Sony Group Corp Q2 FY2020 Earnings Call

Ladies and gentlemen, it is now time to start the second quarter fiscal 2020 earnings announcement of the consolidated results. And my name is Kato from Corporate Communications, and I shall be serving as the emcee for this session. This briefing is being held for the members of the media, analysts, and institutional investors to whom we have invited. And the session can be viewed on the Internet through our investor website. We have with us the Executive Deputy President and CFO, Mr. Hiroki Totoki, to talk about the consolidated results of the second quarter 2020 as well as the forecast for the full year 2020. And then there will be a question-and-answer session. And we anticipate that this session will last for about 70 minutes. So Mr. Totoki first, please.

Thank you. Major changes are occurring in society and economy as well as in people's lives, primarily due to the spread of the new coronavirus disease and an increase in geopolitical risks. At Sony, the increased export restrictions the U.S. government has imposed on a certain major Chinese customer are having a significant negative impact on our image sensors business, while stay-at-home demand resulting from COVID-19 is having a positive impact, primarily on our Game business. In an operating environment such as this where change is both rapid and broad, our diverse business portfolio augments the resilience of Sony and provides us an opportunity to expand new businesses. Now I'd like to explain the following topics, as you see here. Fiscal '20 second quarter consolidated sales decreased slightly compared to the same quarter of the previous fiscal year to JPY 2,113.5 billion, but consolidated operating income increased JPY 38.8 billion year-on-year to JPY 317.8 billion, which was a record high for the second quarter. Income before income taxes increased JPY 37.5 billion year-on-year to JPY 299.6 billion. Net income attributable to Sony Corporation stockholders for the quarter increased JPY 271.7 billion year-on-year to JPY 459.6 billion. This significant increase in net income was primarily due to the improvement in operating income I mentioned and the JPY 214.9 billion reversal of a portion of the valuation allowances recorded against deferred tax assets and the consolidated tax filing group in Japan. For details of adjusted profit, excluding extraordinary items recorded in the second quarter, please refer to Pages 4 through 7 of the presentation materials. Now this slide shows the results by segment for fiscal '20 quarter 2. Next, I will show the consolidated results forecast for fiscal 2020. Consolidated sales are expected to increase JPY 200 billion compared with the previous forecast to JPY 8.5 trillion, and operating income is expected to increase JPY 80 billion to JPY 700 billion. We have also upwardly revised the forecast for income before income taxes to JPY 765 billion and the net income attributable to Sony's Corporation shareholders to JPY 800 billion. Our forecast for the consolidated operating cash flow, excluding the Financial Services segment, is JPY 630 billion, an increase of JPY 80 billion compared to our previous forecast. Our assumed foreign currency exchange rate for the second half of the year is JPY 105 to USD 1 and JPY 123 to the EUR 1. Now this slide shows our forecast by segment. I will now explain the situation in each of our business segments. First, G&NS. First, in the G&NS segment, Software and Network Services performed well in the second quarter, primarily due to our first-party software titled Ghost of Tsushima becoming a big hit and PlayStation Plus subscribers increasing as a result of stay-at-home demand. Sales increased 11% year-on-year to JPY 506.6 billion with all categories increasing, except for hardware, which is anticipating the launch of the PlayStation 5. Operating income significantly increased JPY 39.9 billion to JPY 104.9 billion, primarily due to an increase in software revenue. The fiscal 2020 sales forecast has been revised upward JPY 100 billion compared to the previous forecast to JPY 2.6 trillion. And the operating income forecast has been revised upward JPY 60 billion to JPY 300 billion. Although it has leveled off compared with its peak in April, stay-at-home demand, which drove sales and profit in this segment in the first half of the fiscal year, continues to have a positive impact with total PlayStation user gameplay time in September up approximately 30% compared to the same month of the previous year. We expect this level of stay-at-home demand to continue in the second half. Last month, we announced the price, release date, and the software title lineup of the PS5. The price we announced is the same one we incorporated into the fiscal forecast we disclosed at the last earnings announcement. This fiscal year, we are aiming to exceed the 7.6 million units we sold in the fiscal year of the launch of the PlayStation 4, which achieved a substantial market share and was a major success. And for software for the PS5, we expect to have more titles than at any launch in our history, thanks to our high-quality first-party software that is exclusive to this PlayStation and to a collaboration with our publisher partners. We expect to launch the PS5 in great shape due to this appealing software lineup, the strength of the PlayStation brand, our preeminent game ecosystem, and our cohesive gamer community. Our strategy is to grow sales and profit through increased user engagement, driven by great gaming experiences on the PS5, and we aim to accelerate the growth of recurring sales and profit by expanding the reach. Next is the Music segment. Fiscal year '20 Q2 sales increased 5% year-on-year to JPY 230.9 billion, primarily due to an increase in streaming revenue and a hit album released by Kenshi Yonezu in Japan. Operating income increased JPY 15.4 billion to JPY 52.9 billion due to the impact of the increase in sales and a one-time gain resulting from the transfer of a business. In the Recorded Music space, advertising-supported streaming, which was negatively impacted by COVID-19, is recovering. And streaming revenue during the quarter continued to grow at a high rate of 18% year-on-year. Primarily because streaming revenue in Recorded Music is exceeding our expectations, fiscal year '20 sales are expected to increase JPY 60 billion compared to our previous forecast to JPY 850 billion, and operating income is expected to increase JPY 22 billion to JPY 152 billion. Demon Slayer, which Sony co-produced and co-distributed, opened on October 16, 2020, and became the first film ever released in Japan to exceed JPY 10 billion in box-office revenue in the 10 days after opening. The TV series is being distributed outside of Japan via channels such as Funimation, which is also a Sony Group company, and it is extremely popular. We expect this IP to contribute even further to the enhancement of synergy across our entertainment businesses, not just the animation business we are focusing on. Next is the Pictures segment. Fiscal year 2020 Q2 sales significantly decreased 26% year-on-year to JPY 192.3 billion, primarily due to a significant decrease in theatrical releases resulting from the impact of COVID-19 compared to the same quarter of the previous fiscal year, in which the major hit, Spider-Man: Far from Home, was released, as well as a decrease in advertising revenue in media networks. Operating income decreased for Motion Pictures and other factors. Our forecast for fiscal year '20 sales has not changed, but the forecast for operating income has increased JPY 7 billion to JPY 48 billion to reflect the results of the first half. While taking steps to prevent the spread of COVID-19, we have restarted motion picture and TV show production in stages since July. Box office revenue has begun to recover, but the closure of theaters in major cities in the U.S. continues, and the major studios are postponing the release of large films. Once theaters reopen, there is a possibility that increased competition from a crowded motion pictures release schedule will cause the recovery of our sales and profit to be delayed. The Motion Pictures business model is one where sales and profit are generated over multiple years, starting with theatrical release where hits are made, and progressing to successful windows such as home entertainment and TV and video-on-demand licensing. As a result, the negative impact on our financial results of not being able to release films into theaters will continue for several years going forward. On the other hand, advertising revenue in the Media Networks business, which was significantly negatively impacted by COVID-19, is recovering. Next is the EP&S segment. The second quarter sales increased 2% year-on-year to JPY 504.7 billion, primarily due to an increase in unit sales of TVs. Operating income increased JPY 12.6 billion year-on-year to JPY 54 billion, primarily due to a reduction in operating costs and an improvement in the product mix and an increase in the unit sales of TV. No change has been made to the forecast for fiscal year '20 sales. But primarily due to the favorable impact of foreign currency exchange rates, we increased the FY '20 operating income forecast by JPY 7 billion compared to the previous forecast to JPY 67 billion. Although the segment was significantly negatively impacted by COVID-19 early from February of this year, it regained its stability in Q2, thanks to a stabilization of the supply chain, stay-at-home demand for home audio and video products, and the recovery of demand for digital cameras and other products. Nevertheless, we are operating the business with extreme caution as recent signs of a resurgence of COVID-19 have proven that the unpredictable situation is continuing. We are working to build a business that can generate a profit under even more severe circumstances by further accelerating management of the segment as one unit, improving the efficiency of our operations, and optimizing our scale. Moreover, in order to bring reality real-time and remote value to our customers using Sony's technology, we will work diligently to sow the seeds of future growth. Next is the I&SS segment. Fiscal year 2020 second quarter sales decreased slightly year-on-year to JPY 307.1 billion, and operating income significantly decreased JPY 26.5 billion to JPY 49.8 billion. Sales for fiscal year '20 are expected to decrease JPY 40 billion to JPY 960 billion, and operating income is expected to significantly decrease JPY 49 billion to JPY 81 billion. Even accounting for the decrease in operating income in fiscal year 2020, we expect the difference between the total of operating cash flow and investing cash flow for the segment over the 3 fiscal years that began in April 2018 to be positive. Pursuant to export restrictions announced by the U.S. government on August 17, 2020, we terminated product shipments to a certain major Chinese customer as of September 15. The forecast disclosed today for the second half of this fiscal year does not include any shipments to that customer. In addition, the operating income for the quarter includes an approximately JPY 71.5 billion write-down of finished goods and work-in-process inventory for that customer recorded at the end of September. Based on this situation, we are further revising the business strategy I explained at the previous earnings announcement from the perspective of capital expenditures, research and development, and customer base. We are further postponing the timing of capital expenditures with cumulative capital expenditures for the 3 fiscal years that began April 2018 expected to be reduced JPY 40 billion from approximately JPY 650 billion I explained the last time. We do not think it is prudent to prematurely reduce research and development spending because we want to meet the needs of a wide range of smartphone customers as well as maintain and increase our future technological competitive advantage. We have had some success expanding and diversifying our customer base for fiscal year '21. The financial impact on our business in fiscal year 2020 is limited. But we do think it is possible to recapture in fiscal year 2021 a large portion of the market share on a unit basis we lost this fiscal year. However, we expect that it will take a long time for other customers to follow the trend to higher functionality and larger die size smartphone cameras that the Chinese customer was leading. Thus, we expect the substantial recovery of profitability driven by those high value-added products to take place in the fiscal year ending March 31, 2023 by recapturing market share in fiscal year 2020. Through an increase in sales of commodity sensors and by recouping our business profitability in fiscal year 2022 through more high value-added products, we aim to return the mobile image sensors business to growth. In addition, there is no change to our mid- to long-term strategy of growing our business through expansion of applications that use HAI and 3D sensing capabilities as well as through starting up automotive sensors in earnest. Last is the Financial Services segment. Fiscal year 2020 second quarter Financial Services revenue was essentially flat at JPY 373.9 billion. Operating income increased JPY 4.9 billion to JPY 43.7 billion, primarily due to an improvement in valuation gains and losses on securities held at Sony Bank and the decline in the loss ratio for automobile insurance at Sony Assurance. We expect fiscal year 2020 Financial Services revenue to increase JPY 60 billion compared to our previous forecast to JPY 1.460 trillion, primarily due to an increase in net gains on investment in the separate account related to variable insurance products at Sony Life. We expect operating income to increase JPY 13 billion to JPY 155 billion, primarily due to the decline in the loss ratio for automotive insurance at Sony Assurance. Sony Financial Holdings became a wholly-owned subsidiary of Sony Corporation on September 2, 2020. Going forward, we will disclose the information shown here pertaining to the Financial Services segment on a quarterly basis in our supplementary information. Lastly, I would like to discuss the outlook of our businesses into next fiscal year. This slide shows our current view as to the momentum for each business from today through the next fiscal year and beyond. As I have explained today, we're incorporating a negative impact on the financial results of the I&SS segment relating to a certain major Chinese customer. But there's no change to the mid- to long-term growth momentum of business overall. And we are gaining confidence that it is possible to strengthen and grow our business despite the COVID-19 pandemic. We aim to grow even more in the future by returning to the past profit growth from the next fiscal year, which is when we start the next medium-range plan. Thank you very much.

That was CFO, Hiroki Totoki, making the presentation. The question-and-answer session will be starting at 4:20, 20 minutes past 4. In the first 20 minutes, we'll receive questions from the media, and in the next 20 minutes, we'll be receiving questions from the investors as well as analysts. So please wait for a while before we start our Q&A session. Ladies and gentlemen, thank you for your patience. We would now like to begin the question-and-answer session. Questions will be addressed by Hiroki Totoki, the Executive Deputy President and CFO; Naomi Matsuoka, the Senior Vice President overseeing Corporate Planning and Control, Finance and IR; and Mami Imada, the VP and Senior General Manager responsible for Corporate Communications. We will start with the first question from Takahashi from Mainichi Newspaper, followed by Inagaki from Financial Times. Inagaki, please go ahead with your question. Can you hear us? Sorry for the connection issue, we will move on to the next person in line. Furukawa from Bloomberg, please.

Furukawa from Bloomberg. I hope you can hear me. Regarding the semiconductor business, I have 2 questions. First of all, regarding the CapEx plan, the Nagasaki plant, it's to start operating in April of 2021. Is there any changes to the schedule of the operation? And also, CMOS sensors production capacity by March 2021, I think 138,000 per month, I think that was the plan. So is there a modification to that? So that was the first question. And should I ask one by one?

Yes. No, please ask the second question as well.

Okay. So second question, the semiconductor. There's a certain customer in China, other than that, the customer for North America or other Chinese manufacturers, is there an increase in orders that you're receiving? Anything that you can share with us on that, please?

Thank you for the question. I will address the first question about the production resumption schedule for the expanded Nagasaki plant. We have consistently stated that production will begin in April 2021, and that timeline remains unchanged for now. However, once production resumes, we may reassess the pace at which production increases in the fiscal 2021 plan. By the end of this fiscal year, the capacity will be 138,000, and there will be no changes to our plan to introduce a new production facility. The timing of when production will start will depend on customer demand in the fourth quarter and the capacity factor of our production facility. This will guide our decision on when to begin operations at the new facility. Regarding customers, apart from the major Chinese customer, we have seen a year-on-year increase in North America and additional orders from other Chinese customers. We are actively working to increase orders, and I believe our efforts have been fruitful. This concludes my response.

Moving on to the second question. We have heard from Mainichi, Kato-san, can you hear me?

Yes.

Kato of Mainichi Newspaper, go ahead.

I want to ask about the anime business. Does it fall under the Music segment? Regarding Demon Slayer, does anime refer to streaming or high distribution over the Internet, or is that the goal? Also, will it be included in the annual Pictures sales?

Thank you for the two questions. The first question is about the segment classification and whether anime falls under the Music segment. Additionally, since Demon Slayer is a major success, will it contribute to the streaming of animation, or will it be categorized under the Pictures side? Matsuoka will provide the answer.

Thank you for those questions. With regards to anime, the segment is Music, yes, Music segment, and it is in the video image production. And as for the Demon Slayer, anime streaming revenue, as you know, is Netflix and Amazon where they're streaming, and so there's such contributions. And as mentioned earlier, there is the contributions on the Pictures side, too.

Let us take the next question. Nikkei Newspaper, Shimizu-san will be the next.

Shimizu from Nihon Keizai Shimbun. I also have 2 questions. The first question is about the game. Earlier, you said that PS5 in the initial year is expected to sell 7.6 million units. Given this, is it a possibility that it may exceed the JPY 100 million unit that PS4 achieved? The second question is you want to diversify the customer base. You did talk about a specific major customer. But does it mean that you will place more emphasis on commodity products?

Thank you. Let me address the 2 questions myself. First is about the game, PS5. Would it exceed in the long run the accumulated sales of PS4 of JPY 100 million? Yes, it is a challenge, but we are very eager and committed to succeed and surpass the aggregated unit sales of PS4. Now do you think that we would change the direction of development? As I have mentioned earlier, right now, for a particular customer in China, we have provided the high-resolution, high value-added technology. But today, we have to change that direction in the near term. For 2021, we will try to capture more share using the commodity products. On the custom-made products, it enjoys high added value. Once it is on the right track, it has so much potential to grow as a big business. But since it's custom in processes, you have to have a certain developmental lead time. Therefore, as I have mentioned earlier, we believe that earnings recovery in the full scale, we will have to wait until 2022. Thank you.

Next from Nishi Nippon Newspaper, please go ahead with your question.

I hope you can hear me.

Yes, we can hear you.

I'd like to withdraw my question because somebody else has already asked the question that I wanted to ask.

Okay. Thank you. I would like to move on to the next question. From Asahi Newspaper, please go ahead.

Suzuki from Asahi. I hope you can hear me.

Yes.

First question is about the anime business, specifically regarding Demon Slayer. What was its contribution in the second quarter and what are your full year forecasts? Additionally, I'd like to hear more about the specific Chinese customer you mentioned. Can you provide details on the inventory write-down and any expected impacts beyond this fiscal year?

Thank you. The first question regarding the Demon Slayer and in terms of numbers, quantitatively, what is the impact. As of now, it's been a very short time since the release. And so the full-fledged merchandising is only going to start from now. So I will refrain from talking about specific numbers as of now. And regarding the specific Chinese customer and its impact and how much impact there is, that was your second question. And once again, in the first half and the second half, there may be some reductions. And if you look at how much it has degraded, I think you can see that there has been an impact beyond the difference between the first half and the second half. And that gap, as I mentioned in my speech, has been offset by other customers' business. So we have been able to recover for that gap due to other customers' business. Thank you.

Going on to the next question. Sorry, we were disrupted earlier. Financial Times, Inagaki-san, are you with us?

Sorry about the disruption earlier. Can you hear me?

Yes.

I am Inagaki from Financial Times. I would like to ask about the Chinese customer. Recently, the U.S. government granted permission for Samsung Electronics to supply OLED panels to the Chinese market. Will you be able to obtain a similar license? Do you expect to get that license? Also, do you have an estimate for the second half of the year? Can you discuss the possibility of resuming the transaction? Additionally, I have a question about games. The financial statement mentioned delays with third-party software. Can you clarify the extent of the delay? Is there a similar delay in your in-house studio? As you prepare for the launch of the PS5, how will these delays impact you?

Thank you for those questions. I would prefer not to comment on the export license. As for the possibility of resuming transactions, I can say that for this fiscal year’s estimate, after September 15, the transactions have not been included. Regarding games, there is indeed some delay in third-party software development. Your question about any delays in our in-house development is valid too. The delay in development is not solely due to COVID, as similar issues occur regardless, and recovery is necessary. Delays in other development timelines have been observed as well. Our understanding is that these delays will not significantly affect the PS5 launch.

We would like to move to the next question. Nikkei Asia Review, Nagao-san, it's your turn.

I hope I'm being heard.

Yes, it's clear.

For the full year forecast, as of August, the cost of PS5 was expected to increase. However, the Game business appears to be performing well overall, thanks in part to the PS5's contribution to this category. It's likely that the growth of the PS4 is also playing a role. In comparison to the first quarter, the second quarter user ARPU has been declining. This information is relevant for the PS Plus and the PS5's contribution for the full year.

Are you asking about the contribution of hardware sales of PS5? Well, that was my understanding, so let me respond to that question. PS5 hardware, it's not the earnings contribution that we expect, but I think it will be a negative contribution for the time being. But having said that, I would like to state that penetration, the increase of PS5 in the market would urge customers to buy the software. So overall, as a business, the PS5 ecosystem will be activated, and in consequence, would grow earnings. Now MAU, how do we see the decline of MAU from the first quarter. MAU, the total number of hours being played by our customers. I think it was in April when we recorded the peak, where people stayed at home. But more recently, compared to the previous year, I believe that it has come down to 30% increase versus the same period of last year. So that changed trend has been reflected in what you have stated. But things have stabilized. So as far as the second quarter or second half is concerned, we believe that the current level will be sustained.

Thank you. I think we are running out of time, so the next question will be the last one. From Nikkan Kogyo Shimbun, please go ahead, Kunihiro-san.

Kunihiro from Nikkan Kogyo Newspaper. I hope you can hear you.

Yes, we can hear you.

November 3 in the U.S., there will be presidential elections in the U.S. And are there foreign exchange rate or any impact on your business? And how do you view the impact from the presidential elections in the U.S.?

Thank you. Yes, we are monitoring it very carefully. But for now, depending on the results of the election, the full year forecast is not to be impacted. That's our view right now. That's all.

Thank you for the many questions. So it is time to close this session with the members of the media. So those analysts who will be participating in the next session, please wait until 4:46. We need to change the membership of the persons responding to the questions. Starting at 4:46.

Thank you for your patience. We would now like to take questions from our investors and analysts. I am Hayakawa, responsible for Finance and Investor Relations. Joining me to answer your questions are Hiroki Totoki, CFO and Executive Deputy President; Naomi Matsuoka, Senior VP from Corporate Planning and Control, Finance and IR; and Hirotoshi Korenaga, Senior General Manager of the Global Accounting Division and Senior Vice President. Let us now start. JPMorgan, Ayada-san?

This is Ayada from JPMorgan. I have two questions, please. First, regarding the image sensors, Totoki-san mentioned earlier that you could recover market share based on volume next year. Could you elaborate on the reasoning behind this? Is it because the market lacks supply capacity, forcing customers to turn to you? Or will you be focusing on regaining share through pricing strategies? Could you discuss this process? Additionally, I believe this ties into the increase in custom products market share. Compared to your competitors, especially in catalog specifications, high-resolution, and higher-definition products, it seems you're lagging a bit. Is this something that can be adjusted, or is it a fundamental issue? I’d like to confirm that. Now, for my second question about games. From the slide you presented at the end, it appears that the outlook for Games next year is positive. Is this because the demand for stay-at-home gaming will reduce while the new PS5 cycle improves? And concerning add-ons and software sales for next year, will those remain at a high level and not decline? Is that accurate? Thank you.

Thank you for those questions. Regarding I&SS, for next year, we aim to regain market share. As you mentioned, the 0.7 micron technology will be crucial, and we need to catch up in that area. Since it's a commodity, we'll have to make efforts to manage pricing, which could lead to lower margins, even with a focus on higher resolution. Nonetheless, we are committed to gaining market share and expanding our customer base. As we achieve this, we will pursue higher quality and resolution in response to customer needs. We plan to upgrade our business foundation toward 2022. Now, on to the topic of Games. To avoid any misunderstandings, I'd like to clarify that our discussion pertains to business momentum for the upcoming year, rather than a forecast of results. The positive outlook stems from strong customer demand and reputation for the PS5, along with a solid lineup of software. We believe we can further expand our customer base next year, and there's optimism around this. In the mid- to long term, we anticipate bolstering our services and increasing recurring revenue. Our focus is not just on a single year, but on the potential for expansion over the longer term, which is where we see competitive strength.

We would like to move on to the next question. Ezawa-san from Citigroup Securities. Mr. Ezawa-san, can you hear us?

Sorry, I encountered some issues. This is Ezawa from Citigroup. I have two questions. First, regarding the Pictures business, you have outlined plans for the second half, but I think the outlook seems quite challenging. Specifically for Motion Pictures, what is the current profit level? I'm interested in how the theatrical releases and secondary revenue streams might differ over time. Could you elaborate on the digital aspects as well? You mentioned it might take a few years for recovery. What are your plans for the Pictures business in the upcoming year? I’d appreciate a detailed breakdown. My second question is about capital allocation. I believe the operating cash flow forecast has been revised upward, which is positive. Conversely, it seems capital investment has been lowered. How will you allocate the free cash flow? What are your current plans for any additional cash flow? I'd like to hear your thoughts.

Thank you for the questions. And the first question about Pictures, that is the breakdown of the segments. What's the image of the breakdown is the question. And Matsuoka-san, if you could answer. Matsuoka-san, please.

Yes. Matsuoka speaking. So the image of profit contribution in the future, what will happen, I would have to speak in that way. I cannot really speak quantitatively. The production of Pictures this fiscal year compared to the previous year, there's almost no releases. So that being the situation, you have what came out last year. And those movies can be for home entertainment or for streaming, and there could be sales there or income derived from those routes, which is not coming out this year. On the other hand, the first half, there was no big movies coming out. But in the second half, we expect there will be some resumption. And if that's the premise, then that means in advance of that, there will be marketing costs involved. But it will be marketing and release with a delay, and we will have to recoup. And so you usually have a theatrical release, and with that performance, you have home entertainment profits. And so that will be seeing a delay. Therefore, naturally, after the release, whether we the movie will be a hit, well, that will be one factor. And with COVID, what will happen to the theatrical releases, that's an uncertain factor. But that is the structure. And other segments can make up for that is, my prediction, media networks and TV programming.

Now regarding capital allocation, let me provide some clarity. For the first quarter results, there has been a change. To elaborate, the cash flow is revised upward by JPY 80 billion, which remains the same. CapEx has decreased compared to our previous presentation. The policy on strategic investment has not changed. As mentioned earlier, aside from being a wholly-owned subsidiary, there is approximately JPY 300 billion allocated for strategic investment. This JPY 300 billion includes the existing investments in Bilibili and Epic, totaling JPY 70 million, and we have a potential JPY 100 billion set aside for stock repurchase. Recently, we've noticed an increase in M&A opportunities, which is my impression. Thus, across various segments, there are strategic investment opportunities available. Consequently, we must conduct thorough analysis and proceed with these investments in a timely manner.

I'm afraid time is running short. So we will take the last question. SMBC Nikko, Katsura-san.

I&SS and EP&S are the main topics. For I&SS, can you provide the numbers for the July to September period? The write-downs amount to JPY 17.5 billion, and since September 15th, the business has been inactive. However, I understand that you have obtained a license to export. If you receive permission to export, similar to what happened during the 2016 to 2019 period when you experienced a write-down but eventually resumed business and revised your forecast, could we expect the same outcome this time if the license is granted? Regarding EP&S, on Page 19 of the slide, even without mobile, both the revenue and profit are rising. The TV segment is performing well, while unit sales of digital cameras are decreasing. Could you provide more insight into HE&S and IP&S? Additionally, in the last slide, you mentioned some positive momentum for EP&S. Is this improvement due to the potential end of COVID-19, or are there other favorable factors influencing this sector?

I&SS, the second quarter, the actuals, what is the number of wafer. As I have stated earlier, the capacity is 130,000 and the average is 110,000. That's the average. For mobile communication and digital cameras, there has been some production adjustment. And there were special factors during the second quarter. There was statutory inspection in some plants. So for a short period of time, the wafer number has declined because of the inspection. EP&S, second quarter, even without the mobile, the numbers have gone up, earning some profitability. The contributor is TV. TV's contribution is the largest, followed by digital camera. That's by category. The weather remarks, we are looking at the momentum as of today until next year or beyond. It does not represent our forecast or performance or projection performance. Please do not be misled. But why can we improve? That is the first quarter, EP&S negative impact from the corona, COVID-19, was quite significant in terms of revenue and earnings. But this will be alleviated. The adverse impact will be alleviated. Of course, there will be regional differences. There could be the second and third waves in certain geographical areas. But I think we know better how to adapt to such an environment. We believe that we can better accommodate the new environment. So overall, there will be an improvement.

Thank you. Ladies and gentlemen, the time has come up to close this earnings announcement by Sony Corporation. Thank you very much for your participation.