Sony Annual Report

Contents 02 -19 Letter to Shareholders: A Message from Howard Stringer, CEO Dear Shareholders Operating Results in Fiscal Year 2010 Focus Areas for Growth Networked Products and Services 3D World Competitive Advantages through Differentiated Technologies Emerging Markets 06 Networked Products and Services 10 3D World Expanding 3D World 12 Competitive Advantages through Differentiated Technologies 15 Emerging Markets 20 Special Feature: 26 Special Feature: TM Sony’s “Exmor R ” Sony in India 34 Financial Highlights Products, Services and Content 40 50 64 Board of Directors and Corporate Executive Officers 51 65 Financial Section

Stock Information Investor Information ©2011 Columbia Pictures Industries, Inc. , All Rights Reserved. For more information on Sony’s financial performance, corporate governance, CSR and Financial Services business, please refer to the following websites. 2011 Annual Report on Form 20-F Corporate Governance Structure CSR Report Financial Services Business http://www. sony. net/SonyInfo/IR/library/sec. html http://www. sony. net/SonyInfo/csr/governance/index. html http://www. sony. net/SonyInfo/Environment/index. html http://www. sonyfh. co. jp/index_en. html (Sony Financial Holdings Inc. ) Artist: Adele Photo credit: Mari Sarai 1 Letter to Shareholders: A Message from Howard Stringer, CEO 02 Dear Shareholders, A review of the fiscal year ended March 31, 2011 (fiscal year 2010) must first mention the Great East Japan Earthquake, which occurred near the end of the fiscal year. ?On March 11, at 2:46 p. m. local time, East Japan was struck by a 9. 0-magnitude earthquake, immediately followed by a giant tsunami, which had, in addition to the tragic loss of life and property, a profound psychological and financial impact on the people of Japan. No one who works for Sony suffered major injuries or lost their lives in this disaster.

However, some of our colleagues, their family members and friends sadly did suffer grievous losses. I am sure that there are shareholders who were directly affected by the quake, and I would like to begin by expressing my profound condolences to all who were affected by this disaster. You are in my prayers. ?While the scars of the disaster were still fresh, I visited Sony’s Sendai Technology Center, the first floor of which had been heavily damaged when the tsunami swept through. In the tense hours after the quake, our resourceful Sony colleagues ensured the safety of the many people who had fled and taken refuge in the facility.

They made boats out of containers found in their building to rescue local residents carried aloft by the tsunami. They also ferried food and other supplies to employees and neighbors in evacuation spots. ?These were just a few of the many, many acts of bravery, generosity and ingenuity that so deeply impressed me. These acts, along with the patience and perseverance shown by those affected, have come to characterize the spirit of fukutsu no seishin (“never give up”) that has helped to guide Japan through this challenge.

I am extremely proud of the courageous way Sony employees in Japan have coped with the tremendous difficulties they have faced. ?Sony Group companies and employees both in Japan and overseas generously responded to those in need. More than 70,000 Sony employees from around the world contributed hundreds of millions of yen from their own pockets, which we doubled through our matching program. Millions of dollars were generated through a charity album, Songs for Japan, produced by Sony Music Entertainment with other music majors.

Between these and many other charitable activities, including corporate donations of cash and countless Sony products as well as sending volunteer employees to the affected regions, the Sony Group has contributed to the rebuilding of East Japan, and these activities will continue. ?I have no doubt that Japan will be an even more vibrant country after the rebuilding of East Japan, and the same is true for Sony. Today, we are inspired to move forward with an even-stronger sense of unity and purpose. 03 ?On April 23, 2011, we at Sony were saddened by another loss.

Norio Ohga, Senior Advisor and former President and Chairman of Sony Corporation, passed away. ?A peerless leader, Mr. Ohga pushed forward with and succeeded in achieving the integration of art and technology, and of hardware and entertainment—the vision of Sony founders Masaru Ibuka and Akio Morita. It is no exaggeration to attribute Sony’s evolution beyond audio and video products into music, movies and games, as well as its subsequent transformation into a global entertainment leader, to Mr. Ohga’s foresight and leadership. Another of Mr.

Ohga’s achievements was Sony’s commercialization of the world’s first CD player in 1982, after he led the development of the optical disc format we know today as the CD. A trained vocalist before joining Sony, Mr. Ohga also remained committed to music, serving as Director of Sony Music Foundation, and was tireless in his efforts to promote greater familiarity with music worldwide. ?We will continue to value the spirit of innovation—Sony’s DNA—that we have inherited from our founders, as well as from Mr. Ohga, as we press ahead with our efforts to achieve growth over the medium term and beyond. Operating Results in Fiscal Year 2010

Fiscal year 2010 was a watershed year, during which we realized substantial benefits from the decisive transformation process initiated in fiscal year 2008, undertaken with the aim of improving our operations and creating a foundation for future growth. ?Notwithstanding the adverse influence of foreign exchange rates and the earthquake, our operating results in fiscal year 2010 were, on the whole, very encouraging. Consolidated sales and operating revenue remained at the same level as the previous year, reflecting the sharp appreciation of the yen during the period, but increased 6% year-on-year on a local currency basis. Consolidated operating income reached 199. 8 billion yen for the fiscal year, more than 6 times that of the previous year, despite the negative impact of foreign exchange rates. In contrast to the previous fiscal year, when robust results in the financial services and entertainment businesses drove our recovery from the recent global recession, the noteworthy factors behind the increase in consolidated operating income in fiscal year 2010 were the improved results in the electronics and game businesses, while we also enjoyed continued profit contribution from the financial services and entertainment businesses. 1 ? We recorded a loss attributable to Sony Corporation’s stockholders, due principally to recording approximately 360 billion yen in valuation allowances against deferred tax assets at Sony Corporation—on an 04 unconsolidated stand-alone basis—and its national tax filing group of subsidiaries in Japan. However, this valuation allowance was a non-cash charge and had no impact on consolidated operating income or cash flow. ?We continued to implement transformation initiatives to reform our operational structure with a priority on profitability and speed.

These transformation initiatives included continuing headcount reduction programs, advancing the rationalization of manufacturing operations, shifting and aggregating manufacturing to lowercost countries, and, especially in our LCD television business, utilizing the services of third party original equipment manufacturing (OEMs) and original design manufacturing (ODMs). Our fiscal year 2010 operating performance confirms that Sony’s transformation initiatives have contributed positively to our operating performance.

Furthermore, we will now be in a position to apply the cash flow generated by our improved cost base to the following focus areas, to spur future growth. ?Sony’s focus areas can be distilled into four key themes, “Networked Products and Services,” “3D World,” “Competitive advantages through differentiated technologies” and “Emerging markets,” and they will drive our growth going forward. We look forward to reaching milestones in all four in fiscal year 2011 and beyond. *1 The electronics and game businesses are included in the Consumer, Professional & Devices (CPD) segment and the Networked Products & Services (NPS) segment.

Operating Income by Segment FY2009 vs. FY2010) (Yen in billions) Pictures 4. 1 Music NPS 2. 4 Financial Services Sony Ericsson All other 3 2 0. 2 +118. 8 43. 7 38. 7 199. 8 CPD 1 +56. 1 31. 8 FY2009 For details about each business segment, see page 36 and after. FY2010 *1 CPD is the Consumer, Professional & Devices segment. *2 NPS is the Networked Products & Services segment. *3 All other includes the All Other segment and Corporate and Elimination. 05 Focus Areas for Growth Networked Products and Services Networked products and services is the first area I’d like to touch upon. One of our goals is to deliver, through our wide range of appealing products, the most compelling and exciting content and entertainment experiences to our customers around the world. The integration of hardware, content and services through the network is essential to making this happen. ?One initiative to achieve this integration on the networked products front is the Sony Tablet*2. Based on Android™*3 3. 0 and featuring innovative new designs, Sony Tablet will target the rapidly growing market for mobile devices.

We announced two models of the Sony Tablet in April 2011, and we plan to launch them in the global market starting in fall 2011. ?As for networked services, in fiscal year 2010 we launched two services under the Qriocity™*4 brand name. The two new services are “Video On Demand service powered by Qriocity™”* 5 and “Music Unlimited powered by Qriocity™,”*6 and they are available in nine countries and across Sony’s many network-enabled products including certain BRAVIA™ LCD televisions, Blu-ray Disc™ (BD) players and home theater systems, as well as PlayStation®3 (PS3®), PSP® (PlayStation®Portable) and VAIO® PCs.

Additionally, in countries where Music Unlimited powered by Qriocity is available, the service is now available on Xperia™ smartphones from Sony Ericsson, as well as Android-based third party devices. *2 “Sony Tablet” is a trademark of Sony Corporation. *3 “Android” is a trademark of Google Inc. *4 Qriocity is an online entertainment network service platform which connects many of our network-enabled devices and allows consumers to enjoy high-quality entertainment experiences across multiple devices. *5 A premium streaming video service that allows users to choose from the latest Hollywood movies and popular movies and animation titles. 6 A new cloud-based digital music service, through which songs are offered from all of the major music labels as well as from leading independent labels and major publishers worldwide. 06 07 ?However, in April 2011 Sony faced a serious challenge in the form of a cyber attack launched against the PlayStation®Network, Qriocity and the network systems of Sony Online Entertainment LLC, which forced us to temporarily shut down all of these services. We regret any concern and inconvenience that the incidents may have caused our shareholders, customers and stakeholders.

Sophisticated criminal intrusions into network systems like the ones we experienced pose a threat not only to our customers, but also to the entire business world. We have engaged some of the most respected names in cyber security, and together we have worked around the clock to strengthen our information security systems and restore our services, placing our highest priority on ensuring the security of our customers’ personal information as well as regaining their trust. As of today (July 6, 2011), PlayStation®Network services and Qriocity services in all serviced territories have been restored. Having learned from this experience, we continue to act quickly to further reinforce our security, while looking ahead, we will continue to integrate our networked hardware, content and services to deliver new and rich user experiences. ¦ PlayStation ® Vita (PS Vita) Sony Computer Entertainment’s next-generation portable entertainment system, PS Vita, delivers the ultimate portable entertainment experience, designed to offer unparalleled interactive entertainment possible only through the PlayStation® platform.

This system provides rich, realistic gaming and social connectivity. Deep and immersive gaming is at the core of the PlayStation® DNA, and PS Vita is the latest embodiment of this vision. By offering both Wi-Fi and 3G network connectivity, together with various applications, PS Vita will enable infinite possibilities for users to “encounter,” “connect,” “discover,” “share” and “play” with other users, wherever they are. PS Vita will be successively launched in the global market starting the end of 2011. 08 ¦ Sony Tablet

Sony has announced two models of the Sony Tablet, which delivers an optimum combination of hardware, content and network services with seamless usability for a high-quality, engaging entertainment experience. S1 (codename) is optimized for rich media entertainment, and S2 (codename) is for mobile communications and entertainment. S1 has a 9. 4-inch display that enables users to enjoy Web browsing and a broad range of services and content on a large screen. S2 has two 5. 5-inch displays and can be folded for easy portability.

Its dual screen presentation and usability allows its displays to be combined and used as a large screen, or used separately for different functions, a feature not found in other tablets. Sony Tablet will become available in the global market starting in fall 2011. 09 3D World One of the focus areas of Sony’s growth going forward will be to lead expansion of the 3D World. To expand our 3D businesses, we will continue to broaden the availability of both 3D-compatible hardware and high-quality 3D content. ?The 2010 FIFA World Cup South Africa™ is fresh in everyone’s memory.

Sony, as an Official FIFA Partner, facilitated 3D live broadcasts of soccer matches that dazzled the world. Powerful and lively 3D images, produced by utilizing Sony’s professional 3D broadcast equipment and 3D content production know-how, were broadcast live to homes around the world for the first time. ?3D has proven to be a driver for the theatrical motion pictures business. Sony, uniquely, both creates and distributes movies in theaters, and also makes and sells the equipment used to capture, project and display them.

In order to make 3D movies more widely available in theaters, we are continuing to bring digital cinema systems to theaters around the world. We have also introduced the spellbinding 3D experience that people associate with movie theaters in the home by enhancing 3D BD for 3D BD players/recorders and PS3, by popularizing 3D content distribution via network platforms such as Qriocity and PlayStation®Network, and by launching, with partners, round-the-clock 3D broadcasting in the United States, thereby expanding opportunities for people to enjoy 3D at home. In addition to creating a broad range of 3D content, including movies, TV programs, music videos and games, we are making 3D personal by expanding our lineup of compact digital cameras, video Expanding 3D World Network Service Personal Content Creation Creation Distribution Personal Display Display 10 cameras and other hardware that facilitate the production of user-generated content. These efforts are helping us make 3D a part of everyday life for our customers, underscoring our ongoing leadership in the 3D World. ¦ 3D Broadcasting net is a joint venture television network from Sony Corporation, Discovery Communications and IMAX Corporation, delivering compelling, native 3D content to the emerging 3D marketplace, thus serving as a critical driver for consumer adoption of inhome 3D entertainment. The 24/7 3D television network, which commenced broadcasting in the United States on February 13, 2011, plans to offer viewers the world’s largest library of native 3D entertainment content by the end of 2011. ¦ Electronics Products that Expand the Field of 3D Content D content is becoming more personal and more realistic, thanks to Sony’s 3D video cameras. The Handycam® HDR-TD10, introduced in May 2011, is a dual-lens Full HD 3D video camera for consumers, bringing together Sony’s key industry-leading technologies in two lenses, two sensors and two image processors. The PMW-TD300 is a professional-use 3D shoulder video camera with a dual lens system that facilitates a shooting style with considerable freedom of movement, making it suitable for shooting highdefinition 3D footage for documentaries, news, interviews and events, among others.

Professional-use shoulder-mounted 3D video camera Digital Full HD 3D video camera 11 ¦ Stereoscopic 3D Games The market for stereoscopic 3D game content has been expanding since June 2010, when Sony began selling stereoscopic 3D games worldwide through the PlayStation®Store. As an example, sales of Gran TuriSmo® 5, exclusively for PS3, reached 5. 5 million copies in the 12 days immediately following its launch in November 2010, greatly contributing to the expansion of both the PS3 platform and stereoscopic 3D games. ?Stereoscopic 3D software titles uch as Killzone 3 and me & my Pet have received rave reviews from gamers, and can be enjoyed through the PlayStation®Move motion controller. Used in combination with PlayStation®Eye (a USB camera for PS3), the PlayStation®Move motion controller offers a brand-new way to enjoy PS3, and was launched in September 2010. ?Numerous highly anticipated stereoscopic 3D software titles scheduled for launch in fiscal year 2011 will further contribute to the growth of the 3D content market. Competitive Advantages through Differentiated Technologies

We will also strengthen and advance our differentiated technologies and core devices—sources of our competitive advantages in electronics—as another focus area of growth going forward. ?The HDR-XR520V and HDR-XR500V Handycam ® camcorders introduced in 2009 succeeded in setting Sony further apart from other video camera brands. These models were the world’s first consumer models mounted with the “Exmor R ™ ” back-illuminated complementary metal oxide semiconductor (CMOS) image sensor, * 7 which achieves increased sensitivity and reduced picture noise.

Subsequent Handycam® video cameras and Cyber-shot™ compact digital cameras also used this image sensor. Sony’s digital imaging business contributes 12 substantially to Sony’s results and its products, including the NEX-5 and NEX-3 interchangeable lens digital cameras, earned considerable acclaim—including the Nihon Keizai Shimbun Awards top prize in the Nikkei Superior Products and Services Awards for the past two consecutive years. We also supply image sensors to other digital camera and cell phone manufacturers around the world. Our quick responses to feedback from these companies allow us to maintain a high level of competitiveness, and help to ensure that we keep our top market share in image sensors. Looking ahead, we are responding to the rapid growth in the market for smartphones by investing decisively in CMOS image sensors to expand our production capacity and revolutionize our technologies, with the aim of further bolstering profits. Sony is also accelerating the growth and differentiation of our professional-use camera business by developing content creation products and security cameras that integrate our latest proprietary technologies into our image sensor and component businesses. ?In addition, Sony’s digital cinema projectors, which I mentioned earlier, display 3D images in high quality through the use of SXRD™ (Silicon X-tal Reflective Display), Sony’s proprietary high-resolution and high-speed response display technology. We also intend to leverage these and other technologies to foster new businesses within the growing energy and medical fields. *7 For information on the “Exmor R” CMOS image sensor, see this year’s special feature, which begins on page 20. ¦ Professional-Use Master Monitor with Sony’s Proprietary OLED Panel In fiscal year 2011, Sony will launch the BVM series of professional-use OLED master monitors, combining its TRIMASTER technology—which ensures accurate color reproduction, precise images and outstanding reliability—with its proprietary OLED panels.

Delivering the deep, pure blacks and superb contrast only possible with a self-lit OLED, as well as a quick response time and minimal motion blur, the BVM series sets a new standard for master monitors, for which top picture quality is paramount. These monitors were exhibited to considerable acclaim at the 2011 NAB Show, one of the world’s largest digital media industry events for video, audio, film and communications professionals. 25-inch professional-use OLED master monitor 13 ¦ Energy Storage: A New Pillar of Sony’s Rechargeable Lithium-Ion Battery Business Sony was the first company to succeed in mass producing lithium-ion batteries.

Building on decades of accumulated know-how, in April 2011 Sony commenced mass production and shipment of an exclusive energy storage module comprising rechargeable lithiumion batteries made with olivine-type lithium-ion iron phosphate as the cathode material. Key features of the module include long-life performance (with projected longevity of 10 years or more), enhanced safety, high recharging speed and high expandability. Sony plans to supply these modules to corporations and other organizations as a backup power source or for load-leveling during peak electricity periods.

Energy storage module using rechargeable lithium-ion batteries made with olivine-type lithium-ion iron phosphate. ¦ Sony Expands Its Digital Cinema Business from Selling Vertically Integrated Products to Providing Solutions Services Sony—which is in the unique position of being able to capitalize on upstream expertise gained from one of its worldwide entertainment operations, Sony Pictures Entertainment (SPE), and to propose new ideas— has signed agreements to digitize major theater chains in a number of countries, including Regal Entertainment Group and AMC Entertainment Inc. two of North America’s largest theater chains. ?Sony’s Digital Cinema Projection System comprises a projector that can project ultra-high-resolution 4K video (8. 85 million pixels, more than four times that of full HD) and a cinema server that can store and transfer video content to the projector. In March 2011, it was accredited by the industry standards body as the world’s first “Integrated Projection System. ” This uniquely enables Sony to expand its total solutions business, of which the core is the “Integrated Projection System,” to theaters worldwide. 4 Emerging Markets Lastly, we have the promising emerging markets. ?Global gross domestic product (GDP) is expected to grow by 3. 5% annually through calendar year 2013, and GDP in emerging markets is expected to substantially outpace the global average. For example, it is said that the BRIC markets—Brazil, Russia, India and China—will account for more than 20% of global GDP in three years. Consumer electronics sales in the emerging markets are expected to grow sharply—18% annual growth is forecast for the BRIC markets—and Sony iews the emerging markets as vital to our growth strategy. We grew our sales (local currency basis) in the BRIC markets by approximately 40% in fiscal year 2010 compared to the previous year, and we expect our sales growth in the emerging markets to continue to greatly exceed that of the market. ?There are considerable regional differences within the emerging markets, and therefore to capture market growth, we must ensure our operations are rooted firmly in each local community.

Looking ahead, we will grow by capitalizing on our accrued brand strength, and on our extensive and carefully tailored local sales networks, as well as by taking advantage of our unique position as a company with operations that also encompass the B2B and entertainment fields. ?In March 2011, I visited India’s entertainment capital, Mumbai, to take part in a ceremony to inaugurate the Sony Media Technology Centre. *8 There I had the opportunity to speak with people involved in the production of movies, television and other content both from inside and outside Sony, and I could feel just how vital the entertainment industry is in India.

I also experienced firsthand the energy of this fastgrowing nation, and was particularly pleased to see bold “Sony BRAVIA” billboards along roads abuzz with speeding cars and auto rickshaws. *8 For more information on the Sony Media Technology Centre, see this year’s special feature on page 32. 15 ¦ Brazil Brazil will host the 2014 FIFA World Cup Brazil™— for which Sony is one of the Official FIFA Partners— as well as the 2016 Summer Olympics (Games of the XXXI Olympiad).

Middle-income consumers account for approximately half of the population and are the driving force behind Brazil’s economic growth. Sony’s extensive selection of appealing electronics products, produced at its site in Manaus and third party manufacturing providers, drove Sony to achieve a sharp sales increase in Brazil, outpacing market growth in fiscal year 2010. Sony is the overwhelming market leader in compact digital cameras, with a market share of approximately 50%, and has recently doubled its LCD television market share, becoming one of the top three LCD television brands in Brazil.

Sony is in the leading position of each entertainment business—music, pictures, TV programs and game—and brings about a greater synergy with the electronics business by utilizing its strong brand. Sony is realizing profitable growth by expanding its network of directly managed Sony Stores, as well as its e-commerce, and by responding flexibly to the regrouping and realignment of major retailers. ¦ Russia Blessed with abundant natural resources, Russia has seen its economy expand steadily since the global economic crisis of 2008.

In this environment, in fiscal year 2010 Sony achieved record-high sales in the Russian market, emerging for the first time as the frontrunner in the markets for compact digital cameras and portable audio players, among others. VAIO®, PlayStation® and other Sony sub-brands are strong, as is the Sony brand itself. Sony expects network-enabled products to emerge as a new high-growth business in the Russian market. ¦ India India has a population in excess of one billion, and continues to see rapid economic growth. Sony is expanding its national sales network in India, which comprises offices and shops tailored to the local market.

Bolstered by successful television advertisements and in-store promotional efforts, in fiscal year 2010 Sony garnered the top spot in the local markets for a variety of products, including LCD televisions and compact digital cameras. SPE initially entered the entertainment business in India in 1995 with the launch of the Sony Entertainment Television channel joint venture, and now has a portfolio of television brands offering a variety of programming, including general entertainment, comedy and movies, thus helping to strengthen Sony’s brand in the country. China China, the world’s second-largest economy, has seen the focus of economic growth expand from coastal areas into inland regions, underscoring expectations of further market growth in the years ahead. Sony has established a nationwide sales network that centers on Sony-branded stores, as well as a solid operational framework that strives to maximize sales channels, and continues to see increased profitability and revenue growth. Sony’s focus in China is not limited to consumer products, but also broadcast- and professional-use equipment, earning it a solid reputation as a top brand in HD and 3D from the lens to the living room. 6 In Closing Sony is constantly evolving to meet the demands and opportunities of the fast-changing global business environment by creating innovative hardware, content and services. ?We realigned our electronics, game and networked service operations into two key business groups. Following the realignment, which became effective April 1, 2011, all of Sony’s consumer electronics and networked services reside in one group, the Consumer Products & Services Group, while the growing B2B, semiconductor and component businesses form the second group, the Professional, Device & Solutions Group. Executive Deputy President Kazuo Hirai is responsible for the Consumer Products & Services Group. He successfully led the turnaround of the game business, expanded the PlayStation®Network and directed the launch of the Qriocity networked services platform. In his expanded role, he will continue to press for speed and efficiency while extending his focus to develop a new generation of compelling products, through which Sony will deliver seamless, exciting entertainment experiences to consumers, both at home and on the go, in order to be a company that inspires and fulfills people’s curiosity. The Professional, Device & Solutions Group is led by Executive Deputy President Hiroshi Yoshioka, who will utilize his engineering expertise alongside his management experience to further leverage Sony’s competitive advantages in cutting-edge technologies and core devices to identify and pursue new business opportunities, including those in the energy and medical fields. ?In finally, Doug Morris, one of the most respected and influential executives in the global music industry, will join the Sony familly as the CEO of Sony Music Entertainment, effective July 1. Sony Opens New Direct Store A new direct store, “Sony Store,” was opened in Los Angeles in April 2011, as a unique destination at which customers can explore the complete Sony experience created by its electronic products, entertainment content and services. 17 Top: Howard Stringer? Chairman, CEO and President Lower left: Kazuo Hirai? Executive Deputy President? Lower right: Hiroshi Yoshioka? Executive Deputy President 18 14 As you read this, millions of people around the world are experiencing Sony’s innovative and differentiated technologies on their Sony BRAVIA LCD televisions, digital cameras, VAIO ® PCs, PS3, BD players, WALKMAN ® digital music players, Reader ™ digital books and Sony Ericsson smartphones, and using these and other Sony products to connect to their content, and to one another. They are using our hardware to play Sony-made games like GRAN TURISMO® 5, Motorstorm 2 or LittleBigPlanet™2, listen to Sony artists like Michael Jackson, Shakira and Adele, and to watch Sony-made films like Men in Black or The Social Network. Only Sony makes everything you need to bring movies, music, games, photos and books to our eyes, ears, fingertips, hearts and minds. That’s why the shortest distance between content and consumers is Sony. And that’s why I believe that Sony will be in everyone’s future, because Sony is where entertainment meets technology. ?As strongly as I believe that Japan, through the spirit of fukutsu no seishin, will overcome the terrible disaster it has suffered, I also believe that Sony, through its spirit of innovation, will realize ever-greater advances in technology and entertainment.

Under the spirit of “make. believe,” *9 I have faith in the people of Sony and in their commitment to work tirelessly to realize our dreams, because I know that anything we can imagine, we can make real. To me, our dedication and innovation are the true sources of Sony’s corporate value. ?On behalf of the management team and all of the employees of Sony, I thank you for your ongoing support. July 6, 2011 Howard Stringer Chairman, CEO and President Representative Corporate Executive Officer *9 For information on “make. believe” (“make-dot-believe”), see the inside back cover. 9 15 Special Feature: “Exmor RTM” back-illuminated CMOS image sensor enables cameras to capture clear images even in scenes lit only by candle Compared with conventional front-illuminated complementary metal oxide semiconductor (CMOS) image sensor architecture, the “Exmor R” back-illuminated CMOS image sensor achieves approximately twice the sensitivity and features low noise*1. After its successful development in 2008, the “Exmor R” was first deployed by Sony in 2009 in the Handycam® and has since been used in such products as compact digital cameras and mobile phones.

The “Exmor R” has won high praise from users for realizing high performance in very low-light scenarios. For example, without using a flash, cameras equipped with the “Exmor R” can capture clear, vibrant photos even when the only light available is candlelight. In recognition of its role in enhancing the performance of compact digital cameras and opening up a new realm of possibilities, the “Exmor R” received a rare honor for an image sensor—the Editors Award at the Camera Grand Prix 2010—in Japan.

The development and mass production of the “Exmor R” gained further recognition when Sony Corporation and Sony Semiconductor Kyushu Corporation received the 57 th Okochi Memorial 20 *1 Comparison between Sony’s conventional (front-illuminated) CMOS image sensor and the new back-illuminated CMOS image sensor with the same pixel size (1. 75µm). *2 On September 1, 2010, Sony announced an investment of 40 billion yen in Sony Semiconductor Kyushu Corporation’s Kumamoto Technology Center, and on December 27, 2010, Sony announced an investment of 100 billion yen in the Sony Semiconductor Kyushu Corporation’s Nagasaki Technology Center.

In February 2009, Sony introduced the HDRXR520V and the HDR-XR500V, the first HD video cameras in the world equipped with a backilluminated CMOS image sensor. In September 2009, Sony launched sales of the Cyber-shot™ DSC-TX1, the first compact digital camera equipped with a back-illuminated CMOS image sensor. The Cyber-shot DSC-TX1 subsequently won a Gold Award at the 2010 iF product design awards in Germany. Production Prize from the Okochi Memorial Foundation. ?The “Exmor R” has also garnered acclaim from a diverse array of manufacturers and is being considered for deployment in a large number of products.

Consequently, Sony is aggressively working to expand its overall CMOS image sensor business, including the “Exmor R,” and has announced a 140 billion yen capital investment program for fiscal years 2010 and 2011 to meet market demand for its image sensor products*2. The Cyber-shot™ phone S006 is equipped with an “Exmor R” back-illuminated CMOS image sensor. The world’s first mobile phone with a 16. 20-effective megapixel camera*, the Cyber-shot™ S006 is capable of shooting high-quality still images even in low-light settings *Sony Ericsson data (October 2010). 21

By directing light onto the silicon substrate from behind, the increased efficiency in light use makes high-quality images possible even in low-light settings With the “Exmor R” back-illuminated CMOS image sensor, light is directed onto the silicon substrate from behind, allowing light to be used with a level of efficiency not possible with conventional front-illuminated pixel structures. Photographers can now create smooth, high-quality images in low-light settings. For example, the Cyber-shot digital cameras incorporating the “Exmor R” also utilize Sony’s BIONZ image processing engine.

By combining these two technologies, the camera fully comes into its own in such low-light scenarios as night panoramas and indoor shots—which were previously difficult to shoot well on a compact digital camera. This architecture means photographers need not use a flash but can still achieve low noise, vibrant, clear images. By deploying the “Exmor R,” it is possible to use multiple metal wiring layers and arrange the transistors with greater freedom. These advantages are expected to result in a variety of advances, including further improvements in speed and dynamic range. 6. 41 effective megapixels back-illuminated CMOS image sensor for mobile phones 16. 41 effective megapixels lens module for mobile phones 8. 13 effective megapixels lens module for mobile phones Sony aims to be the world’s leading company in both CCD and CMOS image sensor technology Image sensors are imaging elements that may be thought of as the “eyes” of digital video and digital cameras. In 1978, Sony announced that it had developed a 110,000-pixel chargecoupled device (CCD) image sensors.

Since then, Sony has continued to develop its own image sensor technology, and in recent years, in addition to the high-resolution pixel technology it has cultivated in the CCD field, Sony has pursued the development of high-resolution and high-speed CMOS * TECHNO SYSTEM RESEARCH, November 2011. image sensor technology. This has included the “Exmor,” which utilizes proprietary on-chip column A/D conversion and dual noise reduction. Furthermore, by developing the back-illuminated CMOS image sensor—an architecture long considered technically difficult to achieve—Sony has realized further enhancements in sensitivity as well as noise reduction. Sony has for many years maintained the leading market share for CCD image sensors. From fiscal year 2009 (the 22 16. 38 effective megapixels back-illuminated CMOS image sensor for compact digital cameras ¦ Interview with Teruo Hirayama, Senior G e n e r a l M a n a g e r, S e m i c o n d u c t o r Te c h n o l o g y D e v e l o p m e n t D i v i s i o n , Semiconductor Business Group year ended March 31, 2010), Sony has also achieved the top market share for CMOS image sensors, based on sales value. Sony intends to continue aggressively expanding its “Exmor R” back-illuminated CMOS image sensor business and thereby contribute to the realization of further advances in resolution in consumer-use digital video cameras and digital still cameras. Until quite recently, although CMOS image sensors enjoyed the advantage of comparatively low power consumption, their structural weak point was a high level of noise, making them unsuitable for use in high-quality digital cameras. For this reason they were almost solely used in such devices as mobile phones.

Although we knew that it would be possible to increase image quality by utilizing a backilluminated structure to capture light more efficiently, the stumbling block we faced was an increase in noise. Consequently, most image sensor specialists believed that it was almost impossible to develop an image sensor based on such a structure. ?In 2002, when I transferred from my previous job developing MOS logic and was assigned to the project team for image sensor development—an area outside my direct expertise—this was still the prevailing view among image sensor design engineers.

When we began the project to develop an “Exmor R” back-illuminated CMOS image sensor, there were fewer than 10 of us on the project team. While we believed that our success could usher in a major change in the world of imaging technology, we spent a considerable period struggling to overcome the noise issue. ?However, through ongoing trial and error, we came up with an idea that we thought might be the solution. Straight away, we asked the opinion of a Sony Handycam® video camera developer, who was startled by the exquisite image quality we showed him.

The high quality of the images we shot, even in dimly lit settings, was unprecedented at the time. We received a directive to rapidly commercialize the technology and, as soon as we overcame issues relating to mass production, succeeded in commercializing the world’s first consumer-use products to incorporate “Exmor R” backilluminated CMOS image sensor technology. ?Even during the period in which we struggled to overcome technical difficulties, the “Sony Spirit” kept us determined not to give in but to rise to the challenge, in the end leading to the creation of new technology.

Even now, Sony’s “Exmor R” backilluminated CMOS image sensors have a clear competitive advantage. There is still ample room to improve the image quality and performance of image sensor technology, so we will not be resting on our laurels. We are committed to continuing our development efforts so that we can realize further advances in technology that will bring enjoyment and excitement to our customers. 23 ¦ The “Exmor” CMOS image sensor—linchpin of Sony’s interchangeable lens digital cameras

While the “Exmor R” back-illuminated CMOS image sensor, which realizes both high sensitivity and miniaturization, is deployed in compact digital cameras and mobile phones, for interchangeable lens digital cameras a large-format image sensor (an APS-C-sized sensor or full-frame sensor) that provides high picture quality and advanced potential for creativity is absolutely essential. To meet such high demands, Sony developed the “Exmor” CMOS image sensor in-house, which realizes high-resolution images with fine detail and rich tonal gradation. The “Exmor” utilizes on-chip column A/D conversion and dual noise reduction processing whereby noise reduction is applied both before and after analog/digital conversion. By eliminating noise at the initial stage of light capture and conversion to electrical signals, the “Exmor” realizes outstanding image quality and suppresses noise to the greatest extent possible, even in low-light situations. “Exmor”’s capabilities were first demonstrated when it was deployed in the ? 700, a mid-range interchangeable lens DSLR camera launched in 2007. A full-frame “Exmor” image sensor was subsequently used in the ? 00, released in 2008. In recent years, Sony has developed the “Exmor” APS HD CMOS image sensor, optimized for Full HD movies in response to increasing demand for Full HD video capabilities in single-lens digital cameras. The “Exmor” image sensor is also featured in the ? 55 and ? 33—which realize high-speed continuous shooting, thanks to Sony’s groundbreaking Translucent Mirror Technology*—and in the NEX-5 and NEX-3 compact interchangeable lens digital cameras, as well as in the NEXVG10, the world’s first interchangeable lens HD video camera, launched in 2010, and remains at the cutting edge of image quality.

Going forward, the “Exmor” CMOS image sensor will continue to play a key role in driving evolution in the growing interchangeable lens digital camera market. * Translucent Mirror Technology uses a translucent mirror to continuously direct light passing through the lens to both the CMOS image sensor and the phase detection AF sensor simultaneously.

This enables continuous fast, high-precision phase-detection AF shooting and continuous focusing on the shooting target. Interchangeable lens digital camera “? 55” 24 Investment in the image sensor business ?On September 1, 2010, Sony announced that it planned to invest approximately 40 billion yen in Sony Semiconductor Kyushu Corporation’s Kumamoto Technology Center (Kumamoto TEC) to increase production capacity for “Exmor” and “Exmor R” CMOS image sensors.

Execution of this additional investment would be spread between the second half of fiscal year 2010, ended March 31, 2011, and fiscal year 2011, ending March 31, 2012. ?Furthermore, on December 27, 2010, Sony announced plans to invest approximately 100 billion yen in Sony Semiconductor Kyushu Corporation’s Nagasaki Technology Center (Nagasaki TEC) during fiscal year 2011, ending March 31, 2012, to increase the production capacity for CMOS image sensors.

This investment plan includes (i) semiconductor fabrication equipment acquired on April 1, 2011, based on definitive agreements between Sony and Toshiba Corporation announced on February 28, 2011; (ii) refurbishment of a part of these semiconductor fabrication facilities into new wafer lines capable of manufacturing CMOS image sensors; and (iii) refurbishment of and equipment for part of the production facilities at Nagasaki TEC’s Building 3 for wafer processing for he purpose of differentiating Sony’s CMOS image sensors using proprietary technologies. Within this investment program, principally in relation to item (iii) above, Sony is utilizing subsidies provided under the Japanese Government’s fiscal year 2010 “Project to promote plant construction in industries that create low-carbontype employment” administered by the Ministry of Economy, Trade and Industry. * Through Sony Semiconductor Kyushu’s investments of approximately 40 billion yen in Kumamoto TEC and approximately 100 billion yen in Nagasaki TEC as outlined above, Sony plans to increase its total manufacturing capacity for CCD and CMOS image sensors from its current level of approximately 25,000 units per month to approximately 50,000 units per month (calculation for 300mm wafers, as of December 27, 2010) by the end of March 2012. Sony Semiconductor Kyushu Corporation’s Kumamoto Technology Center

Sony Semiconductor Kyushu Corporation’s Nagasaki Technology Center 25 Khotan Ka Herat Kabul ra Mt. K2 ko ra AFGHANISTAN Kandahar Quetta Peshawar Islamabad Rawalpindi Srinagar Leh m Tibet Plat. Siling L. C H I N A Lahore Faisalabad Multan Amritsar Chandigarh H i m Nam L. a l a IRAN PAKISTAN s du In Delhi Mt. Dhaulagiri y a Mt. Everest Xigaze Lhasa New Delhi Agra Jaipur Lucknow Kanpur N EPAL Kathmandu BHUTAN Thimphu Putao Karachi Hyderabad Allahabad Varanasi Patna Ganges Gauhati Br a ahm put ra BANGLADESH Dhaka Imphal Special Feature: Sony in India

Ahmadabad Bhopal Jabalpur K a th ia w ar Pe n . Indore Calcutta Howrah Khulna mandalay Chittagong Nar mad a MYANMAR (BURMA) Gulf o f Khamb h a t Nagpur Cuttack Bombay (Mumbai) I N D I A God avar i Hyderabad Sittwe Irraw addy Chiang Mai THAILAND Salween Poona Yangon (Rangoon) Bassein India—A vibrant mix of different ethnic groups and cultures overflowing of Bay Bengal with its own unique energy. Sony has built a highly favorable brand image in India, which continues to see remarkable economic growth, and is working to enhance its presence.

This special feature looks at Sony in India from a variety of perspectives, including the strength of Sony’s electronics business in the country, its local entertainment business initiatives and its growing role as a center for software SRI LANKA development. Kri shn a Bangalore Madras (Chennai) Coimbatore Cochin Madurai Vijayawada Moulmein A nd am an is . P a lk S tr . Andaman Sea Ni co ba r is. Colombo Srijayewardenepura 26 India’s economy continues to grow. Sony’s electronics sales are growing faster than the country’s electronics market.

In fiscal year 2010 (the year ended March 31, 2011), Sony’s market share increased in a number of high-growth product categories. Despite a slight slowdown in growth during the recent global recession, India’s electronics market picked up speed again in 2010. Sony’s sales in the period grew faster than the market. BRAVIA™ captured the top share of the market for LCD televisions, a high-growth product category, in terms of value, while Cyber-shot™ was number one in the digital camera market in both value and volume sold and VAIO® PCs rose to number three in the PC market in value terms. The expansion of our shares in such key markets is attributable to our operations in India, which we have worked to strengthen, as well as to our effective channel strategy. * LCD television market share estimated by GfK Marketing Services Japan Ltd. based on data for January 2010? through February 2011. Digital camera market share estimated by Sony based on data for April 2010 through February 2011. PC market share estimated by International Data Corporation Japan based on data for the first quarter of fiscal year 2010, ended March 31, 2011, to the third quarter of fiscal year 2010. 27

Building on operational strengths in an assertive bid to attract middle-income consumers As India is geographically large, it is critical to operate in the most suitable way that fits each city and region. Sony classifies the Indian market into three categories, ranging from small cities to large metropolitan areas. Our 19 sales branches cover a total of 450 cities. To ensure our customers can use Sony products without concern, we have also developed a network of 250 service centers across the country. As transport can be difficult due to the state of many roads and taxes on interstate sales, 28 e have established 30 warehouses nationwide, ensuring our ability to manage our supply chain effectively. Building on this robust operational structure, we are accelerating efforts to expand our marketing activities beyond our traditional customer base—India’s 40 million affluent citizens—in an assertive bid to attract consumers in the country’s middle class, which is expected to see further growth in the years ahead. ©2011 Board of Control for cricket in IndiaIPL. All Rights Reserved. ¦ Cricket in India and Sony Cricket is by far the most popular sport in India.

In advance of the ICC Cricket World Cup 2011, which was staged in India in March 2011, Sony launched a major advertising campaign for BRAVIA LCD televisions featuring India’s national team captain, Mahendra Singh Dhoni, as Sony Brand Ambassador. The highly effective multi-media campaign, which coincided with the Cricket World Cup, included approximately 3,000 television spots and more than 150 outdoor billboards, as well as in-store promotional campaigns. ?India won the title match of the 2011 tournament, much to the delight of the Indian people. Sony will continue to promote appealing, memorable marketing and advertising efforts in India. 9 Enhancing Sony’s respected brand strength through a carefully tailored channel strategy As with its operational structure, Sony recognized the importance of having an effective channel strategy that takes into account regional differences. In addition to national chain stores that cover many areas in India, we have regional chain stores in specific areas, and both types of stores continue to see sales growth. In India, there is not a single chain store network of identical stores in every city and town in the country; rather, store configurations differ from region to region. For this reason, we are seeking to 30 24 ncrease the number of contracted subdealers we work with. To enable us to communicate the Sony brand message to consumers directly, we have established a network of approximately 270 Sony Center and other branded shops nationwide. Branded shops sell not only electronics products, but also PlayStation® products and Sony Ericsson mobile phones, among other products. Branded shops thus contribute to an enhanced brand image, as well as to greater recognition of the Sony name. ¦ Masaru Tamagawa, Managing Director, Sony India Pvt. Ltd. (Lower left photo)? exclusively for the Indian market, came about in part as a result of efforts such as this.

The use of India’s national cricket team captain as brand ambassador in advertisements and promotions was also aimed at encouraging a feeling of familiarity with Sony. ?Going forward, I believe strongly that the key to expanding our business and growing the Sony brand in India will be to secure talented employees. Fostering human resources and assertively localizing staff will be equally as important as enhancing our operational strengths. With the Indian market expected to continue growing, I look forward to pursuing a variety of initiatives with the aim of increasing Sony’s presence. 1 In fiscal year 2010, ended March 31, 2011, with efforts to bolster day-to-day store sales and tighten inventory control, together with effective advertising and promotional activities, we succeeded in increasing our market share in several growing product categories and, as a result, in expanding the scale of our business. As managing director, I place a high priority on frequent communication with staff at all levels—to ensure we all share the same goals and acknowledge the same issues—and on customer research.

We visit many residents and we are always eager to better understand people’s tastes and discover what has direct relevance to their lives. The hit BRAVIA NX Series of LCD televisions, developed ©MSM Satellite (Singapore) Pte. Ltd. All Rights Reserved. Sony Pictures Entertainment’s television operations in India India has one of the largest and most dynamic television audiences in the world reaching more than 124 million households in the country and generating nearly U. S. $6 billion in revenue a year. Indian television has boomed since 2004 with yearly double-digit growth in distribution, content and advertising. ? Sony Pictures Entertainment entered the Indian television market in 1995 with the launch of Sony Entertainment Television (SET). The general entertainment Hindi-language channel quickly became a success and has remained one of the toprated channels for more than 15 years with hit shows like Who Wants to Be a Millionaire (Kaun Banega Crorepati) and Indian Idol. ?The company added to its portfolio of channel brands with the launch of AXN (1998), SET MAX (MAX) (1999), Animax (2004), SAB (2005) and SET PIX (2006).

All of Sony Pictures’ channels in India are owned, operated or distributed through a joint venture, Multi Screen Media Private Limited (MSM). As the official home in India for the Indian Premier League’s (IPL) renowned Twenty20 cricket competition, MAX typically rates in the top five of the country’s channels. At the start of the IPL’s fourth season in April 2011, over 154 million viewers tuned in to MAX. AXN is a leading English-language general entertainment channel commanding a more than 50% share of this audience across all demographics as compared to its competitors in this category. “Indian Entertainment and Media Outlook 2009,” PricewaterhouseCoopers, June 29, 2010. Contributing to the further evolution of India’s entertainment industry through the newly established Media Technology Centre To encourage the proliferation of HD and 3D film production, in March 2011 Sony inaugurated Sony Media Technology Centre in Mumbai, India—which joins similar facilities established in the United States and the United Kingdom—at the Mumbai campus of film school Whistling Woods International.

Within the Centre, Sony has installed cutting-edge Sony equipment to create content, such as video cameras and 32 equipment for editing, for use in training in the areas of digital HD movie production and 3D content creation not only for the school’s aspiring filmmakers, but also for industry professionals. By extending advanced technologies and products, as well as its training expertise, Sony hopes to contribute to the further growth and development of India’s entertainment industry. ¦ Yukio

Takeyari, Centre Head, Sony India Software Centre (Lower left photo) ? In fiscal year 2010, ended March 31, 2011, our work contributed to efforts of the entire Sony Group to advance stateof-the-art 3D technologies, as well as to the development of new products, including Sony Internet TV, Sony Tablet and Android™*-based mobile phones and other devices. As the Group’s strategic offshore IT centre, we worked together with Group companies with the aim of reinforcing the Group’s operating foundation.

Looking ahead, we will step up our efforts to foster human resources and actively seek to expand relations with other software engineers around the world. Having an R&D base in the burgeoning Indian market will most certainly be a major advantage for the Sony Group. * “Android” is a trademark of Google Inc. Sony currently has global software development facilities in the United States, Europe and Japan. In emerging countries, we have those facilities in China and India. Among these, Sony India Software Centre (SISC), located in Bangalore—India’s Silicon Valley—has expanded notably in recent years.

Established in 1997, SISC serves as a development base for software used in a wide range of products manufactured by Sony Group companies around the world and as the Group’s global offshore IT centre. ?With the role of software taking on ever-greater importance in this digitized age, SISC is rapidly augmenting its team of engineers. In fiscal year 2010, ended March 31, 2011, we had approximately 1,000 engineers on staff. With an eye to further personnel expansion, in January 2010 we moved to a new SEZ (Special Economic Zone) in Vrindavan Tech Village. 33 Financial Highlights?

Consolidated Results ?Consolidated operating income was significantly higher, 6. 3 times the previous fiscal year’s amount, despite the large, unfavorable impact of foreign exchange rates. ?The increase in consolidated operating income was driven primarily by improved results in the Networked Products & Services segment, due principally to the contribution of the game business. ?A net loss attributable to Sony Corporation’s stockholders was recorded, mainly due to a non-cash charge to establish a valuation allowance against certain deferred tax assets in Japan.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2011 (Fiscal Year 2010) Sales and operating revenue Operating income Income before income taxes Net income (loss) attributable to Sony Corporation’s stockholders Note: Percentage change from the previous fiscal year is shown in parentheses. ?7,181. 3 billion ? 199. 8 billion ? 205. 0 billion (? 259. 6 billion) (-0. 5%) (+528. 9%) (+661. 8%) (—) Sales and operating revenue (Yen in trillions) Operating income (loss) (Yen in billions) Net income (loss) attributable to Sony Corporation’s stockholders (Yen in billions) 13. 4 7. 7 7. 2 7. 2 31. 8 252. 8 199. 8 (127. 3) (227. 8) 2009 2010 2011 2009 2010 2011 -3. 1% (98. 9) -1. 4% (40. 8) -9. 4% (259. 6) 2009 2010 2011 Operating income (loss) Operating income (loss), as adjusted, which excludes equity in net income (loss) of affiliated companies and restructuring charges Note: Fiscal year ended March 31, 2010 operating income, as adjusted, also excludes a non-cash charge related to LCD television asset impairment. Note: Years ended March 31 Net income (loss) attributable to Sony Corporation’s stockholders Return on Equity (ROE) 4 Proportion of sales by business Networked Products & Services 1. 5% 5. 3% 11. 1% 6. 4% Consumer, Professional & Devices Televisions 35. 9% Game 53. 5% PC and Other Networked Businesses 46. 5% 8. 3% 2011 20. 8% 46. 6% Digital Imaging 19. 2% Audio and Video 12. 7% Semiconductors 10. 7% Components 12. 3% Professional Solutions 8. 6% Other 0. 6% ?Consumer, Professional & Devices ? Networked Products & Services ? Pictures ? Music ?Financial Services ? All Other ? Corporate Free cash flow (excluding Financial Services) (Yen in billions) Capital expenditures Yen in billions) Research and development costs (Yen in billions) 570. 2 322. 3 112. 7 255. 8 332. 1 192. 7 204. 9 497. 3 118. 3 (247. 9) (137. 6) 432. 0 426. 8 (374. 8) (487. 4) 2009 2010 2011 2009 2010 2011 2009 2010 2011 Cash flows from operating activities Cash flows from investing activities Free cash flow (Combined total of cash flows from operating and investing activities) 35 Financial Highlights? Results by Business Segment Sales and Operating Income by Segment (Yen in billions) 3,518. 1 3,572. 7 Sales *1 Left: 2010 Right 2011 1,572. 6 1,579. 3 705. 2 600. 0

Consumer, Professional & Devices Networked Products & Services 522. 6 470. 7 851. 4 806. 5 460. 8 447. 8 Sony Ericsson*2 All Other Pictures Music Financial Services 162. 5 118. 8 Operating Income Left: 2010 Right 2011 2. 9 53. 2 35. 6 42. 8 38. 7 36. 5 38. 9 4. 2 34. 5) 5. 0) 8. 6 83. 3 *1 Includes operating revenue and intersegment sales; for Financial Services, denotes revenue. *2 Equity in net income (loss). Sony’s Consumer, Professional & Devices segment includes televisions, digital imaging, audio and video, semiconductors and components as well as professional solutions.

Consumer, Professional & Devices (CPD) Sales Operating income (loss) (Yen in billions) Sales increased 1. 6% year-on-year to 3,572. 7 billion yen. Sales to outside customers increased 4. 3% year-on-year. The sales increase was primarily due to higher LCD television sales resulting from a significant increase in unit sales that came mostly from the Asia-Pacific, Other Areas and Japan, and higher semiconductor sales resulting from strong performance of small- and medium-sized LCD panels and image sensors.

However, the sales increase was partially offset by lower components sales resulting from a decrease in sales of storage media affected by market contraction and a decrease in sales of optical disc drives driven by price competition. Operating income amounted to 2. 9 billion yen, an improvement of 56. 1 billion yen compared to the previous fiscal year. The segment’s significant operating income improvement was driven primarily by an increase in gross profit due to higher sales, a decrease in loss on sale, disposal or impairment of assets and other, net and a decrease in restructuring charges.

Product categories that favorably impacted the change in segment operating results (excluding restructuring charges and LCD television asset impairment in the previous fiscal year) include semiconductors, reflecting an increase in sales of image sensors, and professional solutions, reflecting an increase in sales of products such as digital cinema projectors. A category that unfavorably impacted the change in segment operating results (excluding restructuring charges) was LCD televisions, reflecting a decline in unit selling prices and unfavorable foreign exchange rates, despite rising unit sales. 3,518. 1 3,572. 7 2. 9 (53. 2) 2010 2011

Notes: 1. Years ended March 31. 2. Sony realigned its reportable segments from the first quarter of the fiscal year ended March 31, 2011 to reflect modifications to the organizational structure as of April 1, 2010, primarily repositioning the operations of the previously reported B2B & Disc Manufacturing segment. The Networked Products & Services (“NPS”), Pictures, Music and Financial Services segments remain unchanged. In connection with this realignment, both the sales and operating revenue (“sales”) and operating income (loss) of each segment in the fiscal year ended March 31, 2010 have been revised to conform to the current presentation.

The equity earnings from Sony Ericsson Mobile Communications AB (“Sony Ericsson”) continue to be presented as a separate segment. 36 The Networked Products & Services segment consists of the game business, PC and other network businesses. Networked Products & Services (NPS) Sales increased 0. 4% year-on-year to 1,579. 3 billion yen. Sales to outside customers decreased 1. 2% year-on-year. Segment sales were almost flat year-on-year as unfavorable foreign exchange rates offset increased sales mainly in PCs, which saw increased unit sales and an expanding market share in all regions.

Operating income amounted to 35. 6 billion yen, an improvement of 118. 8 billion yen compared to the previous fiscal year. The segment’s operating income significantly improved mainly due to a significant improvement in the cost of sales ratio coupled with an increase in gross profit from higher sales, partially offset by unfavorable foreign exchange rates. A product category that favorably impacted the change in segment operating results (excluding restructuring charges) was the game business, reflecting significant cost reductions of PlayStation®3 hardware and higher unit sales of PS3 software.

Sales Operating income (loss) (Yen in billions) 1,572. 6 1,579. 3 35. 6 (83. 3) 2010 2011 The Pictures segment consists of motion pictures and television programming, and other businesses of Sony Pictures Entertainment Inc. , which is based in the United States. Pictures Sales Operating income (Yen in billions) 705. 2 600. 0 Sales decreased 14. 9% year-on-year to 600. 0 billion yen. The decrease in sales was due to lower motion picture revenues and the appreciation of the yen against the U. S. dollar (an 8% decrease on a U. S. dollar basis).

While the current year benefited from the strong performances of The Karate Kid, Grown ups and Salt, international theatrical and worldwide home entertainment revenues declined significantly in comparison to the previous fiscal year which benefited from the strong performances of 2012, angels & Demons and michael Jackson’s This is it. On a U. S. dollar basis, television revenues increased due to higher subscription and advertising revenues from a number of international channels and higher U. S. rev