Business Overview (Fiscal Year in Review)
Electronics

• Sales in the Electronics business increased 8.9%.
• Higher unit sales of BRAVIA™ LCD televisions, VAIO™ PCs and Cyber-shot™ compact digital cameras in all regions contributed to higher segment sales.
• Operating income was 2.2 times higher than in fiscal year 2006.
• The sharp increase in operating income was primarily due to higher segment sales and the positive impact of the yen’s depreciation against the euro.
• Also contributing to the increase in operating income was a ¥51.2 billion provision recorded in the previous fiscal year for charges related to the notebook PC battery pack recalls and subsequent global replacement program, and a ¥15.7 billion reversal of the same provision recorded in the period under review.

GAME

• Sales in the Game business rose 26.3%.
• Hardware sales increased, due to higher sales of PLAYSTATION®3 (PS3™) and PSP® (PlayStation Portable). Sales of PS3™ software contributed to an increase in software sales.
• Operating loss reduced by ¥107.8 billion.
• The reduction in the operating loss reflects decreased operating losses in the PS3™ business—a result of successful PS3™ hardware cost reductions and increased sales of PS3™ software—as well as the strong performance of the PSP® business.

PICTURES

• Sales in the Pictures business decreased 11.2%.
• The decline in sales reflected lower worldwide motion pictures sales as fewer fi lms were released during the period.
• Operating income rose 26.5%.
• Higher operating income was the result of the strong performance of prior year films in the home entertainment and television markets, as well as the sale of a bankruptcy claim against a former licensee of film and television product.

FINANCIAL SERVICES

• Revenue in the Financial Services business declined 10.5%.
• Sony Life Insurance Co., Ltd. (Sony Life) reported a decrease in revenue due to a net loss from investments in its separate account, a deterioration of net valuation gains from convertible bonds and an impairment loss on equity securities in its general account, all of which resulted from a sharp decline in the Japanese stock market.
• Operating income fell 73.1%.
• The deterioration of net valuation gains from convertible bonds and an impairment loss on equity securities in Sony Life’s general account led to a decrease in overall segment operating income.

ALL OTHER

• Aggregate sales from businesses in this category increased 7.6%.
• Higher sales were largely due to the contribution from sales at a U.S. music publishing company acquired during the period, the receipt of a settlement payment related to copyright infringement claims, an increase in sales at Sony Music Entertainment (Japan), Inc., and higher fee revenue from broadband connection services, particularly fiber-optic, at So-net Entertainment Corporation.
• Operating income climbed 73.9%.
• Operating income increased mainly as a result of a gain on the sale of the Sony Center am Potsdamer Platz in Berlin, the receipt of payment related to copyright infringement claims and an increase in trademark royalty income from Sony Ericsson Mobile Communications AB.

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SONY CORPORATION
7-1, Konan 1-chome, Minato-ku,
Tokyo 108-0075, Japan

Sony Group Corporate Strategy
“To be the leading global provider of networked consumer electronics and entertainment”

Following the formation of Sony’s management team, led by Chairman and CEO Howard Stringer and President and Electronics CEO Ryoji Chubachi, Sony conducted an extensive business review that formed the basis of the revitalization plan announced in September 2005. Nearly all of the announced goals and targets were achieved, resulting in a signifi cantly restructured cost base and restored profitability that have allowed us to pursue growth opportunities while also aiming for even greater fi nancial performance.

In June 2008, Howard Stringer was joined by Ryoji Chubachi and Kazuo Hirai, President and Group CEO of Sony Computer Entertainment Inc., at Sony Group’s Corporate Strategy Meeting to report on the accomplishments of the past three years and to announce a new strategy. This new strategy will guide the Sony Group over the next three years in its efforts to complete a new mission: To be the leading global provider of networked consumer electronics and entertainment.

Letter to Shareholders: A Message from Howard Stringer, CEO
I am pleased to report the results of fiscal year 2007, ended March 31, 2008, and outline our growth prospects and strategies for the future.

As I wrote in my letter to you one year ago, fiscal year 2007 represented the culmination of our three-year restructuring initiative. I would like to report that we achieved nearly every goal that we had set for ourselves three years ago.

We successfully re-engineered our company by dramatically reducing operating costs, streamlining our operations, and reducing headcount and the number of our product categories—all of which contributed to a significant improvement in operating results. As a result, on an annual basis and compared to three years prior, sales and operating revenue rose 23% to nearly ¥9 trillion, and both operating income and net income more than doubled to ¥375 billion and ¥369 billion, respectively.

Success was achieved across many of our businesses. Notably, Sony Group worked together to successfully make Blu-ray Disc™ the de facto standard for high defi nition recording and playback. To date, more than 15 million Blu-ray Disc players, recorders and Blu-ray Disc-enabled PLAYSTATION®3 (PS3™) systems have been sold.

In the Electronics segment, which represents approximately two-thirds of our consolidated sales, operating income rose from approximately zero three years ago to more than ¥350 billion in the most recent fiscal year.

The operating profit margin achieved in fi scal year 2007 was 5.4%, far exceeding the 4% goal which we had established in 2005. From a product perspective, Sony’s LCD television business has moved from having a limited presence three years ago to being one of the market leaders today on the strength of the BRAVIA brand, and it is in a position to strive for significantly improved profi tability. In addition, we were the first to market with the next generation television—the organic light-emitting diode, or OLED, TV—which is a sleek 3 millimeters in thickness. These are but a few examples of the successes achieved.

In the Game segment, over the past three years we have benefi ted from the continued strength of the PlayStation®2 platform and a resurgence in sales of the PSP® (PlayStation®Portable) platform, as well as the launch of the PS3™ platform. While the segment recorded a loss for the most recent fiscal year, it was an improvement of more than ¥100 billion versus the previous fiscal year, and we are expecting further improvements. With 50 million users of network-enabled PSP® and PS3™ units worldwide, we have an enormous global base upon which we can build a video delivery service.

Our Pictures segment recorded more than ¥50 billion of operating income in the most recent fi scal year, benefiting from the strength of the home entertainment releases of a number of successful titles and the continued vitality of our television business. Over the past three years Sony Pictures Entertainment Inc. (SPE) has expanded its theatrical, home entertainment and local language production businesses into markets across the globe, and has set the stage for future growth. In fiscal year 2008 a number of exciting new releases, including Hancock starring Will Smith and Quantum of Solace, the latest James Bond fi lm starring Daniel Craig, are expected to contribute to our results.

Sony Financial Holdings—which accounts for a majority of the revenue of our Financial Services segment— launched a successful initial public offering in fi scal year 2007, despite a very challenging market environment. The life insurance, non-life insurance and banking businesses all continued to grow steadily. However, valuation losses on the portfolio in the life insurance businesses, caused by the signifi cant decline in the Japanese stock market, negatively impacted segment results.

Finally, our key joint ventures, including Sony Ericsson Mobile Communications AB and SONY BMG MUSIC ENTERTAINMENT— contributed signifi cantly to net income for the year.

On a consolidated basis, Sony recorded operating income of ¥375 billion, which was fi ve times the prior year’s results of ¥72 billion. The operating profi t margin achieved was 4.2%, shy of the company’s 5% goal, primarily as a result of the portfolio valuation losses in the life insurance businesses noted above. We achieved net income of ¥369 billion for fiscal year 2007, a 192% improvement over the prior fiscal year and a record high.

In short, over the past three years, we have successfully restructured our company by exiting businesses, eliminating costs and creating a strong foundation going forward. Our job, however, is not complete. We must continue our transformation into a company that successfully grows and innovates—and does so profitably. In doing so, we need to keep Sony’s strengths while, at the same time, embracing new business models, developing new technologies and delivering new products and services that our increasingly savvy customer base demands.

To do this, Sony must establish a reputation for software and services that matches our reputation for hardware and content. Our mission is to be the leading global provider of networked consumer electronics and entertainment. As we will outline in more detail in the pages that follow, there are many opportunities that lie before us, and we must aggressively pursue them.

We have the talent, the resources, the experience and the will. We intend to make significant investments in growing our businesses, and we will do so in a measured and disciplined way. As you will read, we are undertaking three priority actions.

First, we will strengthen our core businesses through improving profitability in our Television and Game businesses, strategically investing approximately ¥1.8 trillion for future growth and revamping our R&D efforts, as well as continuing to focus on operating performance.

Second, we will launch network initiatives. These include providing network connectivity across our devices—specifically, 90% of our key device categories by fi scal year 2010—and undertaking a number of network initiatives to deliver content from SPE and other providers to Sony devices, both in the home and “on the go.” Among consumer electronics companies, Sony is unique in its ownership of content, and we intend to leverage this competitive advantage.

And third, we plan to capitalize on growth in developing markets and emerging economies such as Brazil, Russia, India and China (the BRIC countries), with the specifi c goal of doubling revenues in the BRIC countries by fiscal year 2010.

Additionally, we have targeted a consolidated annual return on equity of 10% by the end of fiscal year 2010 and identified 5% operating profit margin as a baseline of profi tability.

Many factors set Sony apart, and they are the reasons we have confidence in our ability to succeed in our mission. Today we stand on a strong foundation of innovation, experience, talent, capital and desire. We will leverage our unique competitive advantages. We will create exciting new products and services that customers will crave. We will be leaders in both our existing markets and in new, emerging markets. We have the will to compete and to succeed versus the competition. As we demonstrated with Blu-ray Disc, when Sony is United, Sony is Unbeatable.

We thank you for your continued support of the company.
Howard Stringer
Chairman and CEO
Representative Corporate Executive Offi cer

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