Sony 2005 Annual Report Download - page 64

Sony Corporation 61
ensure future growth in the Game segment, Sony is investing,
as described above, in the research and development of
cutting-edge microprocessors and other LSIs that will be
used in the next generation computer entertainment system,
PS3. Furthermore, Sony is working to develop a new market
through its introduction of PSP, a new handheld video game
system on which a variety of content can be enjoyed. PSP
was introduced in Japan and U.S. in December 2004 and
March 2005, respectively and will be introduced in Europe in
September 2005.
■MUSIC
Within the music industry, album sales over the past several
years have decreased due to piracy and competition from other
entertainment sectors. One way Sony is working to combat
digital piracy and generate profits is through the digital distribu-
tion of content, is through its launch of the Connect music store,
a digital downloading service, which is now classified as part of
the Other segment. As part of an effort to achieve significant
operational efficiencies, Sony merged its recorded music
business, excluding its recorded music business in Japan, with
the recorded music business of Bertelsmann AG in August
2004, forming the joint venture SONY BMG. The newly formed
company is 50 percent owned by each parent company and is
accounted for by Sony under the equity method.
■PICTURES
In the Pictures segment, Sony faces intense competition, rising
advertising and promotion expenses and a growing trend
toward digital piracy. To meet these challenges, Sony is working
to distribute a diversified portfolio of motion pictures and
capitalize on the expanding DVD home entertainment market,
which is becoming a more significant source of revenues and
profits. One of the ways that Sony is working to distribute a
diversified portfolio of motion pictures and capitalize on the
expanding DVD home entertainment market is through its
participation in the acquisition of MGM. In conjunction with the
transaction, SPE entered into agreements to co-finance and
produce new motion pictures with MGM and to distribute
MGM’s existing film and television content in, among other
markets, the DVD home entertainment market.
■FINANCIAL SERVICES
In the Financial Services segment, the value of assets accumu-
lated by the businesses in the segment has grown continuously
over the past several fiscal years, resulting in a large portion
(approximately 40 percent) of Sony’s total assets being ac-
counted for by the Financial Services segment. To strengthen
asset management and risk management in parallel with this
growing asset value, enhance disclosure of business details,
and offer customers integrated financial services tailored to their
individual needs, in April 2004 Sony established Sony Financial
Holdings, a holding company comprised of Sony Life, Sony
Assurance and Sony Bank, with the aim of both increasing the
synergies between these businesses and targeting an initial
public offering during the fiscal year ending March 31, 2007.
FORECAST OF CONSOLIDATED RESULTS
Factors which may affect Sony’s financial performance include
the following: market conditions, including general economic
conditions, in major areas where Sony conducts its businesses,
levels of consumer spending, foreign exchange fluctuations,
Sony’s ability to continue to design, develop, manufacture, sell,
and win acceptance of its products and services, Sony’s ability
to continue to implement personnel reductions and other
business reorganization initiatives, Sony’s ability to implement its
network strategy, and implement successful sales and distribu-
tion strategies in the light of the Internet and other technological
developments, Sony’s ability to devote sufficient resources to
research and development, and capital expenditures, and the
success of Sony’s joint ventures and alliances. Risks and
uncertainties also include the impact of any future events with
material unforeseen impacts. Refer also to the “Cautionary
Statement”.
Regarding the forecast of consolidated results for the fiscal
year ending March 31, 2006, sales and operating revenue,
operating income, and income before income taxes are expected
to increase compared with the fiscal year ended March 31,
2005. Net income is expected to decrease. This forecast
assumes that the yen for the fiscal year ending March 31, 2006
will strengthen against the U.S. dollar and the euro compared
with the fiscal year ended March 31, 2005.
During the fiscal year ending March 31, 2006, restructuring
charges, primarily in the Electronics segment, of approximately
72 billion yen are expected to be incurred across Sony as a
whole. 90 billion yen of restructuring charges were recorded in
the fiscal year ended March 31, 2005.
The forecast for operating income and income before income
taxes reflects an estimated gain of approximately 60 billion yen
related to the transfer to the Japanese Government of the
substitutional portion, the benefit obligation related to past
employee service, of Sony’s Employee Pension Fund. Further-
more, 35 billion yen of this estimated gain is reflected in the
forecast for net income after deductions for the effect of
income taxes.
In June 6, 2005, SCN sold 17,935 shares of So-Net M3 Inc.,
at 694,600 yen per share with a total value of 12.5 billion yen.
As a result of this sale, Sony records approximately 11.9 billion
yen gain on the sale of its stock for the year ending March 31,
2006, and Sony’s ownership interest has been reduced from
74.8 percent to 60.8 percent.
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