- Financial services forecasts, which were based on market price of the portfolio, are likely to differ with actual results due to the recent drop in the stock market.
- The hypothetical analysis based on the convertible bonds portfolio has shown that a possible ¥16 billion impact could result from a 10% fluctuation in the index.
- The management has reduced the forecast for CapEx by ¥30 billion to ¥410 billion, especially in the semi-conductor business.

Key questions and answers from the third quarter fiscal 2007 earnings call conducted by Sony Corporation on January 31, 2007.

Evan Wilson (Pacific Crest): The forecast for PS3s for this fiscal year is 9.5 million units. What is your level of confidence in terms of your ability to achieve the 9.5 million unit target? Is there any chance that the new 9.5 million unit target will assume any changes in the pricing?

Nobuyuki Oneda: We are very confident about achieving more than 9.5 million units. Coming to price adjustment, we are unable to comment at the moment but what I can tell you is that we could supply more software available towards the end of this fiscal year.

Evan Wilson (Pacific Crest): What is the position with sales in consumer electronics on a constant basis currency?

Nobuyuki Oneda: On a local currency basis, the sales were up 14%, primarily due to better than expected sales of the LCD television. The increase was big compared to our original forecast.

Jessica Reif Cohen (Merrill Lynch): Can you shed more light concerning the writers’ strike, in terms of how long it will have to go on before it affects your business? Are there any changes in your cost structure going forward due to the strike? What are your expectations on fab?

Robert Wiesenthal: Currently our divisions continue to operate without substantial interruption. Obviously, it is disappointing for the rank and file in the community where we are relatively optimistic the top piece to be going well. However, there is probably less impact on us versus other integrated companies because, while TV is very important to Sony Pictures, we are much broader than that and we own a network. At the moment, we are not undertaking any form of restructuring related to the strike.

Jessica Reif Cohen (Merrill Lynch): What are your expectations on the actors? What impact will Warner Brothers’ move to Blu-ray have on the overall business?

Robert Wiesenthal: When Warner decided to go exclusive to Blu-ray, coupled with PS3 picking enough steam with the price cut and the consumer accepting PS3 not only as a game machine but as a home server and a great Blu-ray player, it gave us momentum on the software side. In the week ending January 20, 2008, 19 out of the top 20 net-generation disc sales in terms of ranking were Blu-ray with only one of the top 20 being HDTV from Nielsen.

Blu-ray DOM next generation titles are enjoying premium at retail in terms of pricing because the consumer is appreciating the high resolution, extra content from these 50-gigabyte discs. Excluding the interactive features that are starting to trickle out, there still is a lot of value on these discs. Over the long-term, you will see some type of enhanced march on the video side on a per unit basis on Blu-ray versus a standard definition. Overally, significant momentum with respect to Blu-ray and the hardware side seems to be even better.

Jessica Reif Cohen (Merrill Lynch): Can you comment on your outlook for music and music publishing in 2008? Would your company consider more acquisitions in growing the business?

Robert Wiesenthal: Sony Music had a solid quarter. While the industry was down 10%, our revenues were flat due to a weaker dollar. We also had a lot of success with Alicia Keys and Leona Lewis, which previously was in the UK only. Looking forward, we have Natasha Bedingfield hitting stores and the new Michael Jackson Thriller 25th Anniversary Edition is starting to gather steam and there are a lot of great artists who have contributed to that album. Our operating income was up year-over-year, which was not the case with EMI and Warner. A combination of lots of restructuring and strong focus on digital will enhance EBIT from the business.

In terms of publishing, the music publishing company is better equipped to be a music company in the future than a record label. There is a lot of cross fertilization between both publishing and the record music side. There is a lot of cooperation and the publishing side, being very smart in terms of digital, has done lots of deals. We bought Famous Music and the integration has been going well. Leiber Stoller, which had the Elvis catalogue, was another strong acquisition. I don’t see a lot coming from the acquisition side. We will obviously be on the look out but the prices are very expensive. We hope that due to the difficulties in the financial markets, we won’t have to compete with private equities much and we will rely on our great management team currently in place.

Daniel Ernst (Hudson Square Research): What was the magnitude of the rear projection loss from the TV operating component?

Nobuyuki Oneda: The TV operating profit on rear projection in this fiscal year could be more than $100 million. However, we decided to stop these businesses and we therefore expect a quick reduction.

Daniel Ernst (Hudson Square Research): On the PS3, what is the direction of your cost reduction and what has been the achieved per unit reduction on production cost?

Nobuyuki Oneda: Concerning the PS3 cost update, the cost has markedly declined since introduction though I am not able to disclose by how much. We expect that sometime in the late fiscal year 2008, the cost will be equal to the selling price. Currently, the cost is higher than the price and we expect to catch up toward the second half of 2008.

Daniel Ernst (Hudson Square Research): Can you provide more statistical detail concerning the 5.2% target for the current fiscal year?

Nobuyuki Oneda: The 5.2% operating profit excludes the extraordinary impact of the stock market and the drastic appreciation of the Yen. Excluding all the extraordinary items, our bottom number would be 5.2% rather than the 5% announced at the end of October.