Sony eyes PS3 price cuts to break even
EmptyTOKYO -- 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% to 160 billion yen ($1.3 billion), largely because of PS3 startup costs, sent Sony shares down 1.4% in Tokyo on Wednesday. Shares also dropped 32 cents, or 0.7%, 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% 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% 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.