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PlayStation 3 Problems Drag Sony Down

30 Jan, 2007 By: John Gaudiosi

The growth pains of the PlayStation 3 hurt Sony Corp. in the last three months of 2006.

Although things weren't as bad as some analysts had predicted, the once-powerful video game division, Sony Computer Entertainment, dragged down profits for the parent company by 5 percent in the fiscal third quarter. Sony Corp. earned $1.3 billion during the last three months of 2006, but the game division had an operating loss for that quarter of $442 million due to PlayStation 3 launch costs. Sony did not have enough hardware to fulfill U.S. demand last year, even after delaying the European launch until this coming March. A year ago, Sony's game division, ripe with PlayStation 2 profits, made $560 million in the same quarter.

Sony said it shipped 1.84 million PS3 consoles to North America and Japan in the last three months of 2006. The hardware launches in Europe, the Middle East, Africa and Australia March 23. The company remains bullish that it will ship 6 million PS3 consoles worldwide by the end of March 2007, which is also the end of its fiscal year.

Sony reported that some of the lost profits from the third quarter were a direct result of it cutting the PS3 price tag in Japan by 20 percent before it shipped a single hardware unit. The company has made no such price cuts in the United States, where the $500 and $600 consoles are sitting on store shelves.

For its third quarter, Sony was helped by its TV division, which has struggled in recent years as the electronics giant lost ground in HDTVs to rivals like LG and Samsung. Sony's electronics division had a record quarter, buoyed by increased demand for flat-screen TVs and digital cameras. Sony's sales in the segment for the quarter were up nearly 10 percent to $21.4 billion.

Sony also had strong sales from its movie and home entertainment business. Box office hits including Casino Royale and The Da Vinci Code raised sales by 47 percent. For its fiscal year ending this March, Sony now forecasts an annual net profit of $903 million.

Video game analyst PJ McNealy of American Technology Research continues to monitor nationwide retailers for PlayStation 3 and Wii hardware shipments. According to his research, 41 percent of the 130 stores he checked with had PS3s in stock. That's down from 58 percent of 150 stores with PS3s on shelves a week earlier.

“Our channel checks yesterday of 130 retail stores, from boutiques to big-box retailers, showed that 54 stores had PS3 consoles in stock, while only three had Wiis in stock,” McNealy said. That's down from 87 of 150 stores with PS3 inventory a week ago and 5 of 150 with Wiis, he said.

“We believe the next big push at retail for the Wii will come in mid-February around some new software releases,” McNealy said. “We are also re-examining our earlier assumption that the crossover point for the Wii at retail in the U.S. may be later than our earlier March quarter assumption.”

McNealy said that despite the availability of PS3s on store shelves, he does not believe the Sony next-gen console has hit its crossover point, which means it is readily available at retail like the Xbox 360 currently is.

Wiis, at $250 with a game packaged in, are deemed a great value by consumers, he said, and there are many good games available. In contrast, Sony's PS3, which remains available in $500 and $600 iterations, is still waiting for its killer app game. Exclusive new titles are coming this quarter, including Lair and MotorStorm, but the majority of games available for PS3 are also available on Xbox 360.

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