Sony Group Corporation (NYSE:SONY) Q1 2023 Earnings Call Transcript

The second part of the question is I&SS. Previously you showed the outlook for the downward turn, lowered the revenue and income. So the production costs are very high and that is a very challenging situation, which the expense is regarded as — and expected to be very high. On the other hand, China is another place where the mid- to low range of the smartphones, that the price reduction has to be implemented in China. So the additional JPY20 billion downward adjustment was done. But what is — is a change taking place to influence that balance? Those are 2 parts of the questions.

Hiroki Totoki: Thank you very much for your question. The first one, about the Game & Network Services related question. Throughout the year, what is our annual plan and how should we interpret our annual plan? Maybe that’s the gist of your question. But in terms of profitability, what you said is right. Third-party software, the good sales in the first quarter is reflected in there. In the second quarter and afterwards, the sales plan was adjusted upward. So that is one impact. And the other one is the foreign exchange rates, that we have revised it to the weaker yen situation. So that would push up these sales. On the other hand, what was about operating income? The third-party software sales are going up. And then of course, the profit will be pushed up by that.

But the first-party titles, the sales launch was delayed, postponed. And there’s some postponement from this fiscal term to the next term. So that was taken into account in that adjustment. Another factor is the promotion and other activities. There is no major change to the promotion plan. However, some part of that, because there was original channel mix that is direct sales versus the so-called the other sales channels and that kind of sales, so the sales channel mix — compared to our original forecast, rather than the direct sales, I think the other ones going through the retail shops and the dealers, I think that proportion is likely to increase more. So you have — we have to pay margin for that. So that margin has to be taken into account in the changed sales channel mix.

But overall, that part means this — how to calculate and estimate this expense there, and we are quite conservative. But the 15 million units is — 25 million units is something that we have set as a target. We would like to really achieve that target, and our intention is taken into account in this revised plan. Another factor, the second part of your question about I&SS related question. Of course, there is some production cost increase, that was an impact. And then in China, the smartphone momentum is being changed. But these are 2 factors which have to be considered and taken into account. That is to say, as of April, we announced the outlook and there’s a change. The production expense compared to the original plan has increased slightly.

So that increased production cost was taken into account. But no, I think we have considered fully all the potential increase. And in China, as of April — compared to the April outlook, the current outlook in the smartphone market, the recovery is more likely to be delayed. So that was also taken into account. So these are the factors which are again added to revise this current plan. Thank you.

Unidentified Company Representative: So we would like to move to the next question. Hirakawa-san from BofA Securities, please.