Sony Group Corp

It is now time to start Sony Group Corporation's Cisco 2021 first quarter earnings announcement. And my name is Okada. I'm in charge of corporate communications. I shall be serving as the MC today. Now, this session is being held for journalists, analysts, and institutional investors to whom we have sent out invitations in advance. And this is being live webcast. through our investor relations website today. First, we have Hiroki Satoki, the Executive Deputy President and CFO to present to you the fiscal 2021 consolidated results and also the consolidated results forecast for fiscal 2021. And then we'll have a Q&A session. The duration is about 17 minutes. Mr. Satoki, please. Thank you very much. And I would like to talk about these two topics today. We have changed our accounting standards to IFRS from the current fiscal year, so the results for the current quarter, our forecast for the current fiscal year, and the results for the previous fiscal year, which I will explain today, are all based on IFRS. Fiscal 21 first quarter consolidated sales increased 15% compared to the same quarter of the previous fiscal year, to 2,256,800,000 yen, and consolidated operating income increased a significant 58.3 billion yen year-on-year to 280.1 billion yen, both record highs for the first quarter. Income for income taxes increased 14.6 billion yen year-on-year to 283.2 billion yen, and net income attributable to Sony Group Corporation shareholders increased 18.2 billion yen to 211.8 billion yen. This slide shows the results by segment for fiscal 21 first quarter. Next, I will show the consolidated results forecast for fiscal 21. Our consolidated sales forecast remains unchanged from the previous forecast. Our operating income forecast has increased 50 billion yen from our previous forecast to 980 billion yen, primarily reflecting the results of fiscal 21 first quarter. We have also upwardly revised our forecast for income before income taxes to 955 billion yen, and our forecast for net income attributable to Sony Group Corporation shareholders to 700 billion yen. Our forecast for consultability operating cash flow, excluding the financial services segment, has decreased 20 billion yen from the previous forecast to 890 billion yen. Although forecasted operating cash flow will benefit from the upward revision in the forecast for profit, we project an increase in acquisition of content assets, such as music catalogs, which are included in operating cash flow under IFRS. This slide shows our forecast by segment for fiscal 21. I will now explain the situation in each of our business segments. First is the game and network services segment. Fiscal 21 first quarter sales increased 2% year-on-year to ¥615.8 billion, primarily due to an increase in hardware sales resulting from the launch of PlayStation 5 and impact of foreign exchange rates partially offset by lower software sales. Operating income decreased a significant 40.6 billion yen year-on-year to 83.3 billion yen, primarily due to the impact of the decrease in software sales, a deterioration in hardware profit, and an increase in selling in general and administrative expenses. Our fiscal 21 forecast remains unchanged from the previous forecasts. and there is no change to this fiscal year's target of selling more than 14.8 million units of PlayStation 5, which was the number of units we sold of PlayStation 4 in the fiscal year after its launch. Fiscal 21 first quarter software and network services revenue decreased 15% compared to the same quarter of the previous fiscal year when stay-at-home demand was high around the world, primarily due to a decrease in software add-on revenue from third-party titles. Nevertheless, software sales increased 38% compared to the same quarter of the fiscal year ended March 31, 2020, that is fiscal 2019, which was before the COVID-19 pandemic, and we believe that the game market has expanded significantly over the last three years. Similarly, Total gameplay time of PlayStation users in Cisco 21's first quarter decreased 32% year-on-year, but increased 18% compared to the same quarter of Cisco 2019, showing continued steady growth. Sales of first-party software decreased compared to the same quarter of the previous fiscal year when The Last of Us Part II was a big hit, but sales... Of all the titles we have released during the quarter, including Ratchet and Clank, Wrist Apart, and MLB The Show 21, exceeded our expectations. Thanks in part to... A strong add-on sales, MLB The Show 21 contributed significantly to sales and profit during the quarter. We have begun to release our first-party titles on platforms other than PlayStation, and MLB The Show 21 was one such title, which followed upon initial success we had with the PC versions of Horizon Zero Dawn and Days Gone. PlayStation Studios, which oversees our first-party software production on a global basis, is accelerating investments to strengthen its production capabilities. In June, we announced the acquisition of Housemarque, which is the 13th studio under PlayStation Studios. Housemarque is a Finnish studio from Finland that has been successful for more than 20 years due to its superb technological capability and creativity, and it has received extremely high praise for Returnal, which it developed and released exclusively on PS5 in fiscal 21st quarter. Seven of our 13 studios have been acquired and have produced numerous hits and compelling IPs, such as The Last of Us series, The Horizon series, and Ghost of Tsushima. In July, we announced the acquisition of Nixis, a Dutch software development company that has excellent technology for porting game software between different platforms, such as PCs. We expect that Nixis will offer technological support to all our studios in a horizontal manner. Going forward, we intend to continue to proactively make strategic investments with the aim of developing new IP, supporting our multi-platform strategy, and strengthening our service offerings, including through add-on content.

Next is music segment. Fisco 21Q1 sales increased a significant 44% year-on-year to 254.9 billion yen, a sales increase in all categories driven primarily by growth in streaming. Sales of products related to Demon Slayer, Kimetsu no Yaiba, the movie Mugen Train, were the primary driver of the increase in sales of visual media and platform. Primarily due to the benefit of the increase in sales, operating income increased significantly to 55.4 billion yen, 19.7 billion yen higher than the same quarter of the previous fiscal year, in which a 7.2 billion yen one-time gain was recorded for the transfer of an equity stake in a third party. Fiscal 21 sales are expected to increase 50 billion yen compared to a previous focus to 1 trillion 40 billion yen, and fiscal 21 operating income is expected to increase 28 billion yen compared to a previous focus to 190 billion yen. The previous fiscal year's operating income included one-time gains of 13.2 billion yen mainly from the transfer of equity stakes and the historic blockbuster hit Demon Slayer. Nevertheless, we expect operating income this fiscal year to exceed that of last fiscal year because of the strong current momentum. Streaming revenue, which is the largest growth driver in this business, grew considerably due to strong paid streaming and a recovery in advertising-supported streaming, which was negatively impacted by By the COVID-19 pandemic, during the quarter, streaming revenue increased significantly, 53% year-on-year in recorded music and 70% year-on-year in music publishing. We are steadily improving our ability to generate hits by discovering and nurturing new artists. In this quarter as well, we had an average of 36 songs in Spotify's global top 100 songs ranking and debut songs from our new artists are increasing in this hit ranking. In the area of strategic investment, we completed the acquisition of the DIY artist service business AWOL in May. This acquisition will strategically complement the orchard in the growing indie market, enabling us to provide service to artists in various stages of their careers. In June, we announced the acquisition of Something Else, a major British podcast production company, and Alamo Records, a music label focused on hip-hop in the US. And in July, we announced an alliance with the rapidly growing online game platform Roblox. The alliance provides our artists the opportunity to connect with the Roblox community through virtual events and other means, and it creates revenue-generating opportunities that go beyond music. Through proactive strategic investments and partnerships such as these, we aim to further grow our business and generate higher profitability than our competitors. Next is the pictures segment. FY2121 sales increased 17% year-on-year to 204.7 billion yen, mainly due to an increase in sales of media networks and motion pictures, partially offset by a decrease in sales of television productions. Operating income decreased 1.7 billion yen year-on-year to 25.4 billion yen, mainly due to the decrease in sales and increase in production costs in television productions. Fiscal 2021 sales are expected to decrease 20 billion yen compared to our previous forecast to 1,120,000,000,000 yen, primarily due to later-than-originally-anticipated theatrical release of Motion Pictures' product. and deliveries of TB programming product. Fiscal 21 operating income is expected to increase 7 billion yen compared to our previous focus to 90 billion yen, mainly due to an increase in licensing revenue partially upset by the impact of the decrease in sales. In motion pictures, while the U.S. box office revenue has recovered to about 40% to 50% of what it was prior to COVID-19, it remains uncertain whether when the situation will return to normal due to a resurgence of COVID-19. Given these circumstances, we are taking a flexible approach to our release strategy for films that are ready to be introduced to the market so as to maximize long-term value of those works. For example, While we decided to further postpone the theatrical release of major films like Venom and Hotel Transylvania Transformania, we decided to license to video streaming services the films Cinderella and Vivo, which were originally scheduled for theatrical release. Meanwhile, demand for content from video streaming services remains strong, and the increase in licensing revenue from new releases and catalog product has exceeded expectations. the decrease in revenue caused by the lack of major theatrical releases in the previous fiscal year. In media networks, our video direct-to-consumer services are increasing their customer base significantly, with paid subscribers since June 2020 increasing approximately 80% at our anime DDC service, Funimation, and approximately 700% at Sony Live, our video DDC service in India. KillFlix, which we acquired last fiscal year, has also increased its paying subscribers quickly, reaching a number today that we thought at the time of acquisition it would take another year to achieve.

Next is the electronics products and solutions segment. Mainly due to an increase in unit sales of televisions and digital cameras, as well as the impact of foreign exchange rates, sales for the quarter increased significantly to 576.3 billion yen, a 59% increase compared to the same quarter of the previous fiscal year, which was severely and negatively impacted by COVID-19. Operating income increased a significant 80.6 billion yen to 71.8 billion yen a year, primarily due to the benefit of the increase in sales and an improvement in the product mix. Fiscal 2021 sales expected to increase 60 billion yen compared to the previous forecast to 2,320,000,000 yen, and operating income is expected to increase ¥22 billion to ¥170 billion to reflect the results of fiscal 21 first quarter. In the TV business, the market for high-end value-added live-stream products, which is our focus, remains strong. But we are beginning to see a decline in the stay-at-home demand focus that happens. The stay-at-home demand that has continued since last fiscal year in the market for low-priced, small and medium-sized products. While the supply of TV panels is tight, we have maintained price and shifted our focus to higher value-added models, resulting in the average selling price rising a significant 38% year-on-year. In the digital camera business, which suffered a significant contraction in demand around the world due to COVID-19, sales were strong in significant in all regions due to recovery in demand and a shift in the market to high performance and high-spec products, as well as a strong product competitiveness. At the same time, the recent resurgence of COVID-19 in Southeast Asia has caused governments to place restrictions on personal and corporate activity, and we have had to reduce our operations at our factories in Malaysia from the end of May. There is a risk that are parts of a component supply chain could also be negatively impacted. Fiscal year 21 forecast incorporates these emerging supply side risks as well as demand side risks, such as lower stay-at-home demand from the second half of the fiscal year. Next is the imaging and sensing solutions. Fiscal 21 first quarter sales increased 6% year-on-year to 218.1 billion yen and operating income increased 4.3 billion yen year-on-year to 30.5 billion yen. Fiscal year 2021 sales are expected to decrease 30 billion yen compared to our previous forecast to 1 trillion 100 billion yen, but our operating income forecast remains unchanged from the previous forecast. In the mobile sensor business, shipments to Chinese manufacturers have slowed since May, primarily due to the stagnation of the Chinese smartphone market, and inventory adjustments. However, since we have incorporated this level of demand to some extent into our forecast, we recorded sales and profit for the quarter that were essentially in line with our expectations. We were able to offset year-on-year decrease in shipments to a certain Chinese customer and generate overall segment sales and profit that exceeded the same quarter of the previous fiscal year because of a steady increase in shipments to a major non-Chinese customer and the recurring demand for image sensors for additional cameras. Regarding the efforts we have made to expand our customer base, adaptions of our image sensors by Chinese smartphone manufacturers is progressing smoothly and we have made strides in recovering our market share on a volume basis so far this fiscal year. In addition, we have gotten off to a good start when it comes to getting a high value added image sensors designed into our flagship models that many smartphones manufacturers plan to launch in the fiscal in the first half of 2022 on the other hand we are concerned about the high-end smartphone market in China which is lacking momentum because there are no big hit products like those that have been sold in 2019 and 2020 by the Chinese manufacturer previously mentioned since this situation could have an impact On the speed of which our mobile sensor business profitability is expected to recover from the next fiscal year, we are monitoring the situation as well as the recovery of the Chinese smartphone market in the short term. Lastly is the financial services segment. Fiscal 21 first quarter financial services revenue decreased 6% year-on-year to 414.4 billion yen, primarily due to the decrease in net gains on investments in the separate accounts at Sony Life Insurance Company Ltd. Operating income decreased 12 billion yen year-on-year to 24 billion yen, mainly due to the impact of a one-time loss recorded at a consolidated subsidiary of Sunny Life. As was announced today by Sunny Life, in May of this year, we discovered an unauthorized withdrawal of approximately 17 billion yen out of the bank account in the name of SA Reinsurance Limited, an overseas consolidated subsidiary of Sunny Life. As a result, we recorded a loss equal to the amount of the withdrawal in first quarter. After making this discovery, Sony Life immediately took action, including reporting the matter to the relevant authorities, and they continued to work with authorities investigating the matter to recover the funds and gain full accounting of what occurred. We sincerely apologize for causing concern, but this matter has no impact on the insurance contracts that the customers of Sony Life have entered into. Our fiscal year 2021 forecast for financial services revenue remains unchanged from the previous forecast. Operating income is expected to decrease 17 billion yen compared to the previous forecast of 153 billion yen. At the IR Day held in May, we explained a strategy to maximize the value of the financial services business by strengthening group management to sustainably grow the business in a profitable way. To demonstrate our progress in line with this strategy from this earnings announcement, we have decided to disclose two important indicators for assessing the COVID value of Sony Unite. Market Consistent Embedded Value, MCEV and new policy value in a supplemental information document every quarter. We also increased the dividend that the financial services citizens paid at the end of the previous fiscal year by 20 yen per share to 90 yen per share. The business is expected to make additional contributions to the Sony Groups through stable dividend increases. This concludes my remarks. Thank you.

That was Hiroki Chotoki, Executive Deputy President and CFO. Now, at 4.25 p.m. Japan time, there will be a session with the media people, and then there will be a questions and answers session with the investors and the analysts at 4.50 p.m. And the duration of the Q&A session will be 20 minutes each. So if you have signed up in advance, please call in to the number that has been designated in advance. And if you have not signed up in advance, you'll be able to listen to the Q&A session over the webcast. So please wait until we start the Q&A session. Thank you. Thank you. Thank you. Ladies and gentlemen, we'll be starting our Q&A session with the media people, so please wait for a short while before we start. Ladies and gentlemen, thank you for waiting. We'd like to now start a Q&A session with the journalists. The responses will be made by Executive Deputy President SEA for Hiroki Tadoki and Senior Executive Vice President in Charge of Communications, Shiro Okambe, and Senior Vice President in Charge of Corporate Planning, Control, Finance, and IR, Naomi Matsuoka. If you have a question, please press asterisk followed by the number one. And when it is your turn to ask your question, I will call out your name. So please state your affiliation and name before you pose your question, please. And please limit the number of questions to two per person. In order to prevent audio feedback, please make sure that you turn off the volume of any peripheral devices. Thank you for your cooperation. And if there is a connection problem, and you got disconnected due to time constraints, we will be moving on to the next person to ask a question. So please accept. Now, if you'd like to cancel your request for questions, please press number two after asterisk. Now I'd like to start the Q&A session. So if you have a question, please press asterisk on your phone and then press number one. Ms. Inomata from NHK is the first person to ask a question. Mr. Inomata, I hope you can hear me. I am Inomata from NHK. Thank you. I have two questions regarding the shortage of semiconductors. So PlayStation 5 and electronics is doing favorable. So currently, what is the impact of the shortage of semiconductors and what do you expect going forward? And the second question, once again about the shortage of semiconductors, Taiwan TSMC may be building a factory in Japan and I do hear about the partnership with Sony. So is there anything that you can comment on about this TSMC issue? Thank you for the question. Number one question was regarding the impact on the shortage of semiconductors. And number two was the media reports about TSMC and our potential partnership with them when they build a factory in Japan. So with those two questions, I would like to respond. The shortage of semiconductors have impacts in various areas. And through various measures, we have been taking some actions for PS5, This year, the number of units to be sold today, this year, has been set. The target has been set. And we have secured the number of chips that's necessary to achieve that. And regarding the supply of semiconductors, we're not concerned. And also for consumer electronics segment. we do use a lot of semiconductors in various areas. So some availability of parts and components is a source of concern, but we do have access to second sources. And for parts and components, we have some strategic inventory as well. So we have been taking various measures so that the production and sales will not be impeded. So for now, the time being, we have been able to control the situation. But going forward, We cannot remain complacent, so we would like to have access to good information so that we will be able to smoothly continue to produce and sell our products. Regarding the media reports that you have mentioned, we have not sent out that information, so as of now, there's nothing that we can say about this. But as was mentioned by Mr. Yoshida, the CAO, in the past, in general, the logic... chips supply is something that is very critical if you look at the Japanese industry as a whole. In order to maintain international competitiveness, the logic chips are very critical. That is the end of my response. Thank you.

Next person, please. From Nikkei newspaper, Bansam, please. Bunson, Mr. Bun, from Nikkei newspaper, are you there? Hello? Yes, we hear you. Please, go ahead. Mr. Bun, are you still there? Do you hear us? Ms. Chabann, I'm sorry. Since the line has been disrupted and disconnected, we would like to proceed to the next person. From Financial Times, Inagaki-san, please. Do you hear me? Yes, we hear you. Please. Thank you very much. From Financial Times, my name is Inagaki. I would like to ask you about your camera business. This is not directly related to the financial results, sorry. From Tokyo Olympics and Paralympics Games, mirrorless cameras of Sony is being used more widely from consumer market to the professional mirrorless market. What is your evaluation on this? Thank you very much for your question about the camera business. I'm very sorry. Because of the sponsorship matter, we are not allowed to speak on anything related to the ongoing sports event. For camera business, about the camera business itself, from last year, because of the pandemic, people are staying home and lacking in shooting opportunities. So last Fiscal year, the situation was very difficult for cameras. However, it seems that the situation is improving from this fiscal year. This business is going smoothly. And going forward, this trend is expected to continue. As a general rule, alpha, professional alpha, Dutch market share is increasing and improving. Thank you very much.

Thank you. We'd like to take on the next question. Mr. Nishida, a freelance reporter. Thank you. I hope I'm being heard clearly. Yes. I have two questions, please. The first question is about the game business. You stated that there has been some deterioration of the flexibility of the hardware. Are you saying that hardware contribution or possibility is yet to happen or rather that is a question of balance between the software and the hardware. Can you elaborate a little more? The second is on the electronics camera. You've stated this in brief. Things are doing very well. It's a good business. For the the camera or electronics. Do you think that you have reached the point where camera or electronics can continue to contribute to your earnings or do you think that it will take a little more time before it can be a true contributor to your earnings? Thank you. The first question is about the game business, the deterioration or profitability of the hardware. What did I mean by that statement? And the second is about the camera business or overall electronics business future earnings contribution. I think you're asking about the trend or the probability of how electronics business will contribute. I would like to accommodate or cover those two questions. Hardware. This is in comparison with the PS4. So, The PS5 profitability. In April, we have put together a focus for this period and the assumption of focus remains unchanged. Things are progressing as we have planned and it's going on very smoothly. The overall electronics business. We have improved the structure of the fabric and we have entered into many structural reforms. Through such efforts, I think we are more robust and rigid in terms of management. Of course, it is subject to demand changes, and we have to take more actions, measures, to withstand those changes. But personally, I believe that they can continue to contribute to our earnings. They have improved their business so that they are a genuine contributor to our business. Thank you.

Thank you. The next question, please. Masuda-san from Nikkei, please. Masuda from Nikkei here. I hope you can hear me. Yes, I can hear you. Thank you. I have first question related to an earlier question. So this year, the stay-at-home demand for gaming has come down, but electronics and also music is favorable, so you have upwardly revised So in various segments, you know, some people are saying that they should be sold off. But you are now having a structure that is very resilient to changes. So how do you assess your transformation efforts? Question number two, PS5 or gaming business. So currently the number of units to be sold is and also the number of active users on a monthly basis. I think on a quarterly basis, it's coming down slightly, it seems. So you're looking for a long-term growth, but currently you are seeing some declines. So how do you assess the situation? Thank you for the question. You had two questions. The first one was, we have diversity of businesses, and are we resilient? You know, how was the result of the transformation or restructuring of the company? Number two is related to game business. So the monthly ask of users on a quarterly basis seems to be coming down as a trend. So how do we assess the long-term growth? So regarding your first question, well, the restructuring had taken place, but in addition to that, We have a lot of different game titles or games. And I think that each of the businesses have been able to transform the structure and the strength of their businesses. And I think that has been a major achievement. So the level of corporate management capabilities have been increased. So there was some very positive momentum. There were some negative aspects as well. but each business has been able to respond to the situations, and now we are able to now devise a strategy to seek long-term growth. Regarding the game business, yes, it's true. If you look at it on a quarterly basis, well, fiscal 2020 first quarter, there was the biggest impact on the stay-at-home demand. So if you compare that, yes, it does seem like there is a decline on a significant basis. But if you compare it with fiscal 2019, as I mentioned in my speech, there is an increase over the two years ago. So I think on the long term, there is a growing trend, and I think the growth is here to stay. So for us, we are going to provide better services and better experiences to our users so that we will be able to capture the opportunity to further grow this market. Thank you.

Since time is running out, the next question will be the last one. From Bloomberg, Furukawa-san, please. Furukawa from Bloomberg, can you hear me? Yes, we can hear you. Thank you. About semiconductor, I have a question. In July, close to the Kumamoto factory, you applied for acquisition of the land or plot for the CMOS sensor. 285 billion yen was when it was decided to invest in CMOS. With that amount, are you already have that in plan? Is this plot going to be the CMOS factory, or is it a joint venture with TSMC? That's the first question. Second question about game business. In May, about the profitability of PS5, there was this view that the break-even point will be reached in June. Is Is it in the positive range from July onwards, or is it still in the negative range? Thank you very much for your questions. But the INSS first, but the land acquisition in Kumamoto, was it included in this fiscal year's CAPEX plan? The plot acquisition is not a short-term matter. It is a long-term investment. So to a certain extent, always it's included in the investment plan. In that sense, it was included. I can safely say that. Now, this is the plot adjacent to Kumamoto Tech. We applied for the acquisition of the plot, but for more details, let me refrain from making any further comment. About the profitability of PS5, there was this view of reaching break-even point in June, but PS5 break-even point for standard edition, More correctly, on standard edition, that's how we explain the situation, and it's been progressing according to the plan. Overall, hardware profitability and peripherals, hardware profitability including peripherals, as we have been saying, is proceeding smoothly. Thank you very much.

Thank you. I'm afraid the time has come for us to close this session for the media members. The analyst session will begin from 15 minutes past the hour. There will be some change of the members who will be responding to the questions. Thank you. Thank you. Thank you. We are about to begin the session for the investors and analysts. We seek for your further patience, indulgence. Thank you. The session will start shortly. Ladies and gentlemen, we would like to begin these sessions for analysts and investors. I am Hayakawa, in charge of IR. From Sony, Mr. Hiroki Totoki, the CFO, and Ms. Naomi Matsuoka, the Senior Vice President in charge of Corporate Planning and Control Finance and IR, and Mr. Hirotoshi Korenaga, the Senior Vice President in charge of accounting, will be answering to your questions. Those who have the questions, please push the asterisk and it should be followed by number one. We will designate and call your name. If you are called, please start asking questions. We ask you to limit the number of questions to two to avoid any audio feedback. When you're asking questions, please turn off all the sound of the peripheral equipment. Should there be any discontinuation of the communication in the interest of time, we have to move on to the next question. If you're going to cancel your request for question, please push 2 after asterisk. Now, if you have a question, please push the asterisk followed by numeral number 1. From JB Morbogan, JP Morgan, Mr. Ayada. Thank you. Ayada from JP Morgan. I have two questions. The first question is EPNS assessment evaluation for the first quarter. I may be repeating myself. TV and camera, the average selling price must have gone up. The factors that contributed to that rise are is an improvement of the product mix, the substantive improvement. And also it may be affected by supply and demand situation in the market. Can you elaborate on those factors? It can make just a quantitative statement rather than quantitative statement. And also the inventory in the distribution in the market, bearing that in mind, what are the potential or the probability of the prices going up in the second quarter? The second question is on IS&S. And I am asking this question many times. The capacity of the first quarter and the number of wafers for the first quarter and your prospects for the second quarter, the wafer. And also, second quarter and beyond, what are your projections on the unit price of wafer. Will there be any meaningful changes? Thank you very much for your questions. Your first question is about the assessment evaluation of E, P, and S, and the second question had to do with I and SS. I would like to respond to those questions. ASP, yes? are indeed going up. Is it attributable to the betterment of the product mix or to the supply and demand situation? It's difficult to really break down into those factors. I can only make some sort of qualitative statement. For TV, both factors were at play. The product strategy, live screens, TVs were promoted, high-end. We are intentionally shifting to that end of the product. So beginning the first quarter, the market itself, the market for 32 inches and smaller are coming down. There's a downward trend. So in that context, I think our product mix plan proved to be right, and I think we were right in prospecting the supply and demand And camera, I think we have a good product mix too. Unlike last year when there was a COVID-19 impact, each country has progressed in vaccination, and the market, particularly the mirrors, full-size mirrors camera market is recovering. So there is a tailwind that we enjoy. The market inventory or distribution inventory, At this point of time, be it camera or TV, there are no particular concerns. The level does not want us or require us to be concerned. But towards the end of this fiscal year, the second half, I think the panel price would become softer. How are we going to handle that situation will hold the key. I and S.S.? ? was another question on the qualitative aspect the first quarter at the end of first quarter the master process it was 130k per month that was our capacity there has been changes in the model mix so there has been a decline from 141k the earlier projection at the end of second half expectation is that the figure will be 138k per month. In the first quarter, actually, the simple average for three months was 137k. Last year, the fourth quarter, at the end of the fourth quarter, the average input was 138k. So, again, it's working at the fullest and it is as we have assumed upfront. Fiscal 21, we are shipping for new models, so we are accelerating or increasing the capacity utilization. And the first quarter, this fiscal year, for the three-month average, it will be 138K, again, as we have projected. So that's more of a quantitative aspect. Compared to the previous fiscal year, there has been a decline of 10%. A certain Chinese customer is affected this trend.

Moving on to the next question, Nakane-san from Mizuho Securities, please. Nakane speaking. I hope you can hear me. I'm from Mizuho Securities. Thank you. So two questions. Number one, the operating income have been revised. So there's one, so music and pictures and EP&S, those are the factors for the revision. So very roughly, so there were upsides in the first quarter. And also, you know, what are, For electronics, you know, there are some destabilizing factors in some areas. So, you know, there are some negative factors that could have impacted the upward revision. So in the three categories, can you share with us your thoughts about how they were factored in? My second question, it's in a semi-macro view of Totoki-san. So in the North American market and China, How about the demand environment until the end of this year? How do you view or how do you think this demand will develop? Electronics, sensors, and games and music. I think the situation will vary. So you don't have to talk about all the segments. But please talk about the macro environment that you anticipate towards the end of this year. Those are my two questions. Thank you for the question. So first question, the revision of the operating income that we have made. So how much is it coming from the first quarter, and how much is it coming from the rest of the year? And your second question is related to a very broad question, actually. But in North America and China, how do I assess the demand situation? I guess you're looking at the overall economic situation of these two markets. So regarding the revision of the operating income, excluding the financial services, if I may talk about some other segments. Well, basically, generally speaking, in the first quarter, especially for EPNS, The first quarter, actuals were very strong. The performance was very strong. So that really pushed up the expectations. So if you factor it down, beyond the second half, maybe you would think that it's not gonna grow that much. But beyond the second half, the demand of TB, we don't know what's going to happen. And also the infection. or the resurgence of COVID-19. That could have some impact on production, sales, and supply chain. And we don't really know what is going to happen. It's hard to anticipate. So we have factored in those risks in making our projections. And for music, first quarter, it was very strong. The streaming services was very favorable and it's growing very well. And in the past, we had the advertising-supported streaming was very difficult because of COVID-19. Subscription was good, but not ad-supported ones. But the ad market is now recovering. So the projection for ad-supported streaming streaming was also included in a reasonable way. Now, for pictures, we have made a revision based on our projections throughout the year based on what we know now. I think that would be a fair thing to say. Now, regarding the North American market and the Chinese market and what would be the demand situation until the end of the year, that is actually a very tough question. So if you look at the current situation, it's very favorable, and I do wish that this favorable condition will continue. But on the other hand, there is a resurgence of COVID-19, and we have to try to address the impact of that. The theatrical releases of films hopefully will be recovered. You know, that's what we thought two months ago. But now we believe that a full theatrical release is going to be really difficult. So for theatrical releases of pictures, pictures for families or children, I would say, I don't think we will be able to do very well because people will be reluctant to take their kids to theaters. So there are such concerns. Now, in China, in terms of COVID-19 impact, on a relative basis, it is less concerning. That is my view. But more recently, in China, there are some restrictions that are stepped up. for major Chinese companies, and that is a trend that is ongoing. So you cannot assess things from an economic or purely economic standpoint. So you have to really look at these other developments or trends when you look at the Chinese market. Thank you.

Next person, please. From SMBC Nikko Securities, Katsura-san, please. Thank you very much. Can you hear me? Yes, we can hear you. Two questions from me. One, well, this is related somewhat to the previous question. The regulation of the Chinese platform is what's the impact of such regulations, restrictions on them? Mobile games may be the direct segment or... or certain platformers is affected. So for entertainment segment or entertainment business, what kind of impact would that regulation in China have on the entertainment business of Sony? That's the first question. Second, operating income, there is an upward revision by 50 billion yen by segment income. and you explained about the situation in Q1 and onwards. However, the sales remains unchanged, and FX, you are revaluating the yen to be weaker. There are so much uncertainties to – well, I think it was in the case of Toyota to – hold the target unchanged and the operating income of Sony was uprightly revised. What are the reasons, what are the major points to do so? Thank you. Thank you for your questions. First question about the regulations on the Chinese platformers and what kind of impact would that have to our entertainment business? Your second question, under uncertain circumstances, so we appropriately revised the operating income process. So what are the background? But the first question about the regulation, at this moment, China is a market. When we look at China as a market, it is not that we depend heavily on that market as an overall picture. In terms of the percentage of sales, it's limited. That's what I can say about that. However, these kind of regulations have been implemented cyclically so far. For example, censorship issue in China. and about the film's release in China have been restricted in the past. So for us, we need to come to grips with the facts and at an earliest stage take actions. Other than that, we don't have other options. More than ever, we try to be more sensitive about the situation in China in our response. Now, about the equity participation or investment, we did make investments. They are not the level at which having an impact on the management. The timing of the investment, when we look at it, they don't have any risks of incurring loss. So we are investing for the partnership on a long-term basis, and we would like to continue this stance. Now, this is an uncertain times and forecast of the operating income. Basically, sales or revenues are some of them, some of the categories increased, the sales and others declined. So it seems to me there's a matter of adjustments after the first quarter's results. Looking at it, we just made adjustments. So this is the natural accumulation. So as an overall picture, It's not that we put a big message into it. We take risks and opportunities into consideration to come to this forecast. Thank you.

The time is limited, so we will take the last question. We apologize, but the next question will have to be the last question and may I ask you to ask only one question in the interest of time. Mr. Ono of Morgan Stanley. Thank you, Ono of Morgan Stanley. You said one question. Now, I believe that the media members also asked this question. And in the supplementary information on games, you talked about the monthly active user, 104 million, I think is the number. In the fourth quarter, the figure was 109 million, and there was some decline. And Totoki-san explained that it's a seasonality factor, so you are not concerned. But now it's 104. How do you look at this 104 million? In the overall context, the monthly active user, MAU, Yoshida-san referred to... 1.6 million, would this situation impact what Mr Yoshida said when he used the figure 1.6 million? Thank you. It's not a strong figure, 104. Of course, it's not a strong number. But are we looking at it as a declining trend? We don't think so. the first quarter. And we are trying to analyze different elements, but there were no conspicuous trends that we could capture. Maybe this month, next month, we will have to continue to work and do the analysis. At the risk of repetition, I say that last year, the stay-at-home demand was such a significant demand as a hindsight. So compared to that period last year as a trend, of course, or compared to fiscal 19, there is an increase. So we would monitor the situation carefully and we would deepen the engagement and enhance, upgrade their platform. We will make such efforts. Therefore, for this fiscal year, we will take some action to support this business. Thank you. Thank you very much. The time has come to close this session. We would like to close the earnings announcement for Sony. Thank you very much for your participation.