very high as a percentage. And for this, let's say, for example, PS Plus collection, well, we did that, as you rightly said, in order to expand the user base and we have done various things and those measures we took must have worked. Thank you.

Moving on to the next question, Nishimura-san from Crédit Suisse.

I have 2 questions. First, next term, well, I think there was an upward revision this time in a major way, especially in music and electronics. I think you have improved the profitability or operating profit. But under COVID-19, you probably didn't expand as much as you have expected. So that's one of the reasons. But looking at the profit levels of this term, this half, are you going to -- do you think that it's going to be sustainable over the next fiscal year? Second question regarding entertainment, you're going to make some proactive investment. So animation and music, you are going to -- you have been investing actively. But Mr. Totoki, so are you going to strengthen this area? Or is there any particular area you want to push more? Or you feel that is short in investing activities? And also AWAL, you have acquired that company, and so you have Sony Music and the Orchard. And I think you're expecting synergy with them. So -- and how about the -- how is it going to contribute to the sales and the profitability of the Music segment overall?

Thank you very much. Regarding the profitability level for the next fiscal year. Well, for next fiscal year, in April 2021, when I announce to you, the earnings release, I would like to provide you with a more detailed opinion. But there may be some onetime factors or some COVID-19 factors. But still, my feel is, if you look at it from a long-term perspective, we have been able to improve our financial strength. And I think each of the business have become more stronger, more robust. So if you look at the profitability every year, there are various factors, it may go up or down. There are some fluctuations. But if you look at the midterm trend, I feel that the profitability level is going to go up, and I think we have the capacity to be able to improve on our profitability going forward. So I think that is a perception that I have. And secondly, regarding the investment in the entertainment space. So which areas we are going to be investing in the future? I think that's a question. I think I have been saying this before, but our IP and the DTC and technology, those are the core areas in which we're going to invest in our IP. In the entertainment business it is very, very critical. It's a very critical asset. And it's probably a starting point of our business. So we have to have IP. We have to own them and create them and then make sure that we should have a platform or technology to be able to merchandise them and leverage that IP. I think that is -- if that is possible, then that will be a target for our strategic investment. And as I have been saying, the community interest should be created in a market, and we want to be very committed to that kind of a market. That is the vision that we have, and that is a big theme that we have as a company. So we want to be able to contribute to that realization of that theme by making our investments. Regarding the acquisition of AWAL and the synergy with the Orchard, that's the question you had. Now regarding the Orchard, we took time to consider it and the indies artists are the core customers of Orchard. Whereas AWAL, there are -- they have individual artists. So it's not necessarily the indies artists, but as a customer, I think there's a complementary relationship between AWAL and the Orchard. And also because we have this kind of a platform now, the more and more very talented artists can be discovered. We have more opportunities to enable that, and that becomes a very rare asset for us. Thank you.

Now going to the next questioner. SMBC Nikko Securities, Katsura-san.

I have 2 questions. And has -- might do to enterprise value. But the first question is about the weather forecast. Three months ago you showed the forecast. And this time, it's gone up 1 step. So that the next year, it could lead to decreased profit. And that will be the interest of the market. So how -- what is your thinking on this? For example, to be specific games. Hardware is not being shipped as much and maybe you're not using up the budget or for EP&S, the component procurement may be difficult, and cost is going up. So the momentum from next year needs to be viewed in a very prudent, cautious manner. So if you have any thinking on that? Second question, IFRS from Q1 of FY 2021, you're going to apply that. So at this timing, you are changing the accounting standard. So what is your thinking for doing this at this time? And what will be the impact, probably, in terms of the securities and financial services, there will be some impact or maybe it will look a bit different. So if you could give us a heads up on this?

Okay. So I have just received 2 questions. And first question, Matsuoka-san. And then second question, is going to give the answer. And as necessary, I could add my comments at the end. Matsuoka-san, please.

Thank you for the question. So this time -- well, in terms of the weather symbol was shown last time, but we didn't update that this time or I'm not going to update that at this time. But in terms of the thinking going forward, I'd like to introduce our thinking. And naturally, depending on the external environment, things are going to change. But in -- for each of the businesses in the games, we have our present situation stay-at-home it could be an opportunity, and user engagement can be reinforced and network services appeal could be enhanced further, and we want to place emphasis on that. And similarly, Music is doing well and for that too. Growth of streaming is very positive and before because of COVID the advertising income went down but that's recovering so we want to aim for stable growth. And as we have been saying, the strong content on PE discovery and development leading to value creation is what we are going to aim for. That's the direction. And in terms of pictures, well, as was explained somewhat earlier, in terms of the present situation, there is the postponement of theatrical releases and so that negative effect is going to serve us going forward. And on the other hand, for the demand for good contents that demand is going to continue into the future and advertising business is recovering and I think that could be viewed as the tailwind so there is negative aspect but there is also a tailwind. As for EP&S, again stable profit so that we can create -- generate stable profit we want to have efficient operation and new business opportunities are being explored so that will be our direction. I&SS well especially for fiscal '21 there could be diversification and dispersion of customer base to recover market share as we mentioned and we want to have products with that we can add further value and that is the direction to go back to our growth trajectory and in Financial Services well there are big market factors, but we have strong foundation and so we are aiming for stable growth with our strong foundation. Sorry for the long answer.

About IFRS. I'll be answering first of all. So why this timing for the change? Well, as you know, IFRS international introduction is being promoted, so that mid- to long term, for Sony, optimal accounting standards were considered. And we have been studying this from quite a while ago. And also the accounting standard being applied for the insurance business was also considered. And with that consideration, we felt it was optimal to apply from FY 2021. And the impact of the IFRS application. Well, with regards to Financial Services, the financial instruments, bonds, stock of the measurement valuation methods are going to change. And balance sheet, equity will increase. That will be an impact. Then on the other hand, for PL, the measurement of financial instruments will change, and that will affect the PL. So excluding financial services for those segments, for BS and PL there is not going to be a big effect, but the nonoperating valuation may change. And in terms of the gains and losses. And in the supplemental to material that's on our company's website, we hope that you can refer to our website for further information. Thank you very much.

The time is running out. So the next question will be the final one. Morgan Stanley MUFG, Ono-san, please.

I have 1 major question. This time around, there is this huge upward revision of the operating income. And the assumption of the profitability, the previous time was operating margin of 8%, and it was revised upward to 11%. So I assume that the efficiency must have improved. In terms of the profit margin, against this profit margin increase, is there any common change commonly shared across segments and divisions of Sony? And going forward, what -- how do you see the direction of the profitability going forward? For example, music's operating income -- operating profit margin, 20%, that's the top global class on par with the major competition and games, 13%. There seems to be much room for improvement. So within the range that you can answer, please give me your take?

Allow me to answer your question. About the operating profit margin, it was increased to 11% and must have improved efficiency. What contributed to this? I think that was the question. If I may share my own gut feeling. Against the profit margin, it seems to me there is higher attention across board. When we meet the management, we always talk about the margin. And I personally feel, believe that the low-margin business is not this viable as business, not sustainable. This is based on my past experience and my observation. So against operating profit margin, the higher level of attention must have been a contributing factor. And if that's the case, that's a welcome thing. Now going forward, how do I see the direction of the operating profit margin going forward? As you rightly said, compared to the peers, global peers, our profit margin, how do we compare them? We benchmark, always benchmark them. If against the global peers, we will lose in the end in a competition. Why is the margin high for certain company, we need to analyze that. And for games, business model may be different and that can be a difference. First party, third party, between these 2, risk return profiles are so different. And there's this issue of scale. So the constituents of the OP margin can vary. So we look at the global peers business, we need to understand deeply their business, and that to be on par with the global peers. That's how I feel. Thank you.

Thank you very much. It is now time to close this briefing on the third quarter fiscal '20 financial results. And thank you very much for your participation.