Sony Group Corporation (6758) Earnings Call Transcript & Summary

[Audio Gap] today. We are greatly behind our scheduled time. And first of all, I'd like to express our apologies. Thank you for your kind patience. We would now like to start Sony Corporation's FY 2020 Corporate Strategy Meeting. I will be acting as your moderator today. I am [ Kato ] from Corporate Communications. This meeting is being held for the media, analysts and institutional investors whom we have informed in advance. And the sound and presentation will be posted on our website. Today, first of all, there will be an explanation from the President and CEO, Yoshida. And then after that time, we will entertain questions. We expect the session to be approximately 70 minutes. Today, we're going to be entertaining your questions by e-mail, and you can ask any -- up until any time until the end of the meeting. Can we follow the method that we have informed you in advance to ask your question, and the question should be up to 2 per person. And due to time considerations, we may not be able to answer all the questions submitted. We hope to have your understanding on this point. So first of all, our CEO, Yoshida, will give an explanation.

Good afternoon, everyone. I am Kenichiro Yoshida. As I explained at the corporate strategy meeting of fiscal year 2018, which was also my first year as President, management with a long-term view is a lesson passed down to us from our founder, Akio Morita. Now that the new coronavirus has changed the world, I am reminded once again of its importance. When managing a company with a long-term view, it is essential to clarify the meaning of the company's social existence, that is its purpose and the direction management is taking the corporation. For Sony, the purpose is to fill the world with emotion through the power of creativity and technology, and our management direction is getting closer to people. Many of Sony's 110,000 employees are having to tele-work today, but they are conducting business with a shared goal of filling the world with emotion and getting closer to people. I have never felt so strongly as I do now the social significance of continuing to deliver emotionally impactful audio and video content to the world at a time when people around the world are refraining from going outside. Now I would like to discuss these 3 points. Our people are at the core of Sony's business portfolio. Our content and direct-to-consumer businesses, which, together with creators, create emotional impact with content and deliver them to users, seek to move people's hearts. And Sony's branded hardware businesses provide equipment that is essential for creators to create emotionally impactful content and for users to enjoy them. Our CMOS image sensor business makes a key device for smartphones used by people around the world to share their emotions. These are businesses that connect people to people. At this year's CES, I talked about contributions to the future of mobility through technology such as CMOS sensors and our first-ever active assessing LIDAR solution for automotive use. I also introduced VISION-S, which embodies our efforts in this space. And at last year's CEATEC, we exhibited a wide range of medical equipment. These businesses aim to contribute to the safety and health of our people. And our Financial Services business, which has a 40-year history, places great value on providing assurance to people, and these are businesses that support people. We view the 3 areas where we support people in terms of safety, health and assurance as growth businesses for Sony over the long term, and they are areas where we can leverage technology. And as you can see, Sony's business portfolio is diverse even while it is always centered on people. And this diversity contributes to the stability of the company. And going forward, we will continue to strengthen the management of the group to make that diversity even more of an advantage. In the past, we grew from some businesses like the PC business and the battery business. We will continue to review the composition of our portfolio as regular practice of management, but people will always remain at our core. In order to promote the evolution of each business and solidify our diverse business portfolio as an advantage, we announced 2 actions designed to strengthen group management. The first is the creation of the Sony Group Corporation in April 1, 2021. We will clearly separate and redefine the functions of the current Sony Corporation, which currently has a mixture of group headquarter functions and Electronics business headquarters functions, and create a company which will focus on group headquarter functions. The mission of Sony Group Corporation will be to conduct the activities shown on this slide from the perspective of the entire group. When Sony Group Corporation launches, the Sony Corporation Company name will be inherited by the Electronics business, which is the original business of the Sony Group. The second action to strengthen group management is the consolidation of Sony Financial Holdings of which we currently own 65% into a wholly owned subsidiary. Financial Services, along with Electronics and Entertainment, is a core business of Sony and it is a business which supports people, which we view as a long-term growth area. And precisely because it is a core business, we have increased our ownership ratio of it several times in the last few years, strengthened its governance from the perspective of shareholders and taken various actions recently, such as changing its dividend policy. In order to strengthen the management of this business and increase the corporate value of the entire Sony Group, we have decided to make it into a wholly owned subsidiary. This is because we believe that rather than maintaining an independent source of capital in the form of a listed subsidiary, which brings with it certain restrictions, it will be better to prioritize swift and nimble decision-making and increase management optionality so as to pursue strategies that are tailored to each business and synergies across the Sony Group. Moreover, the Financial Services business has a stable business platform in Japan. As the world grapples with the coronavirus crisis and geopolitical risks for global companies increase, we believe there is a merit to wholly owning this business because it can contribute to the stability of managing the Sony Group. Now I'd like to discuss the state of -- state and direction of each of our businesses. First is the Game & Network Services segment. At a time when people are voluntarily not going outside, demand for digital entertainment, such as games, is increasing globally. In this environment, PlayStation users have increased significantly. As an example, the subscribers to our PS Plus subscription service increased by 2.7 million over the course of the 3 months of the fourth quarter of the previous fiscal year. As of the end of March of this year, the total number of subscribers reached 41.5 million. It is important for us to maintain and expand this increased engagement going forward. One way to do that will be for Sony to further revolutionize the game experience for users by launching a PlayStation 5, which is scheduled for the holiday season of this calendar year. In order to further enhance the sense of immersion in games, we expect to improve not just resolution, but the speed of games. For example, through a custom design, high-speed SSD, we plan to realize game data processing speeds that are approximately 100x faster than PS4. The game load times should be much shorter and players should be able to move through immense game worlds in almost an instant. And this should enable us to provide users game experiences that are unbroken in their immersion. In addition, to create games that provide players more of a sensory experience than ever before, we plan to revolutionize the controller. For example, by installing haptic feedback, we aim to create the feeling of heaviness when a car passes over a muddy road. And by installing adaptive triggers, we plan to create a sensation of tautness when a pole is pulled back. These realistic sensations should bring further excitement to games. And sound is also an important part of immersion. By installing a customized 3D audio processing unit in PS5, we have made it possible to deliver diverse and sophisticated 3D audio experiences. Players can experience sound that moves from front to behind, above to below and all around them. By combining speed, haptics and sound, we can further improve on the wonderful experience available on PS4, making the PS5 a truly next-generation console by providing game experiences that were not possible before. Games for the PS5 that deliver this new game experience are being made by both first- and third-party developers, and we plan to introduce a compelling lineup of titles soon. At PlayStation, we believe consoles provide users game experiences that are immersive, while cloud gaming provides users with game experiences that are seamless and can be enjoyed anytime and anywhere, and we will provide both types of experience going forward. PlayStation Now is a cloud gaming service that Sony began earlier than any other company back in 2014. By changing the price and strengthening our capital gains, including the addition of many AAA titles, we have expanded this service into one that has over 2.2 million paying subscribers as of the end of this April. Using the same streaming technology, our remote play functionality enables users to play games on their PlayStations anytime and anywhere at no additional cost. And since the rollout of this functionality on iOS and Android, users have increased almost 2.5x. Music is a business that is expected to grow steadily due to the strengthening of our music publishing business through the acquisition of EMI Music Publishing and the growth of the streaming market. Meanwhile, competition in the industry for artists and catalogs is becoming more intense. In the overseas music business, the Sony Music Group, which combines recorded music and music publishing, was established in August of last year. With a vision to become the most talent-friendly music company, the label and publishing teams are working together to support artists from all directions. In the Japanese music business, which has created hits in diverse areas of IP, such as music, anime and character merchandising, artist management is also an area that will be enhanced. In the summer of last year, we established Orchard Japan to support the discovery and the development of indie artists and the overseas distribution of domestic Japanese artists. Next is the Pictures segment. At the time when DTC services are being launched one after another and the demand for content has increased even more than before, Sony Pictures is investing in the development of owned IP and the strengthening of its creative capacity. It has been making films using the Sony Pictures universe of Marvel characters that have performed well in recent years. It plans to make movies and TV shows based on IP from PlayStation games in the future. It has reactivated IP it already owns. And Sony Pictures Animation is continuing to make animated films despite the current difficult environment. And we aim to continue to produce superior video entertainment in these diverse genres. At the same time, the impact that coronavirus is having on the video entertainment industry is extremely large. Along with the creative community and our supply chain partners, such as exhibitors, we plan to thoroughly assess how consumption of video content will change in the future and adapt to those changes accordingly. Now I would like to talk about anime, which spans our Game, Music and Pictures segments and is an IP genre, around which fans form an extremely strong community. The global market for Japanese anime content has grown about 1.5x over the past 5 years and the main driver of this growth is sales outside of Japan, which currently accounts for nearly half of the market. Sony is a global entertainment company, headquartered in Japan, and we want to contribute to delivering Japanese anime to fans all over the world through our proprietary anime DTC services, such as SPEs, Funimation. Anime and games have high affinity in terms of the customer base, and we plan to further strengthen efforts such as the promotion of Funimation on the PlayStation network. In terms of content production, Aniplex has created the Demon Slayer, Kimetsu no Yaiba anime, which has now become a hit that can be called a social phenomenon, and it is developing a mobile game and a PS4 game based on this IP. As part of the overseas expansion of anime IP, we have formed a capital and business alliance, mainly in the anime and game fields with Bilibili, a company with whom we already collaborate to distribute Fate/Grand Order in China. Regarding digital entertainment in China where growth is expected, we will strive to strengthen a wide range of relationships with local companies like anime, games and music. The Electronics Products that Sony has introduced the world since our founding are the key elements that has built the Sony brand. The EP&S segment will inherit the Sony Corporation company name and will work to increase its value. In the area of Electronics, we have focused on high value-added products. We will continue to deliver our products and services that deliver reality and real-time through sound, video and communication technologies connecting creators to users. In addition to reality and real-time, we recognize the need is increasing for solutions that connect people to people and people to things remotely due to the coronavirus crisis. Here, Sony believes that it can expand into new areas such as acceleration of remote solutions for shooting, relaying and editing technologies originally developed in the broadcasting business and can deliver live music remotely using the solutions that we develop. In the Medical business, which supports people, we will strive to contribute to the health of people over the long term by leveraging the imaging, display and mechatronics technologies that we have cultivated over many years. The coronavirus crisis has had a major impact on product demand and supply chain in this segment. We will work to enhance our competitiveness in response to these changes in the environment. In the Imaging & Sensing Solutions business, we are reviewing our capital expenditure plans due to the recent deceleration of smartphone market, but there's no change to our goal of maintaining a global #1 position in imaging and gaining the global #1 position in sensing. The adoption of sensing solutions for mobile devices that connect people to people is expected to expand, including the adoption of ToF sensors for smartphones. In addition, we are working on automotive sensing solutions that support people and which are expected to grow over the long term. We believe that image sensors will be key devices in the AI era, so last week, we announced the commercialization of the world's first Intelligent Vision Sensor with AI processing functionality. Today, we jointly announced a new collaboration that will bring together Sony's image and sensing solutions technology with Microsoft Azure to provide value-added AI solutions for enterprise customers across industries. In this area, we plan to take advantage of a world-leading stacking technology to diversify the range of data that can be captured from data that is viewed by human beings to data that is used by machines to learn and make decisions, and that will enable the use of data across numerous applications. Further, in the AI space, we established Sony AI, a subsidiary comprised of the group of the world's top-level AI researchers and engineers. We plan to advance AI technology in fields that only Sony can, such as games and imaging and sensing and in new areas. As I said at the beginning, Financial Services is a business that supports people whose hearts we aim to move, and it is a business that contributes to the economic assurance of individuals and families. It is also Sony's original D2C business in the service business space and -- that utilizes the Sony brand. Going forward, the management structure of Sony Financial Holdings will be strengthened. After making the financial services business, a wholly owned part of Sony group of companies, we plan to take various actions such as further increasing the value of Lifeplanners who constitute the core value of the life insurance business, which is at the center of the business. Moreover, we aim to create even more synergies through -- by, among others, leveraging Sony's technologies as we have done before. And today, I have spoken about these points. As I mentioned at the beginning, Sony's social mission is to create and deliver emotion. For people to be connected through emotion, it is necessary for people, society and the global environment to be healthy. At Sony, we are taking various steps to address the environment beginning with contribution to the future of mobility, which will help reduce footprint on environment in the future. In response to the current global issue of the new coronavirus, we launched a USD 100 million global relief fund to support the medical, education and creative communities. As part of the support, and provided through this fund, we are collaborating with M3 to contribute to their front lines of medical care. We are supporting the production of ventilators and providing face shields for medical sites. We are assisting children whose access to education is constrained by providing free-of-charge educational programming kits. And we are providing support to artists and game developers who are facing difficulties. In addition, artists and creators who have close relationships with Sony are appealing to their fans on their own initiative to promote behavioral change and social solidarity. Going forward, Sony will continue to contribute to people, society and planet through its business operations as well as various social support activities. Thank you for your attention.

We would now like to go on to the Q&A session. This time, the first 20 minutes will be the questions from the media. And the latter 20 minutes will be for the analysts and for the institutional investors. Your questions can be received by e-mail at any time. Kindly, utilize the methodology that we have informed to you in advance. When a question is received in English, the interpreter will translate it into Japanese, and we will be replying in Japanese. So now I'd like to introduce the panelists: President and CEO; Kenichiro Yoshida; Senior Executive Vice President and CFO, Hiroki Totoki; Senior Executive Vice President in charge of R&D and Medical business, Toru Katsumoto. So now we will be answering questions from the media.

We have first question received from [ Mr. Inomata ] of NHK. We will never go back to the situation where we had no corona. We have to live with corona. So the life and value system will change. This is -- so the needs also will be different going forward. With all the changes, how are you going to address the situation?

Thank you for that question. But before answering the question, I'd like to apologize for the delay of this meeting today. The Sony Financial Holdings, the full subsidiarization of the holdings, Sony and SFH had to file this transaction with the GSE and that took more time than we expected. Therefore, we caused some inconvenience for which I would like to apologize. Now this is going to be a time of living with corona, therefore, the social value and lifestyle will change. How are we going to address those changes were the question. Yes, the value system will change in a significant way going forward in a word. I think we will live with what is most important. I think people are thinking what is really essential and inherent in our lives because that's what we have to live with. And for me, I think what is essential is for Sony to get closer to people. As I said in my speech, we have the business to move people's heart, business to connect people, people to people, and also businesses to support people, particularly supporting people to offer assurance and health and safety. I think people will be attaching more importance to these values in the days ahead. Therefore, by developing these businesses, we believe we will be able to grow the business in the era of living with corona.

Nikkei newspaper, Shimizu. First question. At this moment, you have 65% equity holding in the financial subsidiary. What will happen? What will be the change if you make it wholly owned? From the viewpoint of the business synergy and the results, financial results, tell us. And what will be the change of the positioning of the Financial Services in the group? Second question. AI image sensors, blockchain, you have a wide range of technological capabilities. Utilizing these technologies going forward, what kind of specific services do you want to deploy in the fintech service?

Thank you for question. For the group management with Sony CSL, we have currently the collaboration and the good drive utilizing AI. This is the automotive insurance. Those are the examples. Going forward, utilizing technology, what kind of services are we studying? We will continue studying the possibility. And then, as we -- as these things materialize, we will let you know. And the first question, well, making SFH wholly owned subsidiary, there are 3 main purposes for this. First, as I said in my speech, it is a core business for us to support people. In the Financial Services, more than 7 million customers exist. Second, and I briefly mentioned in my speech as well, Financial Services business, the value chain is complete in Japan. It's stable. As the geopolitical risks globally increases, from the viewpoint of the risk management, Financial Services is quite effective. Third point, which I didn't mention in my speech, the long-term value of our corporation has to be enhanced through this. And Mr. Totoki, our CFO, will discuss on the third point.

Thank you. Totoki, speaking. By making SFH wholly owned subsidiary in terms of financial results, there's a minority shareholding at this moment and those profits belonging to these minorities will come to us 100%. And with the tax effect, going forward, after FY '21, JPY 40 billion to JPY 50 billion of net income increase is expected, annually.

From Nikkei Newspaper, Hiroi-san. First question, with regards to the consolidation of SFH, if there is creative entertainment company with a solid foundation of technology, what part of this are you going to polish up? Second question, after coronavirus, what will be your view towards technology of Sony?

Thank you for the question. So for the second question, we would like to ask Katsumoto-san to answer, too, and what are we going to refine and polish -- brush up? As mentioned, business -- it is a business to support people, Financial Services, support people. And the emotional content, if that moves, then behind the scenes, money will also move. So value chain and money are going to move in step. And so this kind of stable business and Mr. Totoki talked about the transaction and the impact on the financial results with this consolidation, with the stabilization of the business, for the long term, we can enhance our investment capabilities. And that's all from my side. Now Mr. Katsumoto, about the technology of Japan, if you could comment?

Yes, Katsumoto, speaking. About the coronavirus and as is presently the case, well, once -- even after it settles down, many people will not be able to move around on trains or planes or they will not be able to gather and I think that will continue for a long time. And Sony technology, and as Mr. Yoshida said, is basically about getting closer to people. So you cannot be mobile and you cannot gather, but you can be closer to people and you can stand by people and solve various issues. For example, in entertainment, in the production, you cannot go on location because people cannot gather. That means you cannot do the production. And if it is a live performance, people cannot gather and you cannot have live performances. And if it's a medicine, infectious disease means you cannot come close to people. So with technology, this can be resolved. That has to do with real-time and reality and remote solutions. For example, if it's production, there can be production virtually or with live performances they can also be virtual. And also medicine, there could be diagnosis and treatment remotely, and Sony's technology can contribute to all these aspects. Thank you very much.

Proceeding to the next question. [ Takano-san ] of Nikkei BP asked this question. Firstly, of your business segments, EP&S, it is difficult to see actions, initiatives for growth in this business. Your policy is to pursue real time, I understand that. But to be more concrete, what actions and initiatives, are you going to take? The second question is the U.S. government has issued restrictions. So TSMC of Taiwan is going to suspend taking orders from Huawei as has been reported. Following the same logic, for Sony, the image sensors will no longer be able to be supplied to Huawei. This is not limited to I&SS, but the heating up of the Sino-American trade war, what would be the impact of that? And also what will be business risk associated with that?

Thank you for the question. The first point, I think, I may be repeating what Mr. Katsumoto has explained earlier to pursue real-time or real-time-ness. For instance, live performances in a remote way and as productions have all been but suspended, doing production activities remotely is another option. And the earnings for the first quarter will be released in early August, and after that, at an earliest point in time, we'd like to hold a presentation meeting for the EP&S business. As to your second question, the Sino-American friction, as part of your question, the United States account for 22% of our sales. China also shares about 10% of the sales, so both are very important markets for us. Today, I said that geopolitical risks are rising in the days ahead. By the way, you mentioned some specific company names in your question, but we have to do a good job of risk management in the days ahead. But with regard to the transactions we may have with the individual companies, I have to refrain from making comments. But Imaging services, I&SS business, 80% of sales in this business is for use in smartphones, and the growth of this market is no longer expected. But the smartphone cameras will continue to use more multiple lenses, therefore, the market itself will remain stable. Therefore, as far as my company is concerned, what we can do is to develop more technologies to maintain the superiority that we have in the market. And also for image sensors, the AI sensor, which I mentioned earlier or the sensors for automotive use, we will try to diversify applications of -- and use of sensors. Thank you.

Next question. Freelancer, [ Nishida-san ]. First question, content and Electronics business, I have a question on this matter. With the effect of COVID-19, the consumer market -- do you think the consumer market will go down, especially the launch of the PS5? What kind of impact would the COVID-19 have on the launch of the PS5? Second question, I have a question about Electronics business. In order to strengthen the supply chain, what kind of measures do you have? Could you be more specific? From the current production regime, what part are you thinking of changing?

Thank you for the questions. But your first question, this new coronavirus brought the crisis as segment Electronics business and especially for Sony Pictures segment, these 2 segments were our most affected. But the timing of the impact taking place may differ. Electronics will be hit first. With the delay of production, there will be a late impact in the Pictures segment. Now the Pictures, digital sales is going quite well. For PS5, at this moment, towards the year-end shopping season release, hardware and software being prepared, they're on schedule, according to our own schedule. Second question about supply chain. As we experienced, at this moment, the Electronics supply chain, was there a huge impact on the supply chain of Electronics? Not really. TV factories in Malaysia has suspended operation, yes, but the TVs are produced not only in a single location. So what's happening now, the factories we outsourced in Mexico and some Europe -- factory in Europe stopped. But rather than that, rather than on the supply side, it's on the demand side the change was bigger in our view. Be it supply chain and including distribution and sales, we continue to strengthen the entire supply chain, including sales and distribution. Thank you.

Due to the time limitation, this will be the final question from the media. TV Asahi, [ Murakami-san ]. The impact of COVID is seen so that there are even large companies that are collapsing. In this crisis, how is the company trying to survive? That's the question.

Thank you for the question. So we have many businesses and they have respectively been hit by the COVID, but the business portfolio with people at the core, well, the impact differs. And for example, games, there is a positive impact in some cases. And the timing of the impact will differ depending on the business. So we put people at the core, at the center, and we want to move people's hearts and we want to connect people and we want to support people. And with that diversity of the business, our company's sustainability is pursued. In other words, our diversity -- our company's diversity that is -- that will help to fulfill our responsibility to our stakeholders. That's all.

Well, now we would like to entertain questions from analysts and institutional investors. So the first question is Morgan Stanley, MUFJ. Ono-san asks this question. The first question, launching the group headquarters and Electronics business, which refer to Sony Corporation and with the corporate activity change, what will be the change in the Electronics business going forward? And also internalization of Financial Services. Currently, you have 65%, but once it becomes 100% subsidiary, what would be the change? What sort of business management it will enable in addition to HR? And U.S.A.GP is a market risk, but Yoshida-san's keywords is sustainability and I feel there's a difference. So how are you going to improve your value?

The first question, Electronics will use the Sony Corporation's name and with that change, what will be the impact on Electronics business was the question. I talked about pursuing the remote technology earlier. In the Electronics business, so far, in the past, we have always pursued reality and real time, and going forward, we would like to create new values. The remote technology you saw live performances, that will be a new challenge. And also the purchasing pattern of users are changing -- will change, and there's a transition in favor of net purchasing behavior. So in part, this was accelerated because of the coronavirus and it is essentially a huge new trend. So again, purchasing pattern to be done remotely is happening, and I would like to be able to address that. And as I briefly mentioned earlier, after the earnings release of the first quarter, we plan to hold a presentation session similar for this business. Regarding your second question, Mr. Totoki, our CFO, will answer the question. But the fourth quarter Electronics figure is a valuation loss. So it's not essentially a net loss. So for Sony Financial Holdings, basically, it is a company based in Japan and will contribute to risk management of Sony Group and also -- plus for the long-term improvement of the enterprise value. Now I invite Mr. Totoki, our CFO, to answer the second part of your question.

Thank you. Totoki, speaking. So 65%, now 100%, what's the difference? First of all, profit belonging to minority shareholders will be internalized starting in fiscal '21. According to our estimates, EPS will improve by 8%. So there's a direct contribution to value enhancement. And currently, 65% is our ownership, therefore, we cannot use consolidation for tax purposes. But by consolidation, we can use in all, for instance, for tax purposes, more efficient and effective tax strategy will be possible. And again, regarding the current ownership of 65%, for us, Sony, it is a core business and we sell products to individual customers. So it relates to the reputation of the company because what we sell is a promise. So in that sense, we are responsible 100% of risk in terms of reputation. And therefore, instead of a 65%, 100%, we -- improvement. And also, there's no other example of entering holding company, and therefore, we are subject to double regulations because we are intermediate sort of a holding company structure. And for the development and sales of the financial products, there are restrictions because of this dual regulation structure.

Next question. From Merrill Lynch Securities, Hirakawa-san. Acquisition and the tender of price of the SFH if it is JPY 400 billion capital allocations together would amount to JPY 2.4 trillion. 2.2 -- it goes over the operating cash flow of JPY 2.2 trillion. This JPY 2.4 trillion, is it within the assumed range, considering the investment decrease? If there's an attractive candidate, what will be the consistency with the current capital allocation ban? Second, in the game area, you announced about the collaboration with Microsoft. Game is the growth driver of Sony and it is an exciting announcement to enhance that. After 1 year of the announcement, what kind of expectation do you have toward this collaboration with Microsoft?

Thank you. But the first question, I would like to ask Mr. Totoki to answer.

This making SFH wholly owned, this transaction will be financed by bank loans. And the capital allocation that we have displayed, according to the third MRP, the 3-year cash flow, it shows the capital offer of 3 years, the average, and the sales of the asset. This is a strategic investment outside the framework of the previous allocation plan. About the loan, we do not use the existing facility -- credit facility. This will be entirely new loan from the bank.

There's a second question about the collaboration with Microsoft. Allow me to say a few words to be followed by Katsumoto-san. The collaboration with Microsoft is wide ranging and diverse and one of them is in the Game & Network Services. In the cloud streaming, that is one of the collaboration. We take a long-term view on this, chips and networks and dark time solutions, how can we cope with the dark time? And we share the sense of understanding about the challenges with Microsoft, and we are proceeding with the discussions. Now I would like to call upon Mr. Katsumoto to supplement.

Since last year, we are discussing this collaboration with Microsoft. In digital cloud and streaming and games, the semiconductors and consumer electrics and remote solutions, in these areas, we are proceeding with the discussions. In the game, there are several points to mention. The cloud -- service on the cloud, we are discussing that. And then to connect it to the end users, that's the network. And operation by the users, there should be a certain user interface. On these 3 points, network streaming games from the cloud, how should it be? We are discussing on this point. Microsoft Azure has splendid cloud technologies and they gave us explanations. So far and each side has its merits. And it seems that understanding -- mutual understanding is deepening after discussion. So going forward, I would like to discuss with them the dark time. The gamers, usually play games during the night and the servers, there will be congestions of the service. During the daytime, not so much. So how can we utilize servers more effectively and efficiently? That's a technical main point. And we are discussing the technical aspect with Microsoft. On a mid- to long-term basis, it is going to be a very strong partnership.

Next question. SMBC Nikko Securities, Katsura-san. First question, SFH, making it a wholly owned subsidiary, what is the significance and the advantages? If you could explain that again, especially you have President Oka-san and -- have changed the management structure. And so if you could talk about the timing of the expansion. And the second question, between U.S. and China, there is the race over hegemony and if you could talk about Sony's view on the short term, midterm and long term?

Thank you for the question. So SFH, making it a wholly owned subsidiary. To repeat, well, it is a core business. So 35% minority shareholders, it could be seen as outflow of the core business value and so that is to be captured and internalized. And secondly, to repeat, there can be some risk hedging. And also connected to the second question, there's geopolitical matters, the geopolitical risk, which is going up. So that being the case, having the stable profits in Japan is very important. And having a tax consolidation going forward, in terms of risk management, this will be important. Now thirdly, the enhancement of shareholders' call for value and as I said, this tax consolidation and noncontrolling interests -- capturing the noncontrolling interest, earnings per share can be enhanced. And I, myself, sometimes with shareholders and investors, we have talks and management in aiming for growth. EPS growth, should be emphasized in terms of discipline. And I think that has been noted with the conversations with the investors. Annually, past 3 years, JPY 40 billion, the noncontrolling interest outflow of the net income was seen. So capturing that will raise the EPS and there is the tax benefit that can also be captured, so JPY 40 billion to JPY 50 billion increase in net income. And with stock repurchase, well, more than the investment through the stock repurchase, I think this is EPS accretive. In other words, it will contribute to enhancing EPS. And so these are the 3 key points in the background. And as for Oka-san, President, there are 3 axis that I would like to mention. One, well, there are various businesses in terms of the background, Union Bank is finance and then there's technology, especially Union Bank era. The customers of the Union Bank in leading SFH, this will be an important axis. And the hegemony between U.S. and China for technology, well, I think this is a very subtle time while negotiations are taking place. The U.S. market and Chinese market, both are important. And so along with the change of the situation, the appropriate action needs to be taken, looking at those changes.

Let us continue with the next question. Nakane-san of Mizuho Securities. All the respective businesses, global external talent must be hired for long term for them to contribute to Sony Group as a whole. And for that, going forward, more than before, what do you think will be necessary for the management to focus? Please raise several key points that may be required.

Thank you. One thing that I can say is that we've got group headquarter structure. The head of all the group indices will be part of that. We have 6 segments. Nine -- 12 directors of the businesses will be part of the group headquarters. So group headquarters with top executives of the special businesses will be very important. And with all the respective businesses and the group headquarters, there will be exchange of talent, exchange of people, which is, I think, very important. Because the mortalities, the people -- they have the diversity of challenge. If you look at the artists, for example, in the entertainment, there's a game opportunity and opportunity for music and also pictures and video opportunities. And I think what we have is a strength for us to get people. So AI, the CMOS sensor and creation hardware to connect people and also distribution hardware and also communications, telecommunications, we have diversity of strength and leveraging that will be important to invite more people. Katsumoto-san, any comment about talent?

I am in charge of R&D, Katsumoto speaking. And because Sony's business is global, the activities of these people must be also global. In all these geographical regions, the situation differs. Some -- Electronics may be important or entertainment may be more important in some regions, there's a difference and we have to allocate people appropriately and accordingly. We're trying to globalize our HR allocation, particularly people in AI, people who can fully utilize the AI technology. We have the strong lineup of talent already. And our hiring people, attending all the meetings and opportunities to capture the challenge with the AI expertise. We're also accelerating global initiative of the R&D center. And top executives of international R&D, all having opportunities to come to work in Japan. And also the Japanese executives are also sent overseas for opportunities to work internationally, do business in English. And so through this iteration, we should be able to invite and attract the talent with excellence in the days ahead.

Because of the shortness of the time, the next one will be the final one from Mr. Goyal from Jefferies Securities. We have received a question in English. So allow me to read in English and interpreter will translate that into Japanese consecutively, and then the answer will follow. The market that is characterized by healthy duopoly or oligopoly. Sony has a strong position here. What's your view of the image sensor market for automotive? It's quite small today. Last year, you showcased Toyota Corolla that use Sony sensors. In 5 to 10 years, can this market be bigger or more valuable than the smartphone image sensor market? How many players are there in this market? Do you think this market will also be limited to 2 to 3 players as in smartphones?

Thank you very much for the question. For the automotive sensor, there was a question about the automotive sensors. For Sony, the sensors for mobiles, we started this in 2011, as I recall. In the beginning, the scale was very limited. And the sensors for smartphones -- image sensors for smartphones had the explosive growth after that. For automotive image sensors, well, it follows suit or not. We are not sure, but going forward, there will definitely be a change in the mobility. A big change. If we can contribute in the safety aspect, that has a social significance. The number of players are not so many. Our market share at this moment is very small. Well, we have built our technology on the image sensor for smartphones or audio-visual or AV and we can leverage that. But we have not fully understood the automotive applications, so we want to learn more. And we would like to contribute to the mobility. Ultimately, on a long-term basis, that will give us an elevation of enterprise value going forward. Thank you.

So now our time is up, and we would like to close the meeting here. We apologize that we started very late, and we thank you for staying until the end of the meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]