Sony Group Corporation (6758) Earnings Call Transcript & Summary

Now we'd like to answer to the questions from the investors and analysts. From Sony Semiconductor Solutions, President and CEO, Terushi Shimizu; Executive Vice President and CFO, Yasuhiro Kono, who answer to the questions.

[Operator Instructions] First question in Japanese. UBS Securities, Yasui-san, please.

Thank you very much. UBS, Yasui speaking. And 2 questions. The first question will be, share is increasing and is going to be continue to increase, and that's what I heard. And the technology advantage, and if so, geopolitical issues and the market share, 60%, which is quite hurdle. So sustainability of that achievement of this, and how far you'll be able to go in sustainability area, if you can actually discuss about it. And second question will be the share is pretty high. That means that profitability could be higher. And up until now, the management said that we continue to win, and therefore we don't stop the investment. However, at some point, you need to collect that. So I kind of put it like -- and the free cash flow and then also the profitability, when is it going up if there's any phase?

Thank you very much. There was just two questions. And the first question, share is going to be increased in the plan in order to achieve, in order to be sustainable. And what is the technological advantage, what would that be? And then also, we need to win. And that's why we are investing. And there's a delay of collecting that return. When is it happening? And then for shares, in the presentation. smartphone market in a few years -- in the past few years, the trend is that high end or above the mid-plus and high end increase will be happening there. And large format, it's going to be a large format. And in addition to that and in the mid-range, at some point and expect a bit more high resolutions that is happening right now and from that trend, the smartphone overall. And therefore, I think that the ROIC that we are focusing is matching to that. And that's why we expect that we will be able to increase the share. And in terms of the technological advantage, and every year, we are embedding the new technologies for the smart sensors. And the 2 layers process -- 2-layered tool submission process, and that's to be embedded. And then also at the same time, we would like to increase the performance as well. And that is going to be the technology area that we are strong at. And the return and when do we get a return on the investment. And originally, FY 2018, we thought that there is going to be a situation of the market, and that's what we have presented at the time. And at the time, by the 2025. And for instance, the ROIC will be from 20% to 25% that we will be achieving that we have presented at the time. And then after that, contradictorily and the market is becoming bigger and bigger. And that's why we are continuing to invest now. And for -- in FY '25 for instance, the ROIC target, maybe there will be pushed back a few years. And that is our current focus. However, in KPI is not just a ROIC, EBITDA and we continue to invest. And that is the assumption. And those KPIs that we should focus on and therefore, we should -- we do have those 2 KPIs. And from our perspectives and for the investment that we made and then we -- the timing of that achieving the operation profit level, and there is the delay in that. And that is something that we need to work on. So the operation profit needs to be increased. And then the yield, the trends and then also the cost in those area that we have to improve. And profit needs to be improved and so that we will be able to get the return earlier.

Nakane-san from Mizuho Securities, please.

So 2 questions for the auto image sensors, so the chip and systems. To what extent, Shimizu-san, would you like to pursue? And of course, this now [ IMX409. ] And I believe that you will be able to have a combination, like a set basis. So -- but still like a limited resource and cost has to be handled. And to what extent you would like to pursue for this in-cabin or the auto image sensors? And then the second question is about the profitability. 2025, originally, you were JPY 150 billion in some -- or so for the OP. But along the line, you are investing a lot. So the contribution for the profit generation, or OP increase is also to be confirmed.

Okay. So thank you for your question about the auto image sensors or chip systems. So the final goal and the profitability contribution of the in-cabin or -- sorry, the auto image sensor, so the -- so ADAS and AD camera would be our key focus and entering into this auto image sensor business. And then later as a sensing technology, like a spot to measure -- the sensors to measure that. And that development was necessary for the [ spot. ] And as of -- in 2019, it was the year that we were successfully developed this spot, and we offer that to customers. And then as LiDAR and for autonomous driving solutions, and this [ spot ] might be the one of the options for the technology. So we propose that to customers. And LiDAR was applied for AD. But since last year, especially in Chinese market, it will be used for ADAS, which is owners' car, LiDAR is also embedded. Together, several years ago, we introduced like cognitive technology like software, like [indiscernible] that we call, like a camera and radar combination, like recently camera and LiDAR. So that kind of fusion software is offered. And this time, we suggested like parking support or pilot parking. And that one, we just showed you at the presentation and the one is already adopted by Nissan. It's certainly different but similar technology or solution is offered. And the LiDAR and other technology or solutions are slightly different. So we do not provide in total solutions because LiDAR, there are so many Tier 1 manufacturers around the world. So we want to maintain the Tier 2 positions continuously. And your second question, which is the timing of the profit generation of the auto. And thanks to the good performance, '22 -- 2020 and 2021, we have been seeing doubling the profitability. And this year also, we want to see the same momentum. So our objective, the profit generation or contribution will be '24 or '25. So that in timing has not been changed. So thank you for your question.

And we would like to move on to the next question. Tokai Tokyo Research Center, Ishino-san.

Let me ask 2 questions. Our first question is concerning smartphone CMOS sensor. And unit price is now on the increasing trend. So we believe that from the manufacturers, you may be under the price pressure? So what is your take? And you also talked about the new business and how that new business will be incorporated in the Sony Semiconductor business?

Thank you very much. One is for the smartphone CMOS sensor. Unit price has been hiking whether or not we are facing price pressures. Generative AI and how we are going to incorporate that technology in the semiconductor business. And as for the unit price of the smartphone sensors, chip size has become much larger in terms of the format. So based on the agreement with the customers, we always have the negotiations for the price change and price hike. And of course, we are also going to pursue the cost reduction while maintaining the certain level of the yield. Of course, we are under the price pressure from our customers. So -- but we are always going ahead based on the agreement with customers so as not to have excessive pressures. And as for the AI, we have tried to incorporate for the quality improvement and productivity improvement. Nowadays, quite a lot talked about for the Generative AI. If we are trying to incorporate that technology into the semiconductor, for example, [indiscernible] technology, so on that platform, we are always pursuing how we can make that platform much easier for our users to use. And if Generative AI can support the facilitation of the ease of use of that platform, we should consider a possible use of those AI technologies. Of course, we do not have a complete free rein of the use of the AIs. Since we are the manufacturer of semiconductor, we are handling quite sensitive information of the customers. We need information security. so as not to disclose inadvertently the customers' sensitive information. So that should be always kept in mind. Thank you.

Next question, please. SMBC Nikko, Katsura-san, please.

My name is Katsura from SMBC Nikko Securities. On Slide 10 and 8, page 10 and page 8 -- sorry, 7. In FY '27, and there is the growth has some phases. So at that time, I mean, there is a drastic growth here. And what is the background of this forecast? If you can give us some information on that. And for the smartphones image sensors, the sensor side will be larger or the new functionality is going to be embedded? And in terms of the automotive, this is going to be the first time that the share is going to be increased drastically. That's what I see. So what is going to be the new? And that's the first question.

Thank you very much. So in the large format trend, and what is the background of this? And the share is going to be increased for the automotive and the background for that and what are the changes? And that is my understanding for your questions. And the first question, in terms of the detailed information, we will not be able to disclose. However, the client in the world have been discussing about the image sensors' added values and how we'll be able to increase too. And we have been discussing that and what kind of technologies will be embedded and how we are going to increase that value added. And then the technology development will be needed. And that technology development, the timing, when it is going to be embeddable, will be something around FY '27. And that is the background here. And next is the changes in the automotive. And thank you to the corporations and the share is gradually increasing. And as of now, by FY '25, in terms of the deals, we actually get deals. And for the FY '26 and FY '27, so we are going to decide what is going to be developed, and we'll be discussing with the customers. In order to pursue that negotiation with the customers, by FY '25 range, up until now, 3 mega -- 5 mega, that was the mainstream. But from now on, it's going to be some 5 mega or 8 mega is going to be made. And after that, the sensor will have more high resolutions. And there's another trend, AD and ADAS. And in the area of the ADAS, if I limit on the ADAS, then in case of the front sensor area and surrounding, and that is the area that we are working on. And the number is going to be something around 7 or 8. However, we would like to take a look at the peripheral area, then that is happening. And in other words, the numbers of the sensor might be increased or the high resolutions so that we'll be able to reach to that much distance. And to make sure that, we'll be able to view all of the areas with the cameras. And that's all, thank you very much.

And the second question, Slide 9. So the new technology, when you said that new technology, 3D, 4D, 5D and that is shown in here. And 2D -- or 3D -- 4D And when 4D is available, and that is the timing that you're saying. And then at this time, not just a sensor size, but that there is going to be value added on top of that, right?

In case of the 4D, as I have explained, the time factor. And the time factor, you may ask what would that be. But in my presentation, I gave you some examples. In EVS, Event Vision Sensor, which we have introduced before and which is a high speed, absorption will be possible. So only the moving object is going to be recognized. And that means high speed and movies will be a good fit. So conventional LCD-based sensor technologies. And with that new technologies, we'll be able to improve that the movies. Thank you.

So thank you very much. So we would like to entertain the last question. Only one question, please. So JPMorgan, Ayada-san, please.

Ayada from JPMorgan. Okay. I will have one question. I want to have a follow-up question or kind of overlapping the question. So earlier, you mentioned like around 2028, the mobile market, you foresee some expansion, and you are discussing with customers. And there should be some one-step increase or one notch uplifting of the specifications. And that's the reason behind this growth. But the 3D, 4D and extension of that is the one that I should be mindful about this next expansion of 2028? And in terms of the 3D, I understand there should be -- there was the lack of the applications in the past, But are there any big expectations toward that in coming 2 to 3 years from now? Do you find such kind of expectations in the market for 3D?

Thank you for your question. So I understand there are 2 questions. So around 2028, so there should be some step increase of our expectation in the 3D and 4D. Extension would be the core reason for the growth. So you just want to clarify your understanding, right? And then the question is that the 3D application was not enough in the past, but what will be the future potential? So your first question, the 4D sensors. Last time when we had this new session, we showed the roadmap toward 2030. And in terms of the still image, we will have a dynamic range or AC should be improved. And another one is that the high level zoom performance. And I mentioned that last time. And therefore, the video or filming, high-definition video filming, it should be possible. And that new trend has not been changed. But how can we achieve those end goal? And I mentioned earlier, for the 4D, this is the element of the time factor. And then I mentioned that this is how to achieve such goal. And then in terms of your question about the 3D application, top sensor to be launched in the -- embedded in the smartphone, it's increasing. But in terms of the mobile, there should be not really demanded functions at the moment. But in the much larger grouping of the sensing, you're right, the application is growing. And of course, not the video fairly volume market, but there are some sensors to be embedded on the head sensor and so forth. So I think that is what we can expect for 3D application. Thank you for that.

Thank you very much. So we would like to close today's session, Imaging & Sensing Solutions session. So thank you very much for your participation today. This is the end for the Sony Group the business segment meeting 2023. All the sessions are over. Thank you very much once again for your participation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]