Ladies and gentlemen, it's time to begin our earnings announcement session for the first quarter of fiscal 2019. I'd like to introduce our speakers. Senior Executive Vice President, Chief Financial Officer, Hiroki Totoki; Senior Vice President and Senior General Manager of Finance Department of Corporate Planning, Naomi Matsuoka; and VP, Senior General Manager, Global Accounting Division, Hirotoshi Korenaga. Today, Mr. Totoki will make the presentation, that will be followed by question and answers. Altogether, we plan to spend 45 minutes. Mr. Totoki, please.
Today, I would like to explain two topics in the next 15 minutes. Fiscal 2019 Q1 consolidated sales decreased 1% year-on-year to JPY 1,925.7 billion, operating income increased JPY 35.9 billion year-on-year to JPY 230.9 billion. Operating income reached a record high for the first quarter. Net income attributable to Sony Corporation stockholders decreased JPY 74.3 billion year-on-year to JPY 152.1 billion. As is shown on this slide, certain extraordinary items were recorded in both the current quarter and the same quarter of the previous fiscal year. Excluding these extraordinary items and the estimated impact on these items on the tax expenses, net income would have increased JPY 5.6 billion from the JPY 140.8 billion of the previous year to JPY 146.4 billion. Please refer to page six of our earnings presentation for the calculation of the impact on tax expenses.
This slide shows the results by segment. From this quarter, we have changed the name of the semiconductor segment to Imaging and Sensing Solutions. I will explain the background and reasoning behind this change when I explain the results of this segment. This change has not resulted in any reclassification of businesses across segments. Next is the consolidated results forecast for fiscal 2019. Consolidated sales are expected to decrease JPY 200 billion compared with the previous forecast to JPY 8,600 billion as a result of the reduction in the forecast for G&NS and EP&S segments. There is no change to the forecast for operating income before income taxes, and net income attributable to shareholders. There is also no change to our forecast for operating cash flow, excluding the financial services segment.
We have changed the assumed Forex assumption from the second quarter, JPY 108 to the U.S. dollars and JPY 123 to a euro. We plan to issue an interim dividend of JPY 20 per share this fiscal year, compared to JPY 15 per share for the interim dividend previous year. Dividend amount for the full year is currently undecided, there is no change to our policy of continuing to increase our dividend in a stable manner over the long term. This shows a segment forecast. We are monitoring developments and are paying close attention to the geopolitical risks such as trade issues, and we are looking into various mitigation measures in far advance timing, not to be delayed. We have incorporated into our forecast the impact of additional tariffs and export restrictions that have already been implemented or the implementation be decided.
We have not incorporated the impact of the items which have yet to be implemented, such as List 4 of Section 301 of the U.S. Trade Act of 1974. Going forward, we will aim to reduce the impact on our business by quickly taking any action as necessary. Let me talk about business segment. Game and Network Services. Although PlayStation 4 hardware sales and network service sales, including sales of PlayStation Plus, increased year-on-year, overall segment sales decreased 3% to JPY 457.5 billion due to decrease in game software sales. Operating income decreased JPY 9.6 billion year-on-year to JPY 73.8 billion. This decrease was primarily due to the decrease in the contribution from the first-party game software compared with the same quarter the previous year, in which "God of War" was a major hit.
We have revised downward our forecast for fiscal 2019 sales by JPY 100 billion to JPY 2,200 billion. We have not changed the operating income forecast, and that is JPY 280 billion. PS4 hardware unit sales in the first quarter were slightly below our expectation because of the news regarding our next-generation consoles. We have reduced the annual sales forecast by 1 million units to 15 million units. 3.2 million units were sold during the current quarter, essentially unchanged year-on-year, and we have reached the 100 million cumulative units on a shipment basis. The fact that we plan to sell 50 million units in this fiscal year, the seventh year since launch, demonstrates that PS4 platform is still garnering support from many users.
We have revised downward our forecast for game software sales to be flat year-on-year, due to a decrease in the third-party game software, especially free-to-play games. We expect network services sales to be above the previous fiscal year. The goals for this segment this fiscal year are preparing for the launch of the next generation platform, as well as maintaining and expanding the community we have built among users. As of the first quarter, we are on track to achieve these goals.
Explaining about the music segment. The first quarter sales increased 11% year-on-year to JPY 202.3 billion. This significant increase was mainly due to higher sales for music publishing, resulting from the consolidation of EMI Music Publishing, as well as higher streaming revenues. Partially offset, though, by lower visual media and platform sales, mainly caused by lower sales of Fate/Grand Order, a game application for mobile devices. Streaming revenues in the recorded music business grew 27% from last year, mainly due to expansion of the market and contribution from releases such as Lil Nas X's "Old Town Road," which is expected to be one of the biggest hit songs of the year. Operating income increased JPY 6.2 billion year-on-year to JPY 38.3 billion. We have made no changes to our April forecast for sales and operating income full year. About pictures segment.
The first quarter sales increased 6% from last year to JPY 186.1 billion. An operating profit of JPY 0.4 billion was recorded, compared to a loss of JPY 7.6 billion in the same quarter of the previous year. Primarily due to the timing of motion picture releases, this segment has recorded a loss in the first quarter repeatedly in the past, but this quarter it recorded profit for the first time in five years. Although marketing expenses were incurred for Spider-Man: Far From Home, which was released at the end of June, our profitability continues to improve due to our channel portfolio review in media networks and other efforts. We have made no change to our April forecast for sales and operating income.
Spider-Man: Far From Home has exceeded $1 billion of revenue at the global box office, surpassing Jumanji: Welcome to the Jungle to become Sony Pictures Entertainment's highest grossing wholly-owned film of all time. Due to the timing of its release, the film will not contribute significantly to our financial results until the second quarter and beyond. Next is EP&S segment. From this quarter, this segment includes what were the home entertainment and sound, imaging products and solutions, and mobile communication segments. We continue to disclose the same product category sales that we disclosed in the past in our supplemental information. Primarily due to a decrease in unit sales of TVs and smartphones, sales decreased 15% to JPY 483.9 billion compared to the previous year.
Operating income decreased JPY 7.6 billion year on year to JPY 25.1 billion due to the decrease in sales and the negative impact of foreign exchange rates, partially offset by a reduction in the operating expenses in mobile communications. Due to a reduction in the unit sales forecast for TVs and smartphones, our sales forecast has been changed to JPY 2 trillion, 160 billion. We have made no changes to our April forecast for operating income, despite the decrease in sales due to a reduction in operating expenses. Next, I will touch on the TV business. Primarily due to the intensified price competition and lower demand, compared to the prior year, when we benefited from the World Cup, mainly in Europe and Latin America, TVs unit sales in the current quarter decreased about 23% year on year.
Thanks to actions we have taken, such as launch of new products and price reductions, sales have recovered since June, but we continue to pay close attention to changes in the market for panels and the trends of competitor pricing. Here, I'm showing the new key products we have announced or put on sale recently. All of them have received positive feedback from a lot of our customers. Next is the Imaging and Sensing Solutions segment. The first quarter sales increased 14% year on year to JPY 230.7 billion. Operating income increased JPY 20.4 billion to JPY 49.5 billion, mainly due to a significant increase in image sensor sales for mobile devices.
Demand for our image sensors continues to be strong, our market share of image sensors for mid-range and high-end models of major smartphone makers remain high due to adoption of multiple sensors per camera and growing demand for high value-added sensors made using large die sizes. We are currently utilizing 100% of our internal capacity. However, concerns about the impact of trade issues in the second half of the fiscal year remain. We have already been conservative when forecasting the impact of these issues, but because we want to evaluate the risk over the course of the first half of the fiscal year, we have as yet made no changes to our April forecast.
Now I would like to explain the background and reasoning behind the change in name of the segment. The portion of semiconductor segment revenue that comes from image sensors has been increasing every year and is expected to be approximately 85% of the segment this fiscal year, and is expected to increase even more going forward. Image sensors are hybrids between analog and digital semiconductors, and in terms of technology and business model, differ from logic LSI and memory, which most people think of when they hear the word semiconductors. Compared with logic LSI and memory, which require frequent capacity upgrades to maintain competitiveness due to quickly evolving process miniaturization, image sensors do not require regular large capital investments because products can be differentiated through improvements in functionality and the addition of new features without having to upgrade production capacity.
Moreover, since the image sensors business is focused on custom products that are differentiated through features and functionality, and because we have expanded our customer base the last several years and obtained large share of market, we have established a business model that experiences less impact from fluctuations in the market known as a silicon cycle. Over the last 10 years, we have achieved an extremely high level of compound annual sales growth at 17%, primarily from smartphone applications, we have made significant investments to increase capacity as a result. However, we expect the investment requirements of this business to decrease significantly as the acute increase in demand transitions to a milder growth trajectory. The strategy for future growth in the I&SS segment is to develop AI sensors, which make our sensors more intelligent by combining artificial intelligence with the sensors themselves.
Developments of these sensors will require us to leverage not only the strength of the hardware technology in the I&SS segment, such as stacking of sensors on logic and copper-to-copper connections, but also the AI technology and diverse application technology in other parts of Sony. Our efforts in this area would span the entire Sony Group. We think that AI and sensing will be used across a wide range of applications, such as autonomous driving, IoT, games, and immersive entertainment. As such, we think there is a possibility that image sensors will evolve from the hardware they are today to solutions and platforms as visual data and sensing information is processed in a sophisticated manner inside sensors. The image sensor business is important because it is one of the pillars of the growth strategy of Sony Group.
We changed the name of the segment to assist your understanding of the characteristics and future strategy of this business, which I just explained. Next, I would like to explain about the financial services segment. In the first quarter, financial service revenue was essentially flat year-over-year, at JPY 336.9 billion, and operating income increased JPY 5.5 billion year-over-year to JPY 46.1 billion. We have made no changes to our April forecast for our financial services revenue and operating income. Next, I will discuss the new structure of the board of directors at Sony Financial Holdings, SFH. The new board of directors, which was formed at the ordinary general meeting of shareholders this past June, is primarily comprised of external directors and members of management from Sony Corporation. Sony believes that this new structure will strengthen the governance of SFH and promote even greater focus on increasing shareholder value.
The presidents of Sony Life, Sony Assurance, and Sony Bank, who each concurrently served on the board of directors of SFH in the past, would dedicate themselves to managing each of their business going forward and will concentrate on growing their businesses and strengthening their competitiveness. Sony will deepen its collaboration with the management team of SFH and proactively work to increase the value of our financial services business even more so than in the past. In conclusion, I would like to explain the efforts we're making to increase corporate value. In our first mid-range plan, which began in the fiscal year ended March 31, 2013, we structured our businesses and strengthened our profitability and cash generation. This resulted in cash in each of our business attaining high level of competitiveness and a steady level of profit and cash flow.
As President Yoshida explained at the corporate strategy meeting in May, Sony now needs to take steps to grow its various businesses while creating synergy across our businesses. Sony will aim to do this by leveraging the diversity in each of our business in the entertainment, electronics, and DTC services, which includes financial services arenas. Technology is what supports the growth of these businesses and creates synergy across businesses. This is what makes Sony unique and strong. We aim to increase our corporate value in a sustained manner over the long term by further growing Sony as a creative entertainment company with a solid foundation in technology. Lastly, I would again show the results forecast for each of our segments. This concludes my remarks.
Now, the floor is open to your questions. When you have questions, please wait for the microphone and identify yourself by stating your name and affiliation. When questions are asked in English, there will be a consecutive interpretation into Japanese and answers will be given in Japanese. Please confine the number of questions to two per person. Thank you. Ono of Morgan Stanley. Two questions. The first point, concerning Imaging and Sensing Solutions, semiconductor. You have recorded high growth this time, especially in image sensors. The sales increased by more than 20%. My question is that, in terms of volume and price, how is the actual picture, and what's the background to this? The second point, on a year-over-year basis, the game, compared to the strong first-party sales, the decline in sales, but you have achieved good results, so to say.
You have been talking about the increase in the development cost for the next-generation console in slightly excess of JPY 30 billion. How is it incorporated in the first quarter results? When you compare the first half and second half, what would be the impact? First, on I&SS, on a year-on-year basis for the first quarter, the results were very good. When analyzed in terms of unit price and volume, for unit price, improvement of the product mix. All in all, we have maintained a good unit price. Especially 0.8 micron and 48 mega, the demand is good and improving. About the volume, especially the volume to the Chinese customers increased. The background is that in the market, the multi-sensor per camera is increasing. The customers' smartphone production shift to a flagship model with multiple number of cameras.
Partly, as a countermeasure against the U.S. export restriction, there may be advanced procurement. Next, on game. On year-on-year basis, on our part, we take a rather positive look. That is, decline in the sales of software. In the course of first quarter last year, there was a major hit of God of War and Detroit: Become Human, the first party. This time, a title is weaker. We thought there may be a decrease, so it is as expected. About the impact of development expense, we do not talk about first half and second half, but the things are going as we expected for the time being. Concerning hardware, for a full year, we said 16 million and revised downward to 15 million, but the first quarter, 3.2 million units, the same as the first quarter of the previous fiscal year.
We watch the trend of competitors in the industry, and we thought there may be some downward trend, but the situation was maintained. We have provided some information about next-generation console. We do not force the sales expansion of the current console, but achieve a profit and make a smooth shift. We will maintain the profitability forecast.
Thank you. Other questions, please? Thank you. Ezawa, Citigroup Global Markets. Two questions, please. Firstly, the other segment's profitability, JPY 400 million. It is not a significant negative. In other words, it is improving over last year. Why? For the full year, negative JPY 6 billion, you have not changed that. Why is that? Will there be any specific reason in the second quarter for this large negative figure? Second question, the request from investors concerning changing in the business structure. In other words, suggesting spinning off all the semiconductors or divesting all the financial services. I think you have received such proposals from investors. Today is remarks by Mr. Totoki. I would say that what you said today included answers to those questions, can you formally and clearly make some remarks in response to those requests by investors?
First of all, the others segment. Because of the license agreement, patent royalty revenues were there. Because we have parties to speak of, I'd like to refrain from disclosing details, but please understand that there was a royalty payment. Offsetting that, your question was whether there'd be a negative factor in the second half, nothing planned, but we are still in the first quarter. All in all, instead of repeating minor changes, we decided to maintain the current full-year forecast without any changes. The second question concerning business portfolio, let me state my conclusions first. Whether my speech today included answers to those proposals, not especially. Our view and policy on our business was, shall I say, restated today with my remarks. It's true that there's been proposals from investors. Whatever proposals we receive, we examine them very carefully and in-depth sincerely.
That's the position, basically, of the management team as well as the board of the company, and it's true that we have received concrete proposals, so we are conducting in-depth examinations and thinking about those proposals currently. Beyond that, please allow me to refrain from making other comments.
Okazaki from Nomura. My question about the fixed cost for semiconductors. You said that the revenue would increase, but so would the fixed cost, therefore the profit would not increase. The first quarter saw the increase of operating profit. Has there been any different pattern in terms of the fixed cost? Another is the EP&S. Mobile communications improved, but TV apparently has deteriorated. You have mentioned this slightly, but can you talk about the background excluding mobile communication?
Thank you. As far as the sensor is concerned, I think your question is about fixed cost, how we recognize fixed cost. There has been an increase operating profit of JPY 20 billion, a major increase. This is due primarily to the increase of volume. There has been fluctuations, changes in the inventory. Therefore, there has been the operating cost fluctuations, depreciation, an increase of R&D cost have been recognized. This is as planned. Beyond that, I think we have enjoyed the increase of revenue. EP&S. As for the mobile communication, the first quarter, yes, the bottom line has improved. If you do the reverse calculation, you will note that TV was the poor performer. If you look at the overall direction, TV, first quarter, both the top line and bottom line declined. This is because the volume has declined. It was 2.6 million during the previous year.
the first quarter, there was a 23% reduction to JPY 1 million. There was also a Forex negative impact. Audio visuals, there has been some decline in the sales revenue, but operating profit remained flat versus the last year. The sales mix has changed slightly. Headphones did quite well. Digital imaging, both the revenue and operating profit declined, not in any significant way. Digital cameras, consumer camcorders, saw some declines. Operating profit, the product mix has improved, but it was affected by the foreign exchange market and the decline in volume. As far as additional imaging is concerned, we believe that we'll be able to launch some very attractive, strong products, and we have hopes and expectations on those products. Professional solutions, it has been affected by the deterioration of the market environment in China. That's how we see the overall situation. Next question, please.
Thank you. Katada of Nikko. Semiconductor segment and also cash flow. In the first quarter, the full capacity operation, what is the state of operation in the second quarter and your plan? That's the first point. The second point, in connection with that, the operating cash flow. Excuse me, the CapEx. Concerning CapEx, you mentioned that there will be increased investment, which is included in MRP. The report goes that you have already looked into the land or real estate. What is the update of the progress of mid-term investment, including cash flow side? Thank you. About the image sensors capacity and input, Mr. Korenaga. The capacity installed and the input, the first quarter, 100K production capacity. Actual input operation was 100K, full operation. In the second quarter, about the capacity, 105K. That's our forecast in accordance with our original plan.
The actual production in 105K, so full capacity operation. Next, about the CapEx, including the new building, and any changes or update. From FY 2018 to FY 2020, the cumulative investment in existing buildings is JPY 600 billion and no change. For new building, decision has not been taken yet. In the course of this year, looking at the demand for FY 2021 onwards, we'd like to take the decision. In terms of the capacity, the end of FY 2020 on outward basis, we like to increase to about 130K, and this plan remains unchanged. About the cash flow, the operating cash flow forecast for the current fiscal year is JPY 760 billion. This forecast remains unchanged, so there's no plan of changing the cash flow picture. Thank you.
Next question, please. Nishimura at Credit Suisse Securities. Thank you. Firstly, about game business. In your presentation earlier, you talked about weakness of the third-party software, particularly free-to-play titles. Can you give us more details? What is the current situation, so how are we going to address these risks toward the second half of the year? My second question is about Sony Financials, financial services. Thank you for your explanation earlier. You will be more deeply involved in the management of the financial services operations, more so than before. A while ago, I think you said that you wanted to pursue synergy with the Sony Corporation.
However, the results have not been visible so far, what is the current situation and current view by more deeply being engaged in the management of the operations, how are you going to contribute to the growth of the business segment? Your first point. You’re right, as you say, as far as the first quarter is concerned, the first-party full games, the results were basically as we’d expected, and we have not changed our assumptions going forward. For add-on and free-to-play titles, there was a significant gap compared to our expectations, particularly free-to-play titles, the revenues are significantly lower. Therefore, we’ve revised downward our forecast. Also another point is about PS Plus. I think you’re highly interested in PS Plus sales. Compared to March end, the number of subscribers is down a bit, but basically, it’s been expected.
For the full year, we expect this segment to grow moderately. Giving all these factors all together, we’ve come up with the current forecast. Risks toward the second half, no outstanding risks observable and incorporated in our forecast, not yet. To observe geopolitical risk as well as the actual sales situation, we’ll do so very carefully. About Sony Financial Holdings, SFH. Yes, it’s foreign for us to pursue synergy with the Sony Corporation, the companies under SFH holding structure, by us getting more deeply involved in the operations of these companies, we should be able to contribute to the improvement, the value of these three companies. That’s our thinking now, as to the concrete details of our engagement, I’d like to refrain from commenting on that. Through participation in the board structure, we’d like to be more engaged in the operations.
Nakane from Mizuho Securities. Thank you for the opportunity. I have two questions. What has been the impact of earthquakes on semiconductor, the earthquake in June, the sales, the inventory, and operating margins? Also, you have the geographic breakdown of the sales on supplement page four. I’m looking at this. If you break it into hardware and non-hardware, United States, Europe, and Asia, has there been any changes since February and March? Have you learned or have you come to be aware of something different as compared to February and March? Is there anything that we should be aware of?
Are you talking about the demand trend by regions?
You talked about hardware, software, services. You're one of the rare companies that cover both aspects. You're talking about the overall Sony.
Yes.
Can you separate the hardware and non-hardware?
Yes.
Thank you.
Let me start with whether there has been any impact of the earthquake.
I think you're referring to the Yamagata earthquake.
Human physical, there has not been any significant adverse impact. Yamagata stopped the operation for security and safety, but it has been resumed, and there has been the product in process, but the impact has been minimal, even if we had stopped the operation for a short period of time. About geographical breakdown, let me go one by one. It is the United States that has increased year-on-year. Music and Pictures increased their revenue. China Semiconductor has registered increase of sales. To the contrary, Asia Pacific, Europe, and others, Electronic Products and Services have seen the decline. Emerging Market, other than China, Asia Pacific, and other areas, reduction surpassed that of the increase of China. In net basis, it was a negative. The Emerging Market sales the first quarter was JPY 500.2 billion, which is a minus of 28.29%, mainly due to the Forex.
Next question, please.
Thank you for your presentation. Sugiyama of Goldman Sachs. Two questions. What is the details of the change of forecast in Game business? The sales was revised downward by JPY 100 billion. That is affected by the hardware sales. What about the exchange rate change and reduction in sales apart, the profit remains unchanged. Are there any change in profitability or the expense and cost? Second point on Picture business. The marketing expense of Spider-Man, including that, the positive turnaround was made, and also the film cost increase. The motion picture production cost has increased according to supplemental information. Is it based on the success of Spider-Man, or has it been planned previously? Especially in Picture business, are there any changes or is there any upside potential for the profit?
First, concerning game, Forex impact is there and the sales unit declined and free-to-play declined and that should hit the profit. That may be the perfect question. To those changes, the management sensitivity is to cover that by better operation, and there is flexibility of organization to cope with that. More specifically, when we think of the weaker demand for hardware, they change the promotion, and also to reduce the OpEx to achieve the profit. For the profit forecast, including a partial reduction of expense, we've come up with what we have shown to you. About the pictures segment, upside potential, whether that is there. In terms of risks and opportunities, we think opportunities are larger, but we have only passed the first quarter, and we have a release of major titles going forward, and it's just the first quarter is ended.
Rather than changing the sales forecast, we think we should maintain that now. And whether there has been any change in sales and profit. As you know, last year in the media network, there was a substantial restructuring, spending JPY 11 billion. This time, we are feeling the results of it in terms of the performance. The performance in India was better than we expected. In addition to that, the entity like Funimation, which is the distribution of animation, we see the increase in subscribers, and we enjoy the growth. All these combined, reflecting on the results, we forecasted.
Okay. We're losing short of time, the next one will have to be the last question. Hirakawa, Merrill Lynch. Two questions, please. Firstly, image sensors. About image sensors, earlier you talked about smartphone makers of China. The environment is fluid. Compared to the beginning of the year and currently, image sensors demand for smartphones, have you changed your views? Also, have there been factors to change your views going forward? Secondly, macroscopic sort of question. Mr. Totoki, you talked about List 4. If the tariff is actually introduced, what would be the impact on your results? Your thought on that currently. I'd like to invite your view on that. First of all, about sensor business. Compared to original top-year expectations, how do we stand currently?
Well, at the beginning of the year, the smartphone market in China will become more larger in size and also will use multiple lenses. That was the expectation. At that time, looking at the demand for FY 2019, we were very conservative. The actual demand for the first quarter is very strong, and we believe this strength will continue in the second quarter. Also repeating my point, there'll be some advances carry forward of the business. That's why we've kept our full year forecast intact without any change. Also, use of multiple lenses in each camera and also larger die size, the demand for that is faster and much larger, much more significant than we'd expected. The demand is very strong, and that situation remains unchanged. The trade friction between the U.S., China, possible introduction of List 4 tariffs.
Ms. Matsuoka will answer that question. Supposing hypothetically the level 4 tariffs are actually decided, this is based on the assumption that it will take place. It will be up to the timing of that, as well as the specific conditions attached. Supposing, we are not currently assuming that, if this is actually invoked, what will be the impact? What we are foreseeing is that, in Game & Network Services, hardware business will be affected. Also, in EP&S, the camera business or audio/video devices and projectors will probably suffer. High tariffs on these products will actually impact distribution and employment, and consumers in the U.S. It will be a negative for the U.S. economy as such. Our subsidiary are working with the industry associations and the government associations, approaching the government. We have sent opinion letters to the government.
As of now, we are, of course, contemplating various actions based on the potential List 4 for level 4 and for all the products affected. For instance, the changing of the production sites or passing through of the prices to the market or changing the continued sales structure. We are considering various ahead-of-the-curve actions if this happens. Once that decision is made to introduce level 4, all the contemplated actions will be put to force to mitigate the negative impact. If it happens, the impact on operating profit, we should be able to contain that to two-digit oku JPY. With that, we should like to conclude our session for today, and thank you very much for your participation.