Hobbled by Disappointing Sales and a Loss at the Game Unit, Sonyâs Profit Drops 5% Article Tools Sponsored By By MARTIN FACKLER THE NEW YORK TIMES Published: January 31, 2007 TOKYO, Jan. 30 â The dip in Sonyâs quarterly earnings released early Tuesday underscores what many analysts call the biggest single challenge now facing the recovering Japanese electronics conglomerate: the shaky start of its long-awaited PlayStation 3 game console. On Tuesday, Sony said net profit slipped 5.3 percent, to 159.9 billion yen ($1.31 billion), in the quarter ended Dec. 31. The company, based in Tokyo, blamed a large loss in its games division, despite rebounding sales in its bread-and-better consumer electronics. The games division posted a quarterly operating loss of 54.2 billion yen ($446 million), in contrast to a profit of 67.8 billion yen in the quarter a year earlier. Sony said the decline was a result of a decision to set the price of the PlayStation 3 below the cost of production as a way to bolster market share. It also pointed to one-time start-up costs for PlayStation 3, which was released in Japan and the United States in November. Analysts, however, said the weak results reflected more fundamental problems with the new console â a high price tag and a complexity that is scaring away all but die-hard game fans. They added that Sony still had plenty of time to turn PlayStation 3âs fortunes around, but only if it cut prices further and made the console more appealing by adding games. âPlayStation 3âs performance so far? In a word, bad,â said Yuta Sakurai, an analyst at Nomura Securities. âIt is clearly not good for Sony that a strategic product is off to a weak start. But itâs still early. This race is a marathon, not a sprint.â Sony and its chief executive, Howard Stringer, had hoped that PlayStation 3 would become the companyâs latest âchampion product,â much like its predecessor, the PlayStation 2, which became a worldwide blockbuster with more than 106 million units sold since 2000. Faced with rising Chinese and other Asian competition, Sony badly needs PlayStation 3 to be a hit of the same magnitude, analysts say. This need is compounded, analysts said, by the reality that Sony has no other potential megahits now visible in its product pipeline. But as Tuesdayâs earnings showed, consumer response has so far been disappointing at best, the analysts continued. This has added to recent woes of Sony that include an embarrassing recall late last year of laptop batteries, some of which caught fire. The poor performance of the games division stood in contrast to other parts of the companyâs sprawling lineup of products. Sony said Tuesday that it was increasing its profit forecast for the year after strong sales of core consumer products like television sets and digital cameras and movies like the newest James Bond film, âCasino Royale.â Consumer electronics, the biggest division, posted an operating profit of 177.4 billion yen ($1.46 billion), up 102.8 percent, helped by the popularity of Bravia flat-panel TVs, Vaio computers and Cyber-shot digital cameras. Analysts agree that the strong sales in the once-ailing electronics division, the worldâs second largest behind the Matsushita Electric Industrial Company, the parent of Panasonic, have been a success story for Sony and Mr. Stringer. Another has been improving sales by Sonyâs movie studio, which has produced a string of hits including the Bond film and âThe Da Vinci Codeâ â one of Mr. Stringerâs pet projects. Sony is also hoping to continue mining the success of its Spider-Man films with the release of âSpider-Man 3â in May. The movie division had an operating profit of 26.2 billion yen ($215.4 million), reversing a loss of 400 million yen a year earlier. The improved results helped Sony do better than analystsâ predictions that its net profit would fall by half in the most recent quarter. They also helped Sony raise its projected net profit for the fiscal year ending March 31 to 110 billion yen, from an October forecast of 80 billion yen. But analysts said that before Sony could pull out of its long slump once and for all, it has to deal with the problems in its game division. One reason, they said, is that so many other new products are riding on PlayStation 3âs success. Sony hopes that the console will showcase two of the most recent technologies, the Blu-ray next-generation DVD drive and the high-speed Cell microprocessor. âSony needs to raise demand for its semiconductors to recoup its huge capital investments in chip factories,â said Yoshiharu Izumi, an analyst at JPMorgan Securities, who said those investments run in the billions of dollars. âFixing its chip business goes together with improving the games division.â Tuesdayâs results provided the latest glimpse at the weaker-than-expected demand for PlayStation 3, analysts said. Sony said it shipped 1.84 million PlayStation 3s in the quarter, and sold 5.2 million copies of game software for the console. Nintendo, by contrast, recently announced that it shipped 3.2 million units of its new game console, Wii, and sold 17.5 million copies of software in the period. As recently as the Las Vegas electronics show early this month, Sony proclaimed that it had met its targets of shipping a million PlayStation 3s in the United States and Japan. But independent research groups say that Wii has outsold PlayStation 3 by 2 to 1 in Japan and by a smaller margin in America. The Microsoft Xbox 360 has also outsold PlayStation 3 in the United States, as has the Sony PlayStation 2. Some of PlayStation 3âs problems can be attributed to manufacturing delays that pushed back its release by months, and then slowed production. The delays pushed PlayStation 3âs release in Europe back to March. But analysts and consumers also point to a more basic problem: appealing to consumers. While PlayStation 3 surpasses both Wii and Xbox 360 in performance and graphics, the critics say it suffers from the same problem as many other Sony products: it is overengineered, scaring away average shoppers. Many consumers have also favored the Wii and Xbox 360 because of their lower prices. At $249 in the United States, Wii is half the price of the cheapest PlayStation 3, while Xbox starts at $299. âFor many consumers, itâs still just too much,â Mr. Sakurai of Nomura said, âtoo much machine for too much money.â Settlement Over Software WASHINGTON, Jan. 30 (Reuters) â The Federal Trade Commission said on Tuesday that Sony BMG had agreed to settle charges that it secretly embedded potentially damaging antipiracy software in some CDs. The settlement requires Sony BMG, a joint venture of Sony and Bertelsmann, to make further disclosures, allow consumers to exchange the CDs, and reimburse consumers up to $150 to repair any damage to their computers. The F.T.C. said Sony BMG violated the law by embedding some music CDs with software that installed itself on consumersâ computers without their consent and restricted the number of times the audio files could be copied. It was also used to help send them marketing messages, the agency said. The software at issue was included on millions of Sony BMG compact discs sold in 2005, the F.T.C. said.
The death of a giant it seems looms. I think it's hilarious that it's all hinging on the PS3. That's a joke. This is one time I'm really rooting for Microsoft. What a bad business move, actually business moves....the Blu-Ray disc is a terrible idea as it seems clear that if either tech make it it's going to be HD discs. I find it interesting that of all the gains Sony was making in different divisions before these recent losses, their gains were miniscule anyway...not much to look forward to.
Price Cuts Weighed in PS3 Game Console By THE ASSOCIATED PRESS Published: January 31, 2007 Filed at 1:30 p.m. ET TOKYO (AP) -- Although Sony is blaming its faltering profits partly on PlayStation 3 price cuts in Japan, a senior executive said Wednesday that further slashing prices may be in store for the just-launched video game machine. Pricing is among the factors Sony Corp. is studying as it expects to break even in its money-losing gaming business next fiscal year, said Senior Vice President Takao Yuhara, stressing that no additional price cut has been decided. ''We may look at the price as part of our strategy to expand the market when the timing is right,'' Yuhara told reporters at Sony's Tokyo headquarters. The PS3 launched in the United States and Japan in November, plagued with production problems that resulted in shortages and will keep the machines out of Europe entirely until March. The next-generation game player also faces immense competition with Nintendo Co.'s Wii and Microsoft Corp.'s Xbox 360. Sony's announcement Tuesday that October-December profit slipped 5 percent to 160 billion yen ($1.3 billion), largely because of PS3 startup costs, sent Sony shares down 1.4 percent in Tokyo on Wednesday. Shares also dropped 32 cents, or 0.7 percent, to $45.98 in midday trading Wednesday on the New York Stock Exchange. Yuhara said red ink in the gaming division for the fiscal year through March could turn out to be worse than the 200 billion yen ($1.6 billion) operating loss that Sony is forecasting for now. Startup expenses such as advertising and shipping were higher than the company had anticipated. Production delays forced Sony to ship machines by air rather than ships to meet launch targets in the United States. But Sony hopes to break even in gaming during the following fiscal year, which ends March 2008, Yuhara said. ''Such factors, including price cuts to some extent, are factored in'' the company's break-even plans, he said. Game machines generally come down in price over time. But faced with competition, Sony made an unusual move in lowering the PS3 price in Japan by about 20 percent even before sales started. Even before the cut, analysts say, Sony was already taking a loss on each machine sold; manufacturers typically sell machines for less than their true costs, hoping to recoup the investment by selling games. Analysts and game fans are watching to see when PS3 prices may drop again, which would depend on its proliferation in the market and cuts in production costs. Sometimes a price cut is timed with the introduction of blockbuster game software, expected to boost machine sales. Sony has a lot riding on PS3's success, but consumers seem to be snatching up its rival Wii, which costs about half as much as the cheaper, $500 version of the PS3 and comes with a wand that players swing around like a bat, fishing pole or conductor baton, depending on the game. Nintendo, which makes Pokemon and Super Mario games, saw profits for the first nine months of the fiscal year soar 43 percent and has shipped 3.19 million Wii machines globally. Sony shipped 1.84 million PS3 machines worldwide through Dec. 31, the company said. The machine has already gone on sale in the United States, Japan and some other countries, but its sale has been delayed to March 23 in Europe, the Middle East, Africa and Australia. The company stuck to its earlier target of shipping 6 million PS3 consoles by March 31. Earlier, it said it shipped 2 million PS3 machines worldwide by mid-January, falling about two weeks behind its initial shipment targets in Japan. Yuhara said Sony's earlier price cut in Japan was an effort to respond to the expectations of hard-core game fans and helped get the machine off to a smooth rollout. ''In the PS3 business, production was very tight, but we knew the market wouldn't wait,'' he said. But price cuts can be risky for sophisticated machinery like PS3, which comes loaded with next-generation DVD called Blu-ray disk and is powered by a super-chip called ''cell.'' The challenge Sony faces is to sell the machine in numbers to bring down costs and make money in software sales to make the operation more profitable.
My personal opinion is that I will never buy a Sony anything - regardless of what it is. They've been price gauging for so long...how many times I've heard "yeah, but it's a sony!" Who gives a rat's ass? Electronics coming out of the Orient nowadays are pretty much all the same. I'm not going to pay a 40% premium on price just because it's a "sony".