Sony Group Corp

Good night to begin. Sunny Group. Earnings announcement. I'll be serving as the moderator. I am from Corporate Communications. My name is Okada. First, Executive Deputy President and CFO Totoki will present the FY 2022 second quarter earnings and FY 2022 forecast, followed by Q&A. In total, we're scheduling for 17 minutes. With no further ado, Mr. Totoki, please. Today, I would like to start by talking about the business environment surrounding Sony. We recognize that the risk of the global economy slowing down is increasing further due to the factors such as rising tensions between the U.S. and China, soaring energy prices, and expanding inflationary pressure, as well as rapid interest rate hikes in various countries. We are taking steps to prepare for further deterioration of the business environment in each of our businesses, especially in entertainment technology and services, ETNS, and imaging and sensing solutions, INSS, which are relatively more sensitive to an economic recession. Now I'd like to explain the following. The consolidated results for the second quarter ended September 30th. FY22, Q2, and the consolidated results. Consolidated sales for the quarter increased 16% compared to the same quarter of the previous fiscal year, year-on-year, to 2,751.9 billion yen, and consolidated operating income increased 25.6 billion yen to 344.0 billion yen, both record highs for the second quarter and first half. Income before income taxes increased 62.7 billion yen year-on-year to 345.8 billion yen, and net income attributable to Sony Group Corporation shareholders increased 50.9 billion yen to 264.0 billion yen. This shows the results by segment for FY22Q2. Next, I'll explain the FY22 consolidated earnings forecast. The forecast for consolidated sale is 11 trillion 600 billion yen, an increase of 100 billion yen from the previous forecast. The forecast for operating income is upward revised to 1 trillion 160 billion yen and increase of 50 billion and the same amount that forecasted at beginning of fiscal year. The forecast for consolidated operating cash flow including financial services segment is unchanged. The assumed foreign exchange rates are approximately 140 yen to the U.S. dollar, approximately 138 yen to the euro. The forecast for each segment is as follows. And I'll explain the situation in each of our business segments. First, the game and network services GNNS segment. Q2 sales increased 12% year-on-year to 720.7 billion yen, primarily due to the impact of foreign exchange rates, despite a decrease in sales of third-party software. Operating income increased a significant ¥40.5 billion year-on-year to ¥42.1 billion primarily due to the recording of expenses associated with acquisition including Bungie Inc. An increase in software development costs and the negative impact of foreign exchange rates partially offset by a decrease in losses on hardware. The 22 sales are expected to be 3 trillion, 230 billion yen, an increase of 10 billion yen from the previous forecast due to the impact of foreign exchange rates, partially offset by a reduction in the sales forecast for third-party software reflecting results of Q2. On the other hand, operating income is expected to be 225 billion yen, a decrease of 30 billion yen from the previous forecast. Regarding hardware profitability, we are expecting a slight improvement from the previous forecast due to price changes and cost reduction partially offset by the negative impact of the foreign exchange rates. Regarding software profitability, we have downwardly revised our forecast because we think it will take more time for engagement to recover from its current low level. In addition, our forecast for expenses associated with acquisition is expected to increase from the previous forecast by ¥4 billion due to the impact of foreign exchange rates and amount to approximately ¥61 billion. Operating income excluding amount is estimated to be Although a total gameplay time spent by PlayStation users during Q2 increased slightly versus the previous quarter, it decreased 10% year-on-year, primarily due to the impact of an increase in opportunities to go outside, resulting from a reduction in COVID-19 infections. When we compare software sales for this quarter with the same period of the previous fiscal year, we see sales of past library titles decline sharply, while sales of major new titles remain strong. Users appear to be playing a smaller number of titles out of a desire to spend less money. The number of PlayStation Plus subscribers accounts at the end of September decreased 4% from the end of June to 45.4 million accounts. We see that this decrease results from a greater decline in user engagement amongst PS4 users than expected. On the other hand, the ratio of PS Plus subscribers among PS... 5 users remains at a level significantly higher than that of PS4. We are putting even more effort into accelerating the penetration of PS5 hardware to recover this user engagement going forward. Regarding production of PS5 hardware, restrictions on the supply of materials and logistics have significantly eased, and the number of units produced during the quarter exceeded 6.5 million, progressing faster than planned. We recognize that demand from customers for PS5 continues to be strong, as the actual sales situation at resale stores in the U.S. is such that in September it took an average of 17.5 hours to sell out 100,000 units after their arrival. To meet this strong demand, we will do our utmost to bring forward supply into the year-end holiday selling season and aim to exceed our FY22 forecast of 18 million units. In terms of first-party software, we plan to release a new popular franchise title, God of War Ragnarok, on November 9. The previous God of War game released in 2018 was one of the largest titles ever released exclusively for PlayStation, selling 23 million units cumulatively to date. We expect similar performance from the new title as well. Regarding Bungie, Destiny 2 The Witch Queen Season of Plunder, which was released in August, is off to a good start. In addition, we have announced Destiny 2 Lightfall, which is an expansion pack scheduled for release in February of next year, and we are receiving great expectations from fans as a result. In addition, Bungie's collaboration with PlayStation Studios is progressing well. Regarding PS software, we released Marvel's Spider-Man in August, and the popular IP that was also a hit movie, Uncharted Legacy of Thieves collection in October. The titles have been rated highly, with Metacritic Metascores of 87 and 88 respectively, and in the two months since release, sales of Marvel's Spider-Man approached the highest level ever for a PC software title released by Sony. In this way, we are actively pursuing various measures to ensure increased user engagement, and re-accelerating the growth of our game business from both the hardware and software perspectives. We expect to see the results of these efforts contribute to sales and profit in earnest from the second half of this fiscal year and next fiscal year.

Next is the music segment. Q2 sales increased a significant 32% year-on-year to 359.3 billion yen, mainly due to the impact of falling exchange rates and the increase in streaming sales. Operating income was 78.7 billion yen, a significant increase of 28.1 billion yen year-on-year, mainly due to the positive impact of Forex exchange rate and increase in sales. The contribution of operating income from visual media and platforms accounted for mid-teens, a percentage of the operating income of the segment of the quarter. In the mobile game application, thanks to the collaboration with Lasengo, which Aniplex acquired in February this year, our efforts to strengthen development service are progressing smoothly and our sales paid grand order in the first of this fiscal year, which is the eighth year since launch of the title exceeded the level of the first half of the previous fiscal year. Primarily due to the impact of the falling exchange rate and the result of the fiscal year so far, we upwardly revised both sales and operating income forecast sales to ¥1,770 billion and the increase of ¥90 billion, and the previous forecast and operating income ¥265.2 billion and the increase of ¥35 billion from the previous forecast. Streaming sales in this segment continues to grow steadily with the year-on-year increase of 34 recorded media, 78 music publications. In the recorded music, an average of 48 of our songs ranked at the top 100 songs in the Spotify's weekly global music ranking for the first half of the years, which substantially excluded an average of 36 of our songs of 12 months. And we are maintaining a high share of hit shares by continuing to generate hits from the contribution of the new artists and well-established artists as Beyonce. And with the six new albums in the six years of renaissance. Now I will take a moment to review our strategic investment in this segment. And we are actively making a strategic investment to capture further growth in music and the market, which is driven by A-ball, some mid-level alum records, and merchandising, ceremony of losses, and podcast production, something else. and for the acquisitions. In addition, we are carefully selecting which music catalogues of industry-leading influential artists to acquire, such as Blues, Springsteen. These acquisitions perform the important role of generating stable long-term loyalty income, further expanding song revenues, opportunities, and increasing our presence in the music industries. These strategic investments are steadily producing results, and we expect our operating income of this first fiscal year, Sony Music Group, which is responsible for music business outside of Japan, to reach the record high for the sixth consecutive years. Next is the picture segment. Q2 sales increased 29% year-on-year to 337.5 billion yen, primarily due to the impact of the Forex exchange rate. Operating income decreased 4.2 billion yen year-on-year to 27.6 billion yen, primarily due to the existence of the same period of the previous years of licensing revenue from digital streaming services. Fiscal year FY22 sales are expected to be ¥1,450 billion and the increase of ¥70 billion from the previous forecast primarily due to the impact of the forex exchange. We have upward revised operating incomes are forecast to ¥115 billion and the increase ¥15 billion compared to the previous forecast. In the motion pictures, as you can see, Sony released original works in different genres during the quarter and all of them performed well. Among those were the Cradle scenes and the movie adaptations and the best-seller novel, which achieved box office revenue that greatly exceeded our expectations. The movie was made by our 3,000-picture studio, and which was the partnership of HarperCollins and the major global publishing companies, we are seeing the success of our efforts in discovering the excellent original works and made. Now I'd like to give you an update on the Clunchy role and the animation business distribution service. The integration of the Clunchy role and Fanimation services is progressing smoothly, and the number of paying numbers are increasing nearly 10 million so far. The company is also actively involved in overseas theatrical distribution of Japanese animation. Dragon Ball Super Super Hero was released in August in the U.S. and secured a number of box office sales in the first week of the release. Also on August 4th, we completed the acquisition of the rights staff and the U.S. commerce company and sells anime DVD, characters goods, and comic books. Next, I'd like to explain our recent acquisitions of PIXOMONDO. Having several facilities in North America and Europe, PIXOMONDO offers end-to-end services from visual production to visual effects. It is a pioneer in the field, having won numerous Academy and Emmy Awards for the project it has worked on. It has superb technological capabilities and a rich history of success, and it is also known for using the Unreal Engine game engine properly. provided by Epic Games, which we invest to make its visual effects. In the visual production market, which is expected to grow significantly in the future, we will aim to combine Sony's hardware and software technologies and our video production know-how with Pixelmon's technology capabilities to establish leading positions. Lastly, I will explain the progress toward the merger of Sony Pictures Network India and Z Entertainment Enterprise. Following the approval of The Competition Commission of India on October 4th, these shareholders approved the merger of the extraordinary shareholders meeting held on October 14th. The merger process is progressing steadily and we currently expect the transaction to close by the end of first half of the next year.

Next is the ET&S segment. Q2 sales increased a significant 16% year-on-year to 677 billion yen, mainly due to the impact of foreign exchange rates. Operating income increased 5.1 billion yen year-on-year to 77.8 billion yen, primarily due to the positive impact of foreign exchange rates and the impact of an increase in sales of digital commerce. Although we have incorporated the additional risk of market slowdown in the second half of the fiscal year, our FY22 sales forecast is 2,510,000,000 yen, an increase of 60%. billion yen. There is no change from the previous forecast for this operating income. In the current quarter, we are able to quickly recover from the supply chain turmoil caused by the lockdown in Shanghai in order to restore a stable supply. This enabled us to recover sales and profit primarily in the digital camera for TVs. The deterioration of the business environment is becoming a such as increasing tower pressure on price due to oversupply of panels and sluggish demand, especially in Europe. We anticipate that the environment will become even more severe going into next fiscal year due to the global economic slowdown. we are going to minimize the risk. As the end of September, daily turnover inventory in every product category has decreased versus the end of June, and we are planning to close attention to demand trends as we reduce inventory even further. In addition, we are accelerating our efforts to strengthen our business structure from next fiscal year onwards. and sales operations, strengthening the cooperation between ETSS, INSS, and GNNS in procurement and logistics, and further optimization of the break-even point according to the business environment. In addition, new business areas which have been positioned as our growth axis, such as sports, life science, network services, and virtual production, are expected to increase their sales by approximately 20%. Next is the ISS segment. Q2 sales increased a significant 43% year-on-year to 398.4 billion yen, mainly due to the impact of Forex and higher sales of image sensors for mobile devices. Operating income was 74 billion yen, a significant increase of 24.3 billion yen year-on-year, mainly due to the positive impact of Forex and the benefit from the increase in sales. Our sales forecast remains unchanged. We have upwardly revised our operating income forecast by 20 billion yen from the previous forecast to 220 billion yen, primarily due to the positive impact of foreign exchange rates. The slowdown in the smartphone market, particularly in China, did not improve during Q2, but the impact was generally within the scope assumed in our previous forecast. However, for the high-end smartphone cameras, progressing as expected with larger die size, higher resolution, and higher performance, benefiting from this sales reached a historic high for the segment in the second quarter. Due to the improved supply of logic semiconductors, it has become possible to increase the production of large die size and higher resolution sensors, which means that we can proactively introduce high-value added sensors. We expect image sensor shipments in the third quarter to end in December 31 to remain at a high level, but we also believe that we need to consider the risk of further economic slowdown in the end-user product market. Therefore, in the current forecast, we have incorporated additional risk into our sales and we have made a conservative forecast. Regarding inventories, we are continuing to utilize existing production capacity and manage strategic inventories or optimize the timing of future capital investment. Inventory at the end of the quarter was up about 33% year-on-year, which we believe is fully in line with our sales growth. From the next fiscal year onwards, we expect the trend of increasing adoption of large die size and higher resolution centers in the high-end smartphones. At the same time, the automotive business is also steadily expanding, and we have great expectations for the business to grow. Last, the financial services segment. FY22 Q2 financial services revenue decreased 70% year-on-year to ¥304.5 billion, mainly due to the deterioration in net gains and losses in investment in the separate accounts at Sony Life Insurance. Operating income at Sony Life increased a significant ¥11.6 billion year-on-year, to 54.6 billion yen, primarily due to the impact of the recovery of the funds that were subject of unauthorized withdrawal. The FY22 financial services revenue forecast is 1 trillion 310 billion yen, a decrease of 130 billion yen from the previous forecast. And there is no change from the previous forecast for the operating income. To summarize the earnings announcement, our biggest regret is that we have made a significant downward revision to the operating income forecast of the G&S segment for the second consecutive quarter in a row. As CFO, I take this very seriously and I view improving the accuracy of our earnings forecast. On the other hand, when looking at the entire group in the first half of the fiscal year, we think that each business responded swiftly to major changes in the business environment. Furthermore, the results of the investment we have made in the music and I and SS segments have made up for the weakness of G and NS segment, and the cost structure of each business segment has balanced out the significant fluctuations in foreign exchange rates, and therefore we are able to strengthen our resilience. We anticipate that... The business environment will become even more severe from now into the next fiscal year, and each business is taking steps to prepare for this. In addition, while facing these issues in the short term, we will also work to implement measures to grow over the long term. This concludes my remarks. Thank you.

That was a presentation by Todoki. From 4.25, we will start to take questions from the media, and from 4.50, we'll start the Q&A for investors and analysts. For each segment, we are planning for 20 minutes of Q&A. Those of you registered to ask questions beforehand, please call the number that has been sent to you. As for the method of asking questions, we have sent you the information beforehand, which we ask you to confirm. Those of you who have not made any pre-registration, please listen to the Q&A via the Internet. We ask you for indulgence while you wait for the Q&A. Thank you for waiting, and we would now like to start the Q&A by the media. Hiroki Todoki, Executive Deputy President, and Naomi Matsuoka, Senior Vice President in Charge of Corporate Planning and Control, Support for Finance, Business, and Entertainment Area, and Sadahiko Hayakawa, Senior Vice President in Charge of Finance and IR. We now like to begin the Q&A. Please limit your questions to two per person. Those of you who have questions, please press the ask the risk, followed by the number one. The first question is from Nikkei. Mr. Tsutsumi, please. This is Tsutsumi from Nikkei. Can you hear me? Yes, we can hear you. About game and semiconductor. First, about the game segment. About the sales forecast, can you give the breakdown, software, hardware, and can you give me the breakdown specifics of your sales forecast? I think major titles, I think you have a very good lineup, but including the year-end sales, so for the third quarter, the GameSoft sales compared to the previous year, how much of a level are you aiming towards year-on-year? And there is a slowdown of the economy, et cetera, these external factors. So including those factors, can you answer? And PS5. Will the price increase have an impact on the demand? That's my first question. The second question about semiconductors. Earlier. You said that China and the high end, especially low end, decline is within your expectation. But going forward, I think there are some additional risks that you have factored in. But about the high end, there is a possibility that the sales will drop. Did you factor in this possibility, and especially North America customers? High-end forecast. Can you explain whether the high-end models are doing well now? And we have a lot of news about the problem at the production factory, et cetera. So can you explain how much of these factors have been included in your forecast and what is the outlook? Thank you for the question. The first is about game and network service question. about the sales forecast and the breakdown of the forecast. As for specific numbers, I cannot disclose them here, but as a trend, I will say software and first party software. I think so. I think it will be high to go to war. And about third party, the overall game trend will impact, but I think it will be less year on year. So we'll see a decline year on year, slightly. And about the hardware, I cannot give specific unit numbers, but as I mentioned in my speech, The second quarter production, it's reached 6.5 million already, and we want to use this to supply for the year-end sales. I think there's a lot of expectation here. And PS5, price increase impact. Well, so far, due to the price increase, we have not seen any dampening of the demand, but we have to monitor what will happen in the market going forward. And INSS, the China mid and low-end models, the slowdown, decline, this is something that we have already factored in. About high-end, I think that is doing relatively well. But to a certain extent, it will, along with economic slowdown, experience a slight decline. So this risk has been factored in. Including that, in our forecast, we have come up with these numbers. So please take it to be that way. And about customer information, we cannot disclose any of such information. Thank you.

And we'd like to move on to the next question. And Kyodo News Agency, Mr. Yamazaki. My name is Yamazaki of Kyodo News Services. And I think I have two questions. First one is for your performance forecast. Due to yen's depreciation, what extent of upward effect do you expect because of the yen's depreciation? And in addition to that, there are so many areas, so that might be difficult for you to answer. But as for upward, the revision, what are the main factors for the upward revisions? And is it possible for you to name a few? Second is for semiconductor trend. In October, you talked about U.S., the more stringent restrictions onto China export. So what is the impact on you, onto your business and the U.S.? Restrictions on China. Thank you for your questions. First is for the business performance outlook and because of falling exchange and some potential impact onto the revenue and probably Hayakawa-san will answer the questions. Thank you for your questions. And as for Your question is concerning our foreign exchange impact onto our future focus. And dollar, euro, if there is any difference by one yen, we have already indicated some extent. But other than dollar and euro, we have some other currency. And we have the foreign exchange hedging. And there might be some difference between the sensitivity to fluctuations, especially in the gaming industries. And based on the dollar cost, we have to see a negative impact. But that's the year-on-year basis for the future forecast. And we have a downward focus and almost 50% are the impact by the FOLIX and INSS and we have the positive effect because of the FOLIX rate fluctuation. And we have the positive profit. And as for the game and the network services, in the final consolidated settlement, we have the limited impact. That's my opinion. And as for some other few, the main factors are for upward revision. One is the contribution by the music segment and the growth in the streaming business and due to FOLIX, the impact. And those are the main drivers for upward revisions. And INSS are another factors. And of course, we have the impact by the falling exchange rate. But we have the quite steady sales in the Q2 and the record high revenue and sales. And that's why we came up with the upward revision for the focused INSS segment. and the U.S. import export restriction onto the Chinese market and what extent of impact we have to foresee. And that's announced back in the 7th of October. We have witnessed the minimal effect or impact we have already embedded for our future focus that the tension might be intensified between U.S. and China. So we'd like to carefully monitor the situation what's going on.

Thank you. So we'd like to accommodate next question, please, from NHK. Mr. Shimai, please. So this is Shimai from NHK. I hope you can hear my voice. So I have two questions. So first is about yen's depreciation and looking at the business, there is a positive impact of weaker yen. However, please, for example, cost increase, there could be a negative impact. So what kind of impact is there? And also in comparison to competitors, for example, due to the weak yen, So they are going to review once again their production capability. And for Sony, are you going to review once again your production capability? Another question is about, so in relationship to the semiconductor, so for the PS5, so there was 6.5 million units. And therefore, not only the PlayStation, however, for the production of the semiconductor. So do you think this kind of impact of the semiconductor production have been already weeded out? So talking about the exchange rate. So, well, because positive, negative, and also the segments, as Mr. Hayakawa had mentioned, there are both impacts. So for the time being, so looking at the sensitivity, for the one yen, weaker yen, so there will be a positive of 1 billion U.S. dollar. For the euro, it's 7 billion, in fact. So for the game network service, ETS, and for the INSS. So this applies to all three segments. So talking about the projection, so because due to the exchange rate, we don't decide based on the exchange rate and because looking at the condition with the supply chain and also the geopolitical risk for, we need to take in consideration those environment. So however, it is important to have a flexibility and for example, I mentioned about the automation and also the DX. So I have included in my speech. Therefore, because it's going to have a standardization in the production, and therefore, if there is a standardization, we are able to produce everywhere. Therefore, we are going to take proactive action for that. Talking about the G and NS for the semiconductor and the parts, and also looking at the logistics, there aren't too much pressure on that. And therefore, in the second quarter, 6.5 million units were able to produce that amount. And sales of the PS5 have been according to the plan. And therefore, for the production, we are able to have a more speedy production and therefore 18 million target can be achieved and therefore we are going to have a positive impact on that That is all We'll proceed to the next question Toyo Keisai Sasaki-san please Can you hear me?

Yes? Thank you Sasaki from Toyoke. I have two questions. First, about PS5, the outlook of next fiscal year. You said about the logistics and the component supply recovering. But next fiscal year, will you be able to produce and meet all the demands? When about will you be able to surpass the demand? And second, about music. Earlier in the explanation, you said that the virtual media platform accounts for about 10%, but this ratio, is it growing? If so, what are the reasons for the growth? And anime, within the segment profit, how much does anime account for? Thank you. about your first question, PS5, and the outlook for next fiscal year. You're asking about the unit sales, I believe. At the presentation we gave in May, we said PS5 in the fourth year, 2023, after PS5 was introduced, at this timing, PS5 would surpass a PS4. And so this is the challenge that we have set on ourselves. So if we can manage 18 million this year, so we next year do some 23 million plus, then next year we'll be able to surpass PS4 next year. So this will be the target for the time being. And about music. Well, the virtual visual platform is about 10 percent, but FGO is the largest part. Quite some time since it's been launched, and in the long term, there will be a decline. Like the single acquisition, there is the vertical acquisition, so it has exceeded last year. So we want people to enjoy it as long as possible. We want to make it into such an IP. Now, as the ratio goes down, For example, the Demon Slayer anime and the new IPs to follow, we want to develop them so that we can grow this business. As for anime, the profitability, I think it's very good. That's all. Thank you.

Time is running out. I would like to take the one final question. And if you have any questions, please press asterisk followed by number one. There seems to be no questions, and I would like to adjourn the Q&A session for the media attendance. And as for investors and analysts, the Q&A session will start at the quarter to 5. 16.45, we are going to resume the session for investors and analysts. Thank you. Shortly, we are going to start the Q&A session for analysts and investors. And please wait just for a minute. Thank you for your waiting, and I would like to start the Q&A session for investors and analysts. My name is Shinichi of Financial IR Group. I'm going to take the chair of this session. And as for the media session, we have three representatives on the podium to answer the questions. And as for the operational method of the telephones, please refer to the previous announcement. And you are allowed to ask only up to two questions. So we'd like to start Q&A session. If you have any questions, please press asterisk followed by number one. And from Morgan Stanley, MAOFJ, Ono-san. My name is Zono over Morgan Stanley. Do you hear me? I think I have two questions and ET and this and the game and Respectively one questions and ET and this and And as for cameras, the sales and the business has been performing quite well. And not only for Sony, but to the market as a whole, seems to be quite promising. But as for the ET and S, overall, the operating profit, 180 billion yen. And that might be because of Forex impact and the camera business with the high immersion. And I feel a bit awkward for those figures. As for smartphones, the new Xperia 1.4 are now on the release, and many of the communication carriers started to a discount of the sales. So what is your take for that move? And I'd like to know why you didn't change guidance, mainly because of that. And the second is we have the 118 million production is now on the scene. But as for MAU figures, it has been slowing down gradually. And you are going to have the first party release for the next period. And do you expect some of the recovery in the Q3 period because of that? Thank you for your question. And as for ET&S, and as for Kamala business, in the first half, our business has been quite excellent. and almost a record high. But as for pent-up demand since the last period because of a supply shortage, that might be the contributing factors. And the second half, concerns for economic slowdown should be incorporated. So we have some impressions that the camera business is now gradually going to slow down. So we should be more conservative. So that is why we came up with that guidance. And as for TV, as you know quite well, and the panel, supply and excess, and the SPs, the declines. And we do not follow too much because we like to pursue the interest as much as you can make, the profit as much as you can make in the first half, and we will be more selective in the second half to secure the profit. And we will be ready for the recovery of the economic cycles of the next fiscal year. And we will get ready for that recovery. That's our policies. And the game on the network services and the production itself has been quite well. But according to the previous period, and we have the decline, so the MAU and the other indices. And the second quarters and more people are now going outdoors, and we have still, we have yet to get out of the negative cycles. And PS4s and 3rd 30 software sales has been rather sluggish and the catalog title and historical titles has been declining and against that PS5 engagement is quite high so the Q3 we expect some recovery and we have the strong titles from the first party and we have some seasonal effects and the Q3 and we can see some of the recovery from the downturn trend. That's our expectations. Thank you.

Thank you very much. Thank you very much, Mr. Ono. So we'd like to move on to the next question from JP Morgan Securities. Mr. Ida, please. Thank you very much. From JP Morgan, Aita. So I have two questions. So I have two questions for the game. The first question is, as you have mentioned about the third-party sales, there have been deterioration. And therefore, I would like you to explain in detail. Well, because there hadn't been a good catalog title sales. So thinking about the new titles, And talking about the current situation, there had been a hurdle in comparison to the last year. However, looking at the other platforms, including the consoles and the PCs, the users have been taken by other players. So do you have any perspective on this point? And the second question is about Talking about the PS Plus members, there had been a decline. And for this quarter, there had been a huge decline. So in order to recover the membership, which area are you going to focus for the third quarter, including the first party? You're going to release the large titles, so you expect more members to come back? Or, so talking about the attached date of PS4 and 5, And therefore, you're going to focus on the hardware by leading the PS5. You're going to increase the membership. So I think you're going to take both ways. So if there is any perspective on these points. Thank you very much for the question. First, for the first question. So there had been a weakness in the third-party software because our initial forecast was too strong, and therefore that is a point that we need to reflect for the second quarter. So there had been more expense. For example, I think the users are going out from home, and therefore that had given an impact to our sales. In addition, talking about the new titles, the large titles, for example, the third-party AAA titles, we are going to maintain our strength. So, for example, the Fall of Duty, we are having a good release. And therefore, for the third quarter, we do have very high expectations. And talking about the membership, and there have been a decline for the PS Plus, and there have been a decline in number of members for the PS Plus. However, in the second quarter, we had renewed our services, and also there hadn't been a great momentum. as a whole and also we didn't make aggressive promotion during the second quarter and therefore in the future we are going to have more penetration on PS5 and we are going to have a very good title and in addition we are able to make a good promotion and we think we are able to recover.

Thank you very much. And next question. UBS Securities, CSE, please. Thank you very much. Two questions. First, about music. Looking at the market, and the streaming market is very strong, and you have a lot of hits, and I think the top ten hits are generating a lot of profit. So I think you are in a very good position. If there is a negative about your business, I think you might be scared that things are going too well. But is there any possibility of a risk in music? The second, about semiconductors, INSF. You say profitability is 20%. I had 30 percent when you had a Chinese major client, but looking at the utilization rate, I was hoping that it would be higher, including the foreign exchange hedge. Do you have the power to exceed 20 percent, please? Thank you very much. Well, about music, thanks to you and everyone. I think we are doing extremely well. Streaming is very successful. And, well, we really don't have that much of a concern. But if there is going to be a change, that would be emerging service. TikTok, these new platforms. how we can try to compete against these newcomers. But meanwhile, different types of music I think can be delivered in different channels. So it could be a risk and also it could be an opportunity. But what's important is that music, it's very easy to provide music through new technology and due to technology disruption, it could occur easily. The test street tells us this is a case. So we have to capture the trend in the world as soon as possible and quickly, swiftly respond. That's the first answer. And about INSS and the profit ratio, you say that it should be higher or could be higher. Well, I think that we do have the capability to increase profitability, but if we think of the short term, for the time being, we have to increase our capacity. Sales and increasing share is what we're focused on right now. And we have to really do what we plan to do. For R&D, we, from a competitive point of view, are not trying to reduce R&D budget, but instead, rather than trying to reap the results in the short term, we want to win in this market. And so we want to invest in future solutions. And therefore, we want to achieve and have a good balance between growth and profit in managing our business mid to long term. I also think that we should try to aim for a margin that is higher than 20%, but as for the timing, it will be influenced by the external situation amongst others.

Thank you. And I would like to move on to the next question. SMBC Nikko, Security, Sir Katsura-san. Thank you. My name is Katsura of SMBC Nikko Securities and INSS and strategic investment. I have two questions. As for INSS, as you have already talked about, and some of the inventory investment and the capital investment, how they are related, if there is any update for your development strategies. For the capital investment, you have raised the amount. That might be because of the Forex. And the semiconductor, has there been any change for the prospects for semiconductor business? And as for 900 billion yen for the next period, what is the peak period? Probably you need a flexible reaction. response, and because the industry itself is now a bit more restrained, so including Jasmine, and if you have any comment for the capital investment. And the second is for strategic investment. As for the year-end financial announcement, you talked about more than 1 trillion yen or 1.06 trillion yen. And you talked about the next month and the second half prospects. So if you have any plans for strategic investment and the banjus, the investment on the banjus, and because of interest rate hike and some of the background factors. If there is any impairment in the early period, is it in your judgment, or will it impose any change for the macroscopic policies? And as for INSS and update for the inventory investment and the capital investment. And as for capital investment. And as of July, you talked about 350 billion, and that was raised to 353 billion. And this is for the investment for the improved productivity. And that content is image sensor, the demand hike for the mobile phones, and the shift to higher end products. and the Nagasaki Fab 5 and the extension is one of that moves. That's the capital investment as for inventory investment. And compared to an year-on-year basis, and the second half over 21, and the second half of 22, and 39% of the revenue increase, and the inventory increase are by 33%. So I think it is well aligned, and no particular supplies, and those figures are as expected. And as for this quarter, we are going to continue our full capacity of production so as to accumulate how the inventories are to be ready for the next fiscal year. And there has been no change of our initial plannings. So by the end of this fiscal year, the inventory level will be raised a bit more. And as for strategic investment, and what's going on. And as for Q2, the financial announcement, we have already realized the items. and including some of the share buyback, and that's about 1.23 trillion yen. And that investment amount is almost aligned with our initial planning as for Banji. And as for impairment, it's not intentional, but that's up to the environmental changes. And as for Banji itself, If there is any change in the macroscopic, the context, there seems to be no change. So the investment, as for investment, we do not have any particular concerns, including investment onto Bungie. So that's it. Thank you.

Thank you very much. So it's time. Therefore, we would like to conclude earnings announcement. So thank you very much for your participation. Thank you.