Sony Group Corporation (6758) Earnings Call Transcript & Summary

It is now time for us to start the briefing on the Electronics Products & Solutions segment of Sony Corporation. And I will be acting as the moderator today. My name is Hayakawa from IR. This briefing is being held for the analysts and institutional investors whom we have informed in advance. The audio and presentation can be accessed on our website. Today, first of all, we will hear from Shigeki Ishizuka, Vice Chairman, Representative Corporate Executive Officer of Sony Corporation, Officer in Charge of Electronics Products & Solutions business, Representative Director, President and CEO of Sony Electronics Corporation. He will be discussing the business environment and future direction of business in the EP&S segment. After which time, we will have a Q&A session. We expect the program to last about 55 minutes or so. Now we will hear from Ishizuka-san.

Hello, everyone. I am Shigeki Ishizuka. Thank you for attending today's briefing on the Electronics Products & Solutions segment. We established Sony Electronics Corporation on April 1. Well, each entity under the new umbrella will continue to operate with the autonomy. We will work to make the EP&S segment an even more cohesive unit, and we will leverage the strength that comes from the diversity of our resources and businesses. The entire Electronics business is devoted to optimizing our organizational structure and human capital, sharing technology, standardizing operations, enhancing the competitiveness of our products and creating new businesses. Next fiscal year, Sony Electronics will inherit the trade name Sony Corporation. Electronics is where the Sony journey began, and I feel the weight of the history and the enormous responsibility that comes from inheriting this name. Around a half century ago, our founder said, "In challenging times such as these, I believe that meeting the moment head on with courage is what defines the Sony spirit." We will continue to demonstrate the Sony spirit as we prepare for our start as Sony Corporation next fiscal year. On August 4, the consolidated results for the Sony Group for the first quarter of the fiscal year ending March 31, 2021, or FY '20 were announced. First quarter sales of the EP&S segment decreased 31% compared with the previous fiscal year to JPY 331.8 billion, reflecting a significant impact on all aspects of the supply chain. Despite reducing operating costs across the segment, the decline in sales led to an operating loss of JPY 9.1 billion. When we showed an estimate of FY '20 operating income at the main earnings announcement, we presented that estimate as a range significantly below the operating income for the previous fiscal year, and this is based on the most pessimistic scenario, including an assumption that sales activities in most regions would come to a standstill. Since then, our supply chain has almost fully recovered, and customer demand is gradually showing signs of recovery, albeit with some variation across product categories and geographies, leading to improvement each month in Sony sales. As a result, our latest forecast for this fiscal year reflects a stronger recovery than the one assumed in May. And we are quickly stepping on the gas after pressing the break, thanks to fully integrated speedy supply chain, one where we have tight control of our channel inventory. We announced that we expect sales to be JPY 1.87 trillion and operating income to be JPY 60 billion. In Mobile Communications, we recorded an operating income of JPY 11 billion in the first quarter and expect the business to be profitable for the full fiscal year. It is safe to say that the history of the Electronics business has been one of constant adaptation to an ever-changing environment, including economic crises, natural disasters and intense competition. I would like to discuss some of the business transformations that I myself have experienced several times during my career. The compact digital still camera market, which was once highly profitable and fast-growing, suddenly contracted as smartphones proliferated. In addition to reducing fixed costs in existing businesses, such as camcorders and digital still cameras, we made the decision to focus our human and technological resources on our Alpha digital single lens business starting in 2012. This led to the rapid expansion of our lineup of full-frame, mirrorless digital single lens cameras, an offering our peers lacked. Today, this product category has grown into the driver of our camera business' earnings. Following a 10-year crisis marked by uninterrupted losses, we transformed the television business into one that can consistently generate profit, thanks to the leadership of our current Deputy President, Ichiro Takagi. We achieved this via large-scale restructuring and enhancements to high value-added products such as 4K as well as through improvements in every stage of our supply chain, including procurement and cost reduction of key devices, productivity improvements in manufacturing, sales to distributors and retailers and inventory management. Despite tough competition from overseas brands, we have now been profitable for 6 straight years. Our smartphone business has presented challenges, but we brought in a new leadership team in fiscal year '18 that returned to the basics of making products and gave the business a fresh start. We leveraged the collective wisdom of the Sony Group to make our products more attractive. In addition, we undertook major structural reforms, including reducing the number of regions where we sold products, consolidating design and manufacturing facilities and merging operations with other parts of Electronics business. To reduce costs in our smartphone business, we applied knowledge garnered from the experiences I mentioned a moment ago in our TV business. The task was accomplished in even shorter time than in the TV business. Our current targets are to reduce operating costs by 64% and overall cost by 72% between FY 2017 and FY 2020. We already achieved ahead of schedule in FY '19 the operating cost and overall cost-reduction targets I mentioned at the IR Day last year, and we have an exceptionally lean organization. It is thanks to these achievements that, despite the impact of COVID-19, the Mobile Communications business is expected to record a profit this fiscal year. As these examples illustrate, we have always taken bold action in the face of changing conditions and times of crisis. However, the COVID-19 pandemic has been exceptional in a way it has affected widespread and dramatic changes to lifestyles across society. In order to retain flexibility in managing our business against the backdrop of ever-changing operating conditions, it is important to maintain the profitability of our existing abilities. And no matter what the operating environment, we aim to generate a profit. In order to do that, we need to unleash the strength of cohesive management within the Electronics business and strive to achieve optimal scale through product development, standardizing operations and streamlining. Now I will discuss some positive developments that have occurred in the last few months. In the TV market, demand increased as consumers spend more time at home due to COVID-19. And our BRAVIA brand increased market share, gaining a lot especially in Japan. In addition, despite the decoupling of communication charges and handsets prices as well as contraction of the market for high-end models in the Japanese market, we recorded favorable sales of our Xperia 1 II and Xperia 10 II models following advances in their camera, audio, display and design features. The camera business bore the brunt of the COVID-19 impact. But in China, the quickest market to recover, we gained the top revenue share in all categories, including interchangeable lens cameras, lenses and digital still cameras in June, which includes China's massive 6.18 shopping festival. Our latest model, the Alpha 7S III, which we announced last month, has been well received in all regions, and preorders have been strong. In addition, last month, the Associated Press global wire service announced that their photographers and video journalists around the world would exclusively use Sony's camera equipment. We have already begun delivering a wide variety of Sony products to them, including Alpha [ 3s ] cameras, XDCAM camcorders and E-mount lenses. When we launched Sony Electronics Corporation in April, the first thing we did as a management team was to draw up a new company vision. After discussing our aspirations to bring together a diverse range of businesses and lay the foundation for deeper cooperation and unified engagement, we established a vision as: continue to deliver KANDO and Anshin to people and society across the world through the pursuit of technology and new challenges. At the core of Sony's electronics is technology, but superceding that is a spirit of innovation that drives us to take on new challenges, including developing new technologies. In addition to KANDO, we included the word society and Anshin in our vision. The concept of Anshin was the one we spent the most time discussing. We felt that Anshin encompasses the health we provide in the medical business, the trust people feel in the quality of our products and the reassurance they feel from connecting to other people through communication networks. It also signifies the peace of mind we want to bring to our customers in the midst of the COVID-19 pandemic. And I believe this wide range of interpretations will foster diversity and, in turn, lead to a creation of new customer value and new businesses. We are currently engaged in internal discussions so that early next fiscal year, we can present you with our next mid-range plan, which will cover the 3 fiscal years beginning April 1, 2021. Today, I'd like to give a brief preview of the plan's overarching direction. Our strategy for the mid-range, which is rooted on our vision, is to achieve business growth and maximize the corporate value of Sony Electronics. Under this banner, we aim to expand business growth areas and undertake portfolio management-driven structural reform. We will have a shared growth strategy, under which all of Sony Electronics will work together to develop new products and businesses by bolstering synergy through the collaboration and by leveraging our visual, audio and communications technologies to deliver value to customers that extends beyond reality real-time to remote activities as well. Today, I will discuss 2 concrete examples of the initiatives that we are undertaking. First is expanding the business of remote solutions for video. Last year, we collaborated with Verizon and NBC Sports to conduct an experimental trial, live video transmission using 5G technology during an American football game in the United States, and we have conducted similar trials in Japan and New York as well. Demand for remote accessibility around the COVID-19 pandemic has accelerated the shift businesses are making to digital. We will invest in and expand our remote solutions business, which combines IP network technology and hardware products, to address the need of the media industry, which has mission-critical requirements for transferring high-quality data in high volume. Creating reality by capturing images with cameras, which utilize Sony's imaging and communications technology, producing visuals from multiple remote locations and transmitting them with extremely low latency or in other words, in real time, is a perfect example of how Sony brings the 3 Rs to life. In a broad sense, the cameras that the locals use enable remote communication as well, and we intend to strengthen our video shooting business accordingly. Next, I will discuss new customer value creation through large-sized displays. Our television business group has traditionally marketed flat-panel LCD and OLED displays primarily to consumers, while our professional division has marketed projectors and monitors mainly for professional use. Since the launch of the EP&S segment last year, the 2 sides have collaborated on technology development and have worked to better understand each other's customers while streamlining their previously separate sales channels. This fiscal year, we will start transferring resources from the professional unit to the TV business unit. And as of the second half of the year, we will consolidate all our display businesses under the management of Kazuo Kii. This will enable us to integrate our product lineup, gain design efficiencies and improve profitability. Over the medium term, we plan to create new customer value through large-sized screens that are not defined by display or optical technology and cross the boundaries between TVs for household use and displays for professional use. In terms of future sales expansion, the B2B market for displays is considerable, but Sony has allowed itself to be satisfied with too small a market share. So we will enhance our strategy, define large-sized displays of more than 100 inches as a target growth area. Earlier, I mentioned Anshin as one of the keywords in the vision. Not only has COVID-19 significantly transformed our business landscape, but it has made it all the more important for people to live with a sense of assurance. And I see a mid- to long-term business opportunity arising from these circumstances. We have delivered value in the form of Anshin through our medical businesses, including endoscopes and digital microscopes from Sony Olympus Medical Solutions, our joint venture with the Olympus Corporation, which has roots in our digital imaging technology, clinical video solutions originating from the Belgian firm, eSATURNUS, that we acquired and flow cytometers that assist with cell sorting. While coexisting with COVID-19, we are seeing a rise in demand for networked cameras to provide remote health care and online diagnosis. This has reminded us that digital imaging is also an Anshin business. Rather than limiting our medical business to imaging-related fields it has traditionally been involved in, going forward, we plan to explore opportunities to provide new solutions across the broad field of wellness that leverages technologies from all over Sony Electronics. The COVID-19 has also increased the demand for fast and stable communications infrastructure. For example, whereas individuals and families that are previously mostly concerned with the downlinks that let them enjoy music or video content, there has been a sharp rise in demand for uplink connections suitable for web conferencing. We will redefine the network services business as one of Sony Electronics' Anshin businesses and augment its growth strategy as a generator of recurring earnings over the medium to long term. Sony Electronics will also proactively promote sustainability. Examples of environmentally minded efforts Sony has made with its products include reduced use of virgin plastic and adoption of recycled plastic in TV products and elimination of plastic wrapping for small audio products and accessories. We will be proactive in undertaking even more initiatives in the future as we strive to achieve the goal of the entire Sony Group, which is to have zero impact on the natural environment by 2050 as we strive to contribute to a sustainable society and Planet Earth. In preparing the next mid-range plan, we are not going to be confined by existing businesses or product categories, and we have begun to explore new business domains that will lead to the next phase of growth. Today, I will show you some of those. In the world of sports, we are working to drive value from data collected on the playing field. Already, we provide officiating systems to the world of professional sports, including line calling systems for tennis and video assistance, referee systems for soccer games. Going forward, being with baseball and evidenced by our experimental trial with the KOOV's [indiscernible] STEAM announced the other day, we are expanding our service offerings that utilize data on the movement of athletes and the trajectory of balls and other equipment captured by multiple cameras. Through cooperation with the R&D teams at Sony's headquarters and collaboration with other companies, we will pursue development of data analytics and video virtualization. And this is part of our effort to create new sports entertainment and adopt service-based business models that differ from our traditional hardware business that is suited for generated value through video and audio expression. Next, I would like to discuss the application of virtual reality technologies to video content production. At CES in January this year, we featured an exhibit on the possibilities for using new technologies and creating new businesses at Sony Pictures Innovation Studios. In August, we established a virtual production laboratory in Japan at Sony PCL, which sits under Sony Electronics. The studio will be serving content production companies in Japan as well as the design and marketing departments of companies that require high-resolution visuals. And trying to create extremely realistic content remotely in digital spaces that have no reality or real objects is a unique undertaking that came about only because Sony has both technology and actual filming facilities. We aim to leverage our technology to create new possibilities for the creative community. We have prepared a short video depicting the exploratory initiatives we have launched, including the 2 I just described. I hope it will give you a better idea of the direction we are hoping to take our businesses. [Presentation]

What did you think of the video? Since our founding in 1946, Sony has been taking bold actions in the face of a variety of environmental changes and business crises. The fact that we are living in a time that defines prediction makes it all the more important that we steer our company using the compass provided by the purpose of the Sony Group, values and the vision of Sony Electronics shown here. In order to remain a growing concern over the long term, I believe it is management's duty to continue to generate profits regardless of the business environment and to use the cash generated to lay the groundwork for future growth so that we can nurture the next generation of human capital and establish a strong yet flexible business foundation. We will continue to take on new challenges with the Sony spirit and would appreciate your continued support. Thank you very much for joining us today.

That has been the explanation by Ishizuka. And following this, from around 3:55 p.m., we will have a Q&A session for about half an hour. The analysts and institutional investors who have registered to ask a question in advance, kindly connect to the designated phone number. And those who have not registered in advance, you can listen in via the Internet. We ask for your patience until we resume. [Break]

We will be starting shortly. Please wait until we start. Thank you.

Thank you very much. I'd like to now start the Q&A session. In addition to Mr. Ishizuka, there also will be Mr. Ichiro Takagi, who is the Senior Executive Vice President and Deputy Officer in charge of Electronics Products & Solutions business of -- and also the Representative Director and Executive Deputy President and COO of Sony Electronics. And also, we'll be joined by Mr. Yuichi Oshima, who is the Senior Vice President of Sony Corporation and CFO of Sony Electronics Corporation. [Operator Instructions] Now we open the Q&A session. [Operator Instructions]

Ayada-san from JPMorgan Securities. Ayada is my name, JPMorgan. I'd like to ask 2 questions. Two points. Firstly, regarding [ MRP ] 3 years, in terms of direction that you're pursuing, in reality, real-time and remote activities. And in the world with corona or after corona, in terms of contents production, you have strength and also opportunities. But in the next 3 years, in terms of visual devices and services that you provide, do you have the strong feel that it will contribute to the top line? Can we expect that? Because these will be new business opportunities, but because of the corona environment -- is the top line possibility is higher now or lower compared to the previous times? And my second point is about the medical services. Earlier, a mention was made of the solutions to be enhanced in wellness services. But to realize these actually, Sony Life is now a full subsidiary, and you can collaborate with this company. Or M3, you have stocks share in the company. You're already working with the companies, but are you going to enhance collaboration with these companies in the next 3 years more so than before? And also, collaboration with other companies also, is there a possibility that those collaboration efforts will become more visible in the future? And also, to expand and enhance the medical services business, the idea of ROIC, I mean, you're increasing investment capital. Is that the case to increase your business? Or are you going to form alliance with other companies in partnerships? Can you give us some comments on those?

Thank you for the question. Ishizuka speaking. I will basically answer the 2 questions, but as need be, I'll be asking my colleagues to add words. The first question is about next MRP in the 3-year period to be covered. And in the world of corona, remote content production, what will be Sony's strength and how will it contribute to the performance? And so on this question, we're still in the midst of the corona, so predicting beyond -- after corona, it will be difficult. But looking at the actual lines of business, for Vodacare services, contents production in broadcasters, broadcasters now trying to avoid 3 Cs and reducing personnel. And for instance, products, they want to be able to produce products from at home. That's the inquiry that we received. [ For the ] team can offer actual solutions. So that in different -- in all locations, programs can be produced. That's happening already. You saw individual live content production example. It was just an image that you saw on the video. But both inside and outside Japan, a lot of inquiries have been received. And businesses already actually started it. But in film production, it's still suspended. The movies production, it's difficult to reopen, or live concert entertainment is also facing a similar situation. So I believe the potential is there. The large potential is there. But in terms of contributing to actual sales and profitability, we are not able to foresee that yet. But going forward, we will not just sell our hardware product, but for remote production and for the services in these businesses, we, the Sony Electronics, we would like to offer solutions and conduct a recurring revenue kind of business. And regarding your second question concerning medical and wellness business field, we've just begun working on the MRP. And we mentioned earlier, earlier next year, MRP will be announced. Until that time, I must refrain from giving you details -- and collaboration with other companies or the related companies. Before that, as far as we, Sony, is concerned, we have to have a broad appreciation of the medical services so that where our strength can be leveraged and examining those possibilities at the moment [indiscernible] because previously, we've specialized in surgical imaging. But going forward, outside of imaging, we believe that the Sony Electronics' technology can be leveraged so that opportunities can be realized. We started examining those. And concerning the investor capital and ROIC, as need be, how best we should invest our capital, we have to study that from a financial perspective. Thank you.

Thank you. We move on to the next question from Citigroup. Ezawa-san, please?

Ezawa from Citigroup Securities. I have 2 questions and partially similar to the previous question, but from a different perspective. First question, regarding remote-related equipment or devices, as was mentioned in Ishizuka-san's response, you said that not just sell-through of hardware, but services or solutions on a recurring basis will also be a focus. So the services and the recurring activities, can you share with us a little bit more in detail the concept? So what exactly are you trying to generate profit through these services and recurring businesses? Filming and editing, are you going to be engaged in that? Or are you talking about maintenance of devices? Or maybe network communication services may be provided? So do you have any specific ideas about the services of the recurring business that you have in mind? Second question, in the medical domain, also, similar to the previous question, not just the equipment, but in services or recurring businesses, what are the specifics of the medical business? Where do you think you can leverage your strength in the medical field?

Thank you. Ishizuka speaking. I would like to respond to the 2 questions. First, regarding in this remote activities, we're not just going to sell-through hardware, but we want to also provide recurring business such as services. So for now, I cannot give you specifics, but maybe I can share some examples. For example, as of now, as I said, network services, we have Sony Network Communications like So-net or NURO Hikari, and that's a typical recurring business. Anshin is what we want to provide and redefine a network communication business. We want to expand and strengthen this business, and that's the direction that we want to stipulate in our MRP. It's not just downlink, but uplink because in web conferencing, the web camera images would have to go from the home to the cloud. So you have to be stable and fast. And broadband is -- has to be enabled. That's the need globally. So I think this network services would have to be strengthened. That's one idea. And the next one is in managed services. We internally call it managed services. Well, that's, for example, the sports Hawk-Eye, sports-related business, that's a managed service example. Over several years, for each match, we would be paid for the services as a business model and also individuals. Sony PCL, we have a subsidiary, with not so much of a big revenue, but the Hawk-Eye is being operated by Sony PCL in Japan and virtual production lab at -- inside of this Sony PCL organization. And this was to provide services to customers. So these subsidiaries can be leveraged and expand the business. And also, for broadcasting, we have made investments in companies overseas. So we have acquired them. And we are experimenting -- and where there's a good potential, we want to continue to invest. In medical field, well, originally, we used to have this printer business, and that's a big part of our top line. Like the paper and ink is very big in sales, but we are doing similar things in life science. That's reagents for cell analysis. So we want to try to develop reagents for cell analysis. And those are still small businesses in size. But if we continue for a long time, we will be able to build our insights so that it could lead to growth business. Thank you.

We'd now like to go on to the next question. From Morgan Stanley, MUFG, Ono-san, please?

Ono from Morgan. I'd like to ask 2 questions, please. One is about cameras, and the other is about TV and displays. First of all, camera, Ishizuka-san gave an explanation earlier, the full-size mirrorless range could give you an edge, and that would lead to growth and profitability, leading to the #1 position in the industry. And already, you have the #1 position in the industry. So market growth, there's still some shrinking in the market. So that growth, going forward, you use the camera technology? And where will you be placing the focus? And in particular, you have been talking about remote and virtual. And I think that tends to be on a long-time horizon. So in the sense of continuing the profit growth with the existing camera, how can you maintain the growth of profits? That's why I'm asking this question. And second question is about the display. So display, B2C, B2B, there is going to be a merging, I think. And cameras, professional use and home use, there's going to be a merging. But compared to that, I think the element technologies differ quite a bit. Plasma, LCD, flat-panel technology will be basis for some consumers, and then there will be larger size. So is it micro LED or the higher-functionality projectors? So that new technology elements might be required, meaning it might require more investment. And so with regard to this field, is this going to be a proprietary period? Or are you going to have something -- some ideas that you can get the upside sooner?

Thank you for the questions -- 2 questions. So Ishizuka for question 1, and then technology part of 2, Ishizuka, and then Takagi will supplement.

So camera business and the future, as you have indicated, in terms of the market, yes, we see a gradual decline. And with COVID, the demand almost disappeared because of the big drop. And recently, it is recovering, that being the case, full-frame mirrorless, and well, we've been concentrating there. And recently, the competitors have come out with new models. And actually, we welcome that because recently, our camera sales has not gone down. And actually, the other competitors are also increasing their sales. So that from single lens to mirrorless, we see the shift. And so that could grow. And as a #1 brand manufacturer, our mission is to take on this challenge for growth and drive that growth. And the pillar of that is going to be video. And there's Handycam, and there's also professional use where you store and then edit. And then there's those where you shoot, and then you upload onto the network immediately to share like what the YouTubers are doing or online videos. I think that's increasing with the dissemination of smartphones. So not just the professionals, but amateurs or general users, we see the expansion rapidly. Vloggers, the ZV-1 camera is very -- showing favorable sales and Alpha 7S, this is for professionals, and it is showing better result than expected. And then with COVID, there is remote conferencing and online education, online diagnosis. So the camera orders are increasing. And we believe that is what you use in the web conference, the cameras in the PC, and there's also what was announced yesterday, Alpha Cyber-shot. It could be used as a web camera. And imaging HD software is disclosed to the world for free, and it is adapted to 35 models. And I don't know if it's going to contribute to sales right away, but we find it to be a new opportunity. Now about your question on the display, actually, flat display and projector, the image processing can be common to both. And it's not so much new investment, but there is the merit of integration, which can be leveraged quickly, so that the development can be done together, and then we can study the strategy. And Takagi can supplement.

Takagi speaking. With regards to display, as Ishizuka mentioned in the message, for more than 100 displays, we are going to have integration under one management. And in the past, we had projectors for home and for business use. And that is the professional team, professional unit. And then we had those for monitors for companies and the schools and hotels. And some monitors are done under the BRAVIA brand. And then there was the studio monitors for professional use. So we are going to integrate that for one management. And sales, too, right now, one -- we're going to integrate into -- merge into one platform. And the image engine, one image engine. And the device could take many forms. Our company basically can choose the device, and we are talking about micro LED and mini LED and naturally liquid Crystal LED. And so in various formats, the large screen, we can apply to the large screens. So using the image engine, which channel -- which sales channel and which large-sized display will be sold? That will be considered in the business plan together. And we will also conduct product development from that position. And we have to recover on the investment, and we're going to continue to invest. And in the next 3 years, for sure, there will be contribution to profit, we believe. That's all.

We'll proceed to the next question, Nakane-san of Mizuho Securities.

Nakane speaking. Can you hear me?

Yes.

So I'd like to ask 2 questions, please. Firstly, Ono-san was asking about display. The CLED that you're handling already, after integration, what will happen to this business? What sort of evolution are you thinking about? And you have to include the capacity, but require investment. What's your idea about investment? And as things stand now, what's your views about this, if you please? And also secondly, about sales channels and sales companies, particularly internationally outside of Japan, the build-out of ECs, e-commerce is -- and what will be the structure of the sales companies in line with that? So what has happened to Best Buy is one example. You're going to do something like that? Or what about Sony Store, the online stores? And your in-house direct sales, what will be your idea about the direct sales going forward? The 2 questions, please?

Thank you very much. So 2 questions. Firstly, I, Ishizuka, will answer. The second question will be answered by Mr. Takagi. About CLED and our view on displays, including CLED, we have the integrated management. And as we do that, the devices we overcome, regardless of devices for the customers, we have the [ liners ] either -- we are considering a portfolio to do this vertically or horizontal. CLED is for ultra-high end. The niche premium zone will be fit for that market. But to do this for the whole market will not only consider in-house production, but we consider devices by other companies so that we can design and produce that will meet the need and demand. And so this means that we're not considering a large-scale investment in devices. As Takagi-san said, [ strength ] is imaging processing and imaging engine that we have. And there, for B2C and B2B, Sony, we will intensify our strength going forward. And about the sales processes, Takagi-san will answer.

Takagi speaking. About e-commerce and the coronavirus situation, sales of -- store are locked down or shut down completely for extensive period of time, March to May and June. During this time, the e-commerce -- the proportion of e-commerce increased significantly, particularly in China. Basically, 60%, 70% of business is done by e-commerce for a time. But store sales, once they reopened, e-commerce -- [ eventually ] e-commerce actually declined. So trend-wise, e-commerce, the proportion will continue to decrease by 5% or 10% annually, but that doesn't mean that it would increase overnight. It's so happened. So we look at the e-commerce situation in other divisions, and we will take account of the proportion in different geography. And we'll strengthen the e-commerce team in the sales companies. And also, we got to better balance to shift and change resources, resource application because e-commerce doesn't require personnel cost because there's no stores, so we could reduce that kind of cost. So depending on the category and depending on the division, we try to be flexible in considering what will be the optimal operation for the sales companies. As far as Sony stores are concerned, basically, centered in Japan. But internationally, in Asia, there are Sony stores, our direct-to-customer, D2C businesses. And on those, in the days ahead, we will continue to strengthen these operations. I cannot say anything about proportion that they will account for. But basically, because of Sony's vision to be close to people, that is our purpose, therefore, to be closer to people, D2C, direct-to-customer, is very much an important touch point with our customers. Thank you.

I'd like to now invite the next question from Credit Suisse, Nishimura-san, please.

I have 2 questions. First of all, regarding the operational costs and how you think about it, up to now, you have been reducing the operational cost. But going forward, I think you're going to make investments as well. So how are you going to -- what are you going to do with operational concept? Mobile Communications, are you going breakeven this fiscal year? But what is going to be the situation going forward? My second question is regarding collaboration. Are you going to collaborate within and outside of your own company? So what is the situation now? How is it progressing right now? For example, in terms of solutions business, you can standardize your technologies at Sony and collaborate within Sony, but also you can collaborate with different partners for each project. How are you going to go about the collaboration within and outside of the company?

Thank you. Ishizuka speaking. Thank you for the 2 questions. One is regarding operational costs, and the second one is collaboration with outside companies. So I would like to talk about mobile situation, and then also, Oshima will talk about the situation. So regarding Mobile Communications, like I said, the fixed cost was reduced, outperforming our expectations. So we're very lean now. I think it's like body fat percentage of like 5%. We are very, very lean now. So now that we are very lean, we're now going to be leaner, but we want to now make steady growth so that we will be able to generate revenues in a stable manner. And the operational cost for the EP&S as a whole, maybe Oshima can respond.

Thank you. Oshima speaking here. Over the last couple -- few years, OpEx, including fixed cost, has been reduced. And in the mobile business, thanks to such efforts, we are now expecting to record profits this fiscal year. Now the top line and marginal profits, we have tried to optimize our business structure in line with the business environment. And of course, there are some headcount-related costs and customer service costs and [ IS ] costs and design or prototyping costs and also developing a sales channel. That also incurs costs. But in EP&S, this is going across some businesses, and we are trying to generate new businesses. So at each of the units, they have their own operations, business operations. And they have been optimized based on their own business and also around their business. But we want to standardize or try to make them uniform so that we will still be able to reduce further the operational cost. So with EP&S as a whole, we want to try to generate better effects and reduce costs further. Thank you.

Thank you. Regarding your second question, Ishizuka will respond.

That is a collaboration with other companies. Now in the last few years, in a B2B professional business domain, we have been making some investments, medium and small, including medical business. And what we have learned from that experience is in the B2B business, for each of the deals, we will be investing for that particular solution. So there's still issue with scale, and the efficiencies in terms of recovering the investment has been a challenge. So we want to try to standardize as much as we can. However, technologies and solutions may take on different forms, and it's difficult sometimes to standardize. So when we partner or partner with somebody or we make an investment in somebody, we want to have Sony Electronics common or maybe even across business unit technology. We want to make sure that there are some commonalities so that we will be able to evaluate the potential of our business partner and have a good process to be able to assess them and evaluate them properly. So that's exactly what we are trying to do now. We are now considering some potential partners for collaboration. Thank you.

Our time is now up. So the next question will be the last question. [Operator Instructions] SMBC Nikko, Katsura-san?

Katsura from SMBC Nikko. So today, at this timing, you held a briefing. And the key message, the most important message is what I want to ask you. That is, for professional use, you're going to have an integration. And next year, you're going to be inheriting the Sony name. And so you have disclosed your vision. Now you had very good things in [ Acti ] and then there have been for security, growing markets too. So by incorporating that, can you make changes? And JPY 25 billion, is it? I think through these efforts, you have done all kinds of actions, and you've completed them, and then you're going to make a fresh start next year. Is that it?

Ishizuka will now be answering.

What is the most important message this time? And you have indicated the professional use integration. So professional business being -- that's not the main message. So SIPS, in -- we have had a unity in the professional business. So it's not something that EP&S is doing anew. However, in terms of the business result, there are some issues, and we are making those challenges. Now the key message that we want to communicate, Sony Electronics is going to start anew as Sony Corporation next fiscal year. Therefore, we have a solid vision. And based on that solid vision, the mid-range plan will be established. The strategy will be established, and people will think for themselves how to take on the future. So vision, strategy and the execution plan and the human resource development so that the future can be passed on to the next generation. And we would like today to be a kickoff. And inclusive of stakeholders in and outside the company, we want to emphasize this and work hard for the realization of our business plan. That is what I want to communicate as the key message today.

Thank you. This concludes the Electronics Products & Solutions business briefing of Sony Corporation. I would like to thank all of you for your participation.

Thank you.

Thank you.

Thank you for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]