Sony Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Q1 records: Sales rose 2% to JPY 2.62 trn, operating income jumped 36% to JPY 340 bn and net income climbed 23% to JPY 259 bn – all first‐quarter highs.
  • Positive Sentiment: Full‐year earnings outlook raised: operating income up 4% to JPY 1.33 trn, net income up 4% to JPY 970 bn and operating cash flow up 2% to JPY 1.27 trn.
  • Neutral Sentiment: Estimated impact of additional U.S. tariffs cut from JPY 100 bn to JPY 70 bn after production diversification neared completion by H1, though continued monitoring is needed.
  • Positive Sentiment: Gaming segment delivered record results with Q1 sales up 8% to JPY 936.5 bn and operating income more than doubling to JPY 148 bn; monthly active PlayStation accounts grew 6% to 123 m.
  • Neutral Sentiment: Financial Services saw adjusted Q1 net income rise to JPY 23 bn, but full‐year adjusted net income forecast trimmed 9% to JPY 98 bn on higher interest‐rate assumptions; spin‐off listing remains on track.
AI Generated. May Contain Errors.
Earnings Conference Call
Sony Q1 2026
00:00 / 00:00

Transcript Sections

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Moderator

It's now time to begin the Sony Group Corporation Consolidated Earnings Announcement Meeting. I'll be serving as the emcee. I'm Ishi from Corporate Communications. Today, the financial results for the fiscal twenty twenty five first quarter and the full year forecast will be presented by Lin Tao, Corporate Executive Officer and CFO. Then an overview of the Financial Services segment, which is scheduled for partial spin off and listing at the September will be given by Toshihide Endo, President and CEO of Sony Financial Group Inc.

Moderator

That will be followed by a Q and A session. The entire session is scheduled to last about seventy minutes. Please note that Ms. Tao wishes to deliver her remarks directly in English to the global audience, so a prerecorded video will be streamed on the English channel.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

Hello, everyone. Today, I will explain the content shown here. After that, Mr. Endo will explain the financial results of Sony Financial Group. Sales of continuing operations for the quarter increased 2% compared to the same quarter of the previous fiscal year to JPY 2,621,600,000,000.0, and operating income increased 36% to JPY $340,000,000,000, both of which were record highs for the first quarter.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

Net income increased 23% to JPY $259,000,000,000. The financial results by segment are shown here. Next, I will explain to our full year results forecast. Our sales forecast is unchanged from our previous forecast of JPY 11,700 billion, and we have upwardly revised our operating income forecast from our previous forecast by 4% to JPY $1,330,000,000,000 and our net income forecast by 4% to JPY $970,000,000,000. We raised our forecast for operating cash flow by 2% to JPY 1,270,000,000.00.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

The forecasts for each segment are shown here. Now I will provide an update on the impact of additional U. S. Tariffs. Although there have been significant developments in the past few weeks regarding the situation surrounding the additional tariffs, there are still some fluid aspects such as product specific tariffs.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

We plan to carefully assess the impact and our response throughout this fiscal year based on multiple scenarios. Furthermore, we need to carefully consider the impact on each business of the product and pricing strategies we aim to undertake in response to the additional tariffs. Taking this into consideration, we have decided to present the impact of the additional tariffs as an estimate for all of our continuing operations, as was the case in the previous forecast. We expect the impact on operating income for FY 2025 to be approximately JPY70 billion, which is a decrease of JPY30 billion from the previous forecast based on the tariff rates announced as of August 1. We had nearly completed the diversification of the production locations of our main products by the end of the quarter, and we expect to complete the measures we're planning by the end of the first half of the fiscal year.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

We intend to continue to monitor the situation and take actions to minimize the impact. Now I will turn to an overview of each business. First is the GN and S segment. FY twenty twenty five Q1 sales increased 8% year on year to JPY 9 and 36,500,000,000.0, primarily due to an increase in third party software sales, partially offset by the negative impact of foreign exchange rates. User engagement continued to increase year on year with the number of monthly active users across all of the PlayStation in June increasing 6% compared to the same months of the previous year to 123,000,000 accounts.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

And total play time for the quarter also increased 6% year on year. Operating income increased approximately 2.3 times year on year to 148,000,000,000, a new quarterly record high for the segment, primarily due to the impact of the increased sales of third party software and increase in network service revenue. As a consequence of the recent strong user engagement trend, we have upwardly revised our FY twenty twenty five forecast for sales slightly from last time to JPY 4,320 billion and our FY twenty twenty five forecast for operating income by 4% to JPY 500,000,000,000. The improvement in operating income for FY twenty twenty five compared to the previous fiscal year is expected to be driven primarily by an increase in our strong network service revenue, cost reduction and an increase in first party software revenue. In our studio business, our live service game revenue is steadily growing, thanks to the MLB The Show series, Destiny two and Helldiverses two.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

And it contributed more than 40% of our first party software revenue during the quarter. In the single player AAA title space, we plan to release Ghost of Yate in October, following the release in June of Death Stranding two on the beach, which received a Metacritic score of 90. We look forward to many game fans enjoying these titles. We decided to postpone the release of Marathon to further improve the quality of the gameplay. Based on community feedback, we think we can further enhance the overall gaming experience by deepening gameplay and elevating narrative immersion.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

So we are working hard to do that. MAU in June, four years and seven months after the launch of PS5 increased 32% from the 93,000,000 MAU accounts in June 2018, the same period after the launch of PS4, and they continue to consistently grow. Content and service revenue is expected to grow approximately 50% on U. S. Dollar basis in the current fiscal year forecast compared to the level recorded in the fiscal year ended March 3139, exceeding the MAU growth.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

This indicates that in addition to the increase in the number of users and increase in spending per user is contributing to revenue growth. We expect content and service revenue to continue to grow steadily from next fiscal year onwards as well, thanks to the user community we have cultivated to date. Next is the Music segment. FY twenty twenty five Q1 sales increased 5% year on year to JPY 4 and 65,300,000,000.0, primarily due to higher revenue from streaming service and increase in revenue from a mobile game, partially offset by the impact of foreign exchange rates. Operating income increased 8% to JPY 92,800,000,000.0.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

On a U. S. Dollar basis, streaming revenue for the quarter increased 7% year on year in recorded music and 8% in music publishing. We have upwardly revised our previous FY 2025 forecast for sales and operating income slightly to JPY $1,870,000,000,000 and JPY $360,000,000,000, respectively. In recorded music, albums from Sony Music Entertainment owned and distributed labels claimed 42% of weekly top 10 global albums on Spotify during the quarter with Bad Bunny's new release taking the number one spot for six consecutive weeks.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

The contribution of catalog products to our revenue continues to increase and we remain committed to acquiring catalogs in both the recorded music and music publishing business since we believe that the opportunity to increase the monetization of these assets by acquiring more of them will continue. In Visual Media and Platform, Demon Slayer Kimetsu no Yaiba, the movie Infinity Castle, which was released on July 18 in Japan, has been a massive hit attracting 12,550,000 people to theaters and generating JPY17.6 billion in box office revenue as of August 3. We plan to release the film in The U. S, Europe and certain countries and territories in Asia, Central And South America, distributing it along with Crunchyroll and Sony Pictures, and we look forward to it being a major global success. Next is the Pictures segment.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

FY twenty twenty five Q1 sales decreased 3% year on year to JPY 3 and 27,100,000,000.0 and operating income increased 65% to JPY 18,700,000,000.0. On a U. S. Dollar basis, sales increased 4% year on year and operating income increased 76%, primarily due to higher serious deliveries in television productions. There is no change to our forecast from the previous forecast.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

In television productions, the second season of The Last of Us, which was renewed for a third season, received several Emmy nominations. In feature films, 28 Later has become a box office hit after crossing $150,000,000 globally. And k pop demon hunters produced by Sony Picture Animation has achieved massive success, becoming the most watched Netflix original animated film of all time. Crunchyroll is steadily growing its paying subscribers and is expanding the global anime community through such activities as hosting the Crunchyroll Anime Awards in Tokyo in May. Now I will explain our strategic partnership with Bandai Namgou, which we announced on July 24.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

Through this partnership, we plan to accelerate our collaboration with Bandai Namgou even more than before, working to do such things as co create new IP, collaborate on video production, distribution and merchandising in the anime and manga fields, as well as strengthen marketing through the sharing of data. Additionally, in the field of experiential entertainment, we aim to create new condo experience by bringing together the strengths of both companies such as Bandai Namco's knowledge and venue and Sony's technology. Next is the ET and S segment. FY twenty twenty five Q1 sales decreased 11% year on year to JPY 5 and 34,300,000,000.0, primarily due to a decrease in unit sales of TVs and the impact of foreign exchange rate. Operating income decreased 33% to JPY 43,100,000,000.0, primarily due to the impact of decrease in sales and the impact of foreign exchange rates.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

There is no change to our forecast from the previous forecast. Except for televisions where competitors engaged in more aggressive pricing than we had anticipated, market conditions during the quarter progressed generally in line with our expectation across the other major product categories. The Imaging business performed well, essentially in line with our original projection, supported by the continued tailwind of the subsidy program in China. Last June at the largest Hollywood film production equipment exhibition, Cine Gear Expo twenty twenty five, We exhibited a system that links Zeng's spatial reproduction display with the Venice Extension System Mini as a form of new content creation. It attracted strong interest from the film production creators in attendance.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

In this segment, we aim to accelerate the expansion of our creation centered business through these products and solution services. Next is the I and SS segment. Despite the impact of foreign exchange rate, sales for the quarter increased 15% year on year to JPY408.2 billion, primarily due to increased shipment of sensors for mobile phones and digital cameras. Operating income increased 48% to JPY54.3 billion as the impact of the increase in sales significantly exceeded the negative impact of foreign exchange rate. There is no change to our forecast from the previous forecast.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

The market for smartphone continued to recover gradually on a global basis. Excluding the impact of foreign exchange rate, mobile sensor sales for the quarter grew steadily due to an increase in sensor shipment volume and an increase in unit price on a U. S. Dollar basis. Although recent shipment volume is increasing year on year, taking into account the possibility that customers are bringing forward orders due to the additional tariffs, we expect the annual shipment volume to be on par with the previous fiscal year.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

From FY twenty twenty five Q2 onwards, we expect sales to steadily increase due to rising unit price resulting from further progress towards larger sized sensors and higher added value, despite an expected deterioration in foreign exchange rate compared to the previous fiscal year. In the consumer camera space, in addition to robust demand for single lens camera, the growing demand for video is driving demand for sensor used in new video camera, such as handheld cameras. We aim to benefit from this market expansion and create new revenue opportunities. To summarize, we believe that during the quarter, we made steady progress toward achieving the numerical targets we established in our fifth midrange plan as profit continued to increase, primarily in the GN and S, Music and I and SS segment. On the other hand, we expect that uncertainty in the business environment, such as additional tariffs in The U.

Lin Tao
Lin Tao
Corporate Executive Officer & CFO at Sony

S. Will have a greater impact from FY twenty twenty five Q2 onwards, and we will focus on conducting business operations that anticipate change while preparing for risks. This concludes my remarks.

Moderator

Now Mr. Endo will provide an overview of the Financial Services segment performance. Mr. Endo, please.

Moderator

Now I will explain the financial results of the Sony Financial Group. On an IFRS basis, adjusted net income for the quarter increased 300,000,000.0 yen compared to the same quarter of the previous fiscal year to 23,000,000,000 yen primarily due to the improvement in loss ratio at the Sony Assurance. Adjusted net income of Sony Life decreased 1,000,000,000 yen year on year to 15,600,000,000.0 yen primarily due to the impact of rising interest rates, partially offset by an improvement in funding costs as a result of the decrease transaction. Insurance and accounting under IFRS requires an amount prepared for the future uncertainty be recorded as a risk adjustment liability. As interest rates rose during the quarter, the risk of mass cancellations increased from an accounting valuation perspective, which reduced adjusted net income through the recognition of a loss and a decrease in the contractual service margin amortization.

Moderator

The new business acquisition at Sony Life continued to trend at the high level of the previous fiscal year with the annualized premiums from the policies in force during the quarter increasing JPY16.1 billion to JPY1313.6 billion, demonstrating strong growth, especially in the corporate insurance sales channels. The recruitment of Life Planners and an agency supporter is progressing well, and our sales channels are continuing to expand. Next, I will explain the progress of our measures to strengthen our financial foundations. As I explained at the Investor Day in May, the interest rate sensitivity of our assets exceeds that of our liability, resulting in an overhedged position at Sony Life. To address this, we are selling bonds and then undertaking reinsurance over the course of two years, including this fiscal year.

Moderator

In the quarter, we accelerated the sales of bonds that we had planned to sell over the course of the full fiscal year. As a result, the ESR level at the end of the quarter improved three percentage points, mitigating a significant negative impact of rising interest rates. Our consolidated ESR was 184% and then Sony Life's stand alone ESR was 163%. Loss on sales of securities is deducted as an adjustment item from the adjusted net income. Going forward, we aim to further strengthen our financial foundation by accumulating economic value based capital through the acquisition of a high level new insurance contract and our efforts to reduce risks.

Moderator

There is no change to our full year forecast of JPY 60,000,000,000 in income before income taxes. Our forecast for adjusted net income has been reduced by 9% to JPY 98,000,000,000. We downwardly revised the forecast because we have revised our long term interest rate assumption this time from the previous 2.7% to 3.3%, the average interest rate level in July and because we have incorporated additional risk adjustments. However, going forward, we will continue to make every efforts to bring adjusted net income as close as possible to our initial plan by accelerating the acquisition of new policies and reviewing expenses. Lastly, preparations for the listing on September 29 are progressing smoothly, and we plan to submit the final application for the listing to the Tokyo Stock Exchange tomorrow, August 8.

Moderator

Additionally, at the Board meeting of Sony Financial Group Incorporated, we will which will be held on the same day, we plan to officially approve the establishment of a share repurchase facility with a limit of JPY 100,000,000,000, effective from September 29 through August 8 of the following year. There is no change to the JPY 25,000,000,000 we plan to pay at the fiscal year end dividend. Heretofore, we have announced our financial results at the Sony Group's earnings announcement, including when we were a listed company in the past. From the second quarter onward, we will hold our financial results briefings as an independently listed company. We are fully committed to becoming a financial services group that is truly valued by a wide range of stakeholders, including shareholders and investors.

Moderator

We sincerely appreciate your continued support after the listing. The presentations were given by Ms. Tao and Mr. Endo. We will begin the Q and A session for media representatives at 04:25 p.

Moderator

M. Followed by the Q and A session for investors and analysts at 04:50 p. M. Each Q and A session is scheduled to last approximately twenty minutes. For those who have registered in advance to ask questions, please click the join webinar link and remain on standby in the session.

Moderator

Please kindly make sure to review the guidance document sent in advance for details on how to ask questions and important notes. We will be resuming shortly.

Moderator

We will soon start the Q and A session for the members of the media. Please wait a little while longer. Thank you for waiting. We will now start the Q and A session. First, the officers on stage.

Moderator

Corporate Executive Officer and CFO, Lin Tao Senior Vice President in charge of Finance and IR, Satahiko Hayakawa Senior Vice President in charge of Corporate Planning and Control, Disk Manufacturing Business and Storage Media Business, Naoya Horii President and CEO, Sony Financial Group, Inc, Toshihide Endo. We will now take the questions from the members of the media. Please limit your questions to two per person. If you would like to ask a question, So the first question will come from Toda san of Yomiuri newspaper. Can you hear?

Moderator

Yes. About the tariffs, two questions. So initially, tariff outlook was JPY 100,000,000,000. Now that's been reduced by JPY 30,000,000,000 to JPY 70,000,000,000. Can you explain in a little more detail why the decline?

Moderator

That's one. The other thing, the Trump administration in The U. S. Talking about 100% tariff rate for semiconductors. I don't know how it will be applied for Japan, but what will be the risk if that becomes 100?

Moderator

Thank you for the question. Let me respond. The 100,000,000,000 yen tariff impact that we explained previously and the difference this time. For Q1, for semiconductors, there is no impact and four gs and NS games and Sony Electronics, total of 100,000,000,000 plus impact. That's according to assumptions.

Moderator

So there was some postponement and there was a strategic inventory and this was smaller than in Q2 onwards. And based on the assumptions and measures Q2 onwards, the decline, there's it's lower compared to expectation in May. So GNS, ETNS, INSS, JPY 20,000,000,000 to JPY 30,000,000,000 each. So that's total of JPY 70,000,000,000 impact from tariffs. That's now factored into our forecast.

Moderator

So you asked about the Trump administration's semiconductor tariffs. Today, we announced our forecast that's based on the tariff rate that was officially announced August 1. So there's a lot of information coming out about tariffs and the situation is shifting daily, but we rely on the officially announced numbers. And based on that, we will evaluate the direct and indirect impact that we will continue to do going forward. Thank you.

Moderator

One additional thing. In our business, semiconductor components itself, direct export to The U. S. Is very limited. So I would just like to make that point.

Moderator

Let's move on to the next questions. From Nikkei, Yoshida san, please go ahead and ask your questions. Yoshida san, are you there? Can you hear me? This is Nikkei Yoshida speaking.

Moderator

Sorry about that. I do have two questions. The first one is about animation. And so current your evaluation of the titles in pictures and Demon Slayer got off to a really great start. And then also National Treasure has been hugely successful.

Moderator

And how are you evaluating the box office performance of these two titles compared to your initial estimate? And with regards to Daemon Slayer, and it is expected that the box office revenue will continue to increase? And do you think that this will be good enough to so that it will cause you to really revise upward your forecast, including merchandising? And then also your investment in Bandai Holdings, and so you have been aggressively investing in IP content creation. And so how are you evaluating the result of the investment so far?

Moderator

And is there any specific investment that caused you to upward revise your forecast? So the first question, I will take that. And then second question will be answered by Hayakawa san. With regards to anime titles, and as you said, the Daemon Slayer and the National Treasure have been quite successful. And we are getting a really positive feedback.

Moderator

And these titles, whether they are in line with our expectation, but Daemon Slayer, because they are previous release, which was launched by many users and that was a really successful IP. So we had a really high expectation for this IP. So that has been factored in our forecast. But as for the National Treasure, and under the umbrella of Aniplex and then Midian Studio was producing this title, and this was the first title and which has met with a really positive response, and this significantly outperformed our expectation. But in terms of the overall impact on our revenue and profit, the impact is not that sizable.

Moderator

And so that has been already included in our forecast or our outlook. So this with regards thank you very much for the question. So the investment in abandon and of course, we have been shifting to the creation. So for example, the Entertainment three businesses basically account for 60% of consolidated revenue. So basically, business portfolio is shifting more to the creation.

Moderator

And then as for the Electronics business, in TV and in compared to output devices, and we are now shifting creation devices that include digital camera. So as a result, we are seeing more stability in profitability and in revenue and also the productivity of our performance is increasing. And then against such backdrop, and for example, in the Music business, the Music streaming and EMI Music Publishing has been acquired, and then we increased the Music Catalog. And as I mentioned in the speech, in gaming business and moving away from a hardware centric business to more to the community based engagement business, and then that has been increasing. So now as we make more transition to entertainment creation, the stability and productivity, our performance is increasing.

Moderator

So this upward revision might not have been a direct result of these, however, the Music Publishing and also acquisition of our music catalog and then also the acquisition of Crunchyroll. And these are the areas where we are seeing growth. And as a portfolio, we have been expanding our businesses and also improving our profitability.

Moderator

Moving on to the next question. Nishida san, a freelance reporter, please. Do you hear me? Yes, we do. This is Nishida.

Moderator

I have two questions about the semiconductor business and electronics business. First, about the semiconductor business. Today it was reported in the news that Apple investing in The U. S. As partner it has so it is possible that they will have production facility in The U.

Moderator

S. So this type of risk might not appear this year, but towards the end of this year to next year, how would you mitigate this risk like risk hedge? Number two, within the electronics, I would like I have a question on smartphones. In the first half, Xperia Mark seven, there has been a risk of recall. And what would be the impact on the sales and impact on the smartphone business itself?

Moderator

Ken, thank you for the question. I have received two questions. And I would like to respond to the smartphone questions on ET and S and I and SS question, Hori san will respond later on. About the Xperia about the defect of Xperia smartphone, so we are very sorry that we caused inconvenience to the users. I would like to apologize.

Moderator

About identifying the defect and the countermeasures have already been completed. The malfunction itself was coming from the production process. The impacted loss and so we have exchanged the parts, which have been impacted. And about the quality, so this is a big management agenda for Sony. So we will work so that this will not happen going forward.

Moderator

The smartphone business itself is an extremely important business for us. The telecom technology is a technology that we have been nurturing for a long time. And also this is used to other areas other than smartphone. So we will continue to grow this business. The first question about the semiconductors.

Moderator

Horizan, please. Thank you for the question. About so I cannot respond to questions pertaining to particular customer. However, about the risks and countermeasures on overall risk, I would like to respond. As you have indicated in The U.

Moderator

S, we do not have any semiconductor production facilities in The U. S. In the short term, it is not really feasible to produce in The U. S. In the short term.

Moderator

However, where the source is and offering very high quality devices to the customers and how to make the final product delivered to the customers as attractive as possible. This is what we have been working on from before. And we will make sure that we will provide devices that even exceed that of competitors. And this type of risks always exists. And as a device manufacturer, the competitiveness and quality of the product.

Moderator

With this, we would like to get involved in this market. Thank you.

Moderator

We'd like to move on to the next question. Tanno san from NHK, please. Can you hear? Taruno from NHK. Can you hear?

Moderator

Yes. Thank you. About The U. S. Tariffs, I want to ask about the impact.

Moderator

In the last announcement, the President said that there is no major change occurring in the short term, but there's time lag about economic sentiment, and so you look carefully. So about your views about the economy, what's the current situation with The U. S. Consumers? And also for this fiscal year, well, you talked about earnings and you said that there are uncertainties and you'll be watching carefully.

Moderator

But in terms of the performance forecast, if you can also talk about that, please. Thank you. I'd like to respond to that question. About The U. S.

Moderator

Economy, it's slightly decelerating, slowing down a bit, but a rapid deterioration we expect can be avoided. However, we need to carefully monitor the situation is what we think. Q2, so April to June U. S. GDP was 3% growth, higher than expectations.

Moderator

Personal consumption starting to show recovery, but compared to last year, the strength is less. And concerning our business, as a portfolio, we have hardware, and we have to carefully watch the situation for hardware. On the other hand, for entertainment business as a whole, they can withstand the impact of the economy. Their business is less impacted by the economic situation. That's the nature of that business.

Moderator

So the impact have those impacts have been already factored into our forecast that we announced today. Thank you.

Moderator

We are running out of time. So the next question will be the last one. Iwato san from Nikkei Business. Go ahead and ask your questions. Can you hear me?

Moderator

Can you hear us? This is Iwata from Nikkei Business. And I do have one question. And during the presentation, you talked about the partnership with Bandai Namco. And then also last year, you forged in partnership with Kadokawa.

Moderator

So and what would be the time line of the seeing the result in terms of the performance? And I know that Kadokawa and Mbando Namco, you already have the partnership before your decision to investment. So what are the changes that we can expect after the investment? Thank you for the questions. You are right.

Moderator

And Bandai Namco and then Sony Group are already collaborating through partnership on the ground and in especially game, music and anime areas. And before our investment, we treat them as a really important partner for collaboration. So with this recently announced investment, and we can go deeper and then wider in terms of collaboration. We are seeing a possibility of that. More specifically, the game and anime IP using as access so that we can really expand the community.

Moderator

And then also the Bandai Namco is really great at creating venues, and we believe that Sony's technology can really shine in the venues by Bandai Namco so that we can really collaborate together to deliver a condo experience. And we believe that, that's something that we can do. And in terms of time line, and this is kind of difficult to say, but I think we and then there are longer term collaboration or there are immediate collaboration, including IP community building. And there are some low hanging fruits that can be achieved within one year. So and looking at the overall collaboration at the group level, we want to produce the appropriate output and then to see if we can we are producing returns, and we will regularly consider and then assess the situation going forward.

Moderator

That's all. So that concludes the Q and A session for the members of the media. So the Q and A session for investors and analysts will start at 04:50 p. M.

Moderator

We will start the Q and A session for investors and analysts shortly. Please wait a few more moments until we resume. Okay. Thank you for waiting. We will now begin the Q and A session with investors and analysts.

Moderator

I'm Kondo from IR Group, and I'll be moderating this session. As with the media session, the four individuals here will be responding to the questions. Now let's begin the Q and A. And Mizuho Securities, Nakane san, please. So this is Nakane from Mizuho.

Moderator

Do you hear me? Yes, we do. Thank you. I have two questions. The first question is about Finance and the second question is on Games.

Moderator

So about the so you are trying to improve the asset over hedge in Finance. So the progress from the first quarter and the business environment is changing. So please tell me if there has been any changes from the first quarter. The second question is on gaming. About Marathon, in the profit, you have factored in some negative in the profit that so how have you incorporated that, the sales and profit as well as the timing of launching Marathon.

Moderator

So please give us hints in. And about Bunge, the so it seems like an autonomous region. So we would like to hear about the governance of Bunge. And so and also you can say if this is not probable, but the worst case scenario, if you are not going to launch it, if there are any risks such as impairment? So I have such two questions here.

Moderator

Thank you for the questions. Endo san will respond to the first question and the second question, I will respond. Okay. I will respond to the first question. About asset sales, improvement of finances in the Investor Day in FY 2025 and FY 2026, we have explained and announced the measures for FY 2025 and 2026.

Moderator

And the partial sale of assets, what was scheduled for this fiscal year has been advanced. So these were sold in advance. And thanks to this, this is done to improve the ESR and selling bonds. And through these activities, Sony Life's ESR improvement, it has improved by three percentage points. This fiscal year, the interest has risen significantly.

Moderator

So there has been lots of downside pressure on ESR. But overcoming that, we have been able to prevent ESR from slumping. Group consolidated was 189%, but that was end of FY twenty twenty four. But now this quarter, we have kept the ESR to 184%. So that is within the ESR target range.

Moderator

So we have been so this is thanks to advancing our initiatives to improve our finances. So these advanced initiatives were carried out. And about selling U. S. Bonds, as I said in the Investor Day, the losses the liabilities, so we are trying to sell the bonds as reinsurance.

Moderator

So these are still remaining and we will be working on that going forward. And beyond that in FY 2025, 2026 and beyond, we don't have any plans as of now. Second question, I would like to respond to the question on Marathon. First about Marathon, how we factored in the forecast. We expect the launch to happen within this fiscal year.

Moderator

But having said that, this is not a commitment. We cannot and no official announcement has been given yet. So we are expecting this to be launched within this fiscal year. However, compared the sales is very small compared to the overall sales and the timing of launch. So we are now doing modification development and based on the progress in the autumn timeframe, we believe we can communicate when we will be launching that.

Moderator

We can launch that either from Bunge or PlayStation. And about governance of Bungie, as you have said, when we the governance at the time of acquisition, we were offering a very independent environment. So that was one way of thinking. However, thereafter, we have gone through structural reform as we have announced last year. So this type of from this type of independence, this independence is getting lighter.

Moderator

So Bungee is shifting into a role, which is part which is becoming more part of PlayStation Studio and integration is also proceeding. So in the long term, if you can see this as an ongoing process, so the direction is to become part of PlayStation Studio. And about the launch of Marathon, we are now fixing the problems. So we believe this launch will happen. And if this launch is canceled, the we need so we need to do the revision of the valuation.

Moderator

However, as of now, this is not expected. Thank you.

Moderator

From Goldman Sachs, Munakata san, please. Munakata from Goldman Sachs. Can you hear me? Yes, we hear you. Thank you.

Moderator

I also have two questions about the games. First, improvement of margins. Y o Y seems that margin has improved quite substantially, but what will be the mix between hardware and software? And what is the gross margin of hardware and what is inside software? I think there's also contribution from network services.

Moderator

So can you talk about this in more detail? Also second quarter onwards, tariff impact will be larger than Q1 is what's expected. So this high margin, is that something that you'll be able to sustain? That's the first question. Second question, so about Marathon, I also want to ask.

Moderator

So it's a title that's attracting a lot of attention, strengthening live service games. So how do you look at the current status of your strategy to strengthen that? So you look at the quality before launch and you make a decision and you're postponing. So I think you're making a flexible decision. I think that's a good thing.

Moderator

But on the other hand, it's a negative thing that the title doesn't appear. So how do you look at the current situation? And in terms of strengthening live service games, where do you see the issues, please? Thank you for the questions. So I'd like to respond to those questions.

Moderator

First, about the game margins. For Q1, mainly what drove the margins was third party software and network service and also decline in acquisition costs and decline in SG and A cost. So the margin as a whole going forward, the factors that will drive the margins, there are two major parts. One is network service and the other is first party studio contents. Structurally, those would those should lead to improvement of margin.

Moderator

For Network Service, the number of subscribers increasing and ARPU rising and shift to higher tier and the optimization of content acquisition costs. These are things we're working on diligently. So structurally, they should contribute to the margin. The other thing is about the first party contents. And as you point out, not everything is going well.

Moderator

But this fiscal year, well, compared to fiscal twenty twenty four, first party is seeing higher revenue and profit and that will contribute to higher margins. Our first party portfolio, if that should stabilize, then we think that margin increase will be sustainable. Second question about Marathon and also live service game, the overall status. Last year, Concorde and this year, Marathon was postponed. So somewhat negative news has been coming out.

Moderator

But if you look at the past five years, five years ago, live service games was almost nonexistent for the PlayStation Studios. We have held Diver two MLD and GT7 and Bungie's Destiny two. So we have these four live services contributing to sales and profit in a stable manner. For Q1, live service ratio was about 40%. For the full year, it's a little less, probably between 20% to 30%.

Moderator

So in terms of the transformation, it's not entirely going smoothly. But from a longer term perspective, if you look at the changes over five years, you see that there has definitely been a change. Of course, we recognize that there are still issues, many issues. So we should learn the lessons from mistakes and make sure that we introduce live service content where there is less waste and it's more smooth. So that's all for myself.

Moderator

SMBC Nikko Securities, Katsura san, you are up next. Thank you very much for the opportunity. This is Katsura from SMBC Nikko Securities. I do have two questions and tariff related and also your revision to the forecast for this fiscal year. With regards to the first question about the tariff, this is just confirmation.

Moderator

In 1Q I mean, the quarter one, basically, $110,000,000,000. And then so this has been already factored in by each segment. And so basically, in all segments, I think the negative impact has been reduced. And so I just want to confirm that. And then also the second question is about the full year forecast.

Moderator

And the gaming is improving 20,000,000 yen and then also tariff impact has been reduced by 30,000,000,000 yen And I think those are the main changes that you have made. But for game area, and there is an upward performance in Q1, But compared to that, I think the revision is smaller than the outperformance, but maybe that is not limited to Q1 or the full year. But and also for Music Area, FGO and then also Damien Sayer and there are positive profit drivers, but it seems that you seems to be more conservative and cautious in terms of the full year forecast. And then while so can you talk to me about your thinking about the revision from the macro perspective? So the first question, Hori san will take that on.

Moderator

And then second question will be answered by me. Thank you very much for your question. So with regards to the tariff, and then your understanding is correct, and in Q1, and basically, the impact was already included in the actual performance on the P and L of each business for the full year, and JPY 70,000,000,000 is basically is viewed at the company level. And as we continue to see a progress in the actual performance, and I think it would be more difficult to really for the head office to really observe that impact. But for the Q1 announcement, and yes, you are right about that and in terms of thinking, and that's all I wanted to say.

Moderator

The second question for the full year forecast and then thinking behind that. And for Game in Q1, and we see a really outperformance in profit. And for the full year, and basically, we made upward revision by JPY 20,000,000,000. And thinking about the positive drivers, Network Service and then also the positive impact of the ForEx. And also, as was mentioned, the first party game because of the delay of the launch of a marathon, which had a negative impact on the profit and then that is also partially offset, so that's why we made an upward revision by 20,000,000,000 yen in profit.

Moderator

And then for Music, and there are a number of hits, fortunately, but again, the impact on the overall business has been rather limited and the blockbuster like Daemon Slayer, basically expect that there will be a huge shift from the beginning of the year. So that's why that is not a factor for the revision this time. And also, in Sony Group overall, from Q2 onward, The U. S. Tariff impact will be felt more pronouncedly and then also there will be more uncertainties.

Moderator

So in Q1, and we had a really good performance, but from Q2 onward, we need to we are more conservative and we need to be we need to take more cautious approach.

Moderator

We have a little time remaining. So we would like to accept one question each from two people. Okazaki san from Nomura Securities. Please go ahead. So this is Okazaki from Nomura.

Moderator

I have a question on game. To the revision of production basis to respond to U. S. Tariffs, you said you have completed this within this quarter. So where are the games sold in U.

Moderator

S. Produced now? And also the cost, I think, will influence the sales. So I would like to hear about the pricing strategy of game consoles. Okay.

Moderator

I would like to respond. So about gaming consoles, so we are diversifying our supply chain. As for consoles, we have already transformed the production. And if we include peripherals, so the transfer to outside China, we will be completing that by the end of the first half. Hardware sold in The U.

Moderator

S. Are now sourced outside China. About the pricing strategy of hardware, so that is really pertains to our future competitive strategy. So it's very difficult to comment on this. But the overall thinking is the our annual profit and lifetime value and also the sell in volume and the expected content sales going forward.

Moderator

So all these factors will be considered as well as the receptiveness of the consumers to prices. So we would like to flexibly decide on the prices.

Moderator

Final question from JPMorgan Securities. Kaede san, please. Ayada san, do you hear? Ayada from JPMorgan. Can you hear?

Moderator

Yes. Thank you. You say one question, so maybe it's a difficult question for you to respond to. And it overlaps with the previous question, but I want to come back to this. For I and SS, for North America, there's this biggest customer.

Moderator

And as a part of its effort to increase procurement from The U. S, they've officially made a comment that they're going to procure chips from a Korean supplier. In that context, as a general matter, in enhancing product competitiveness, you're going to try to maintain your positioning. But that context itself may not be valid. Just by your competitiveness, you may not be able to absorb those changes.

Moderator

So what I want to ask about is inclusive of those things, this kind of situation, has it been considered as a risk? And have you been making preparations or simulations that this could happen as a risk? In terms of timing, it may be somewhat into the future. Maybe you have some preparation period of several years. And during that time, you will be able to come up with countermeasures.

Moderator

So I think this will relate to capital expenditure plans. So please respond to the extent possible. Thank you for the question. So Hori will respond. Thank you for the question.

Moderator

Yes, this situation, had we foreseen this and taken measures? Well, partly, we had considered this and assumed this, but it's not that we have answers to all parts of this. Now it's just this morning that this was reported, so we have to check about the accuracy of the reporting and we'll be debating internally based on that. This is an issue of that kind of nature. So as of now, I'd like to limit my comment to that extent.

Moderator

So with that, we'd like to conclude Sony Group earnings announcement meeting. Thank you so much for joining us today.

Executives
    • Lin Tao
      Lin Tao
      Corporate Executive Officer & CFO
Analysts
    • Moderator
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