Sony Expects Big Losses on PS3 Launch

Sony Corp. today announced details from its fourth quarter and full-year fiscal results. For the quarter ended March 31, 2006 the company lost 66.53 billion yen (around $569 million) on 1.85 trillion yen in total revenue. During the same period one year ago Sony lost 56.5 billion yen on total revenue of 1.7 trillion yen. However, the wider loss was largely attributable to a difference in taxes paid compared with a year ago. Sony's operating loss was actually down a bit year-over-year on a slight increase in sales.

Looking at the full-year picture, though, annual operating profit was up nearly 68 percent. Sony's operating profit totaled 191.3 billion yen for the business year, which was up from the 113.9 billion yen posted a year earlier.

Although Sony's Electronics segment posted a loss, its game division remained profitable for the year. While operating income did fall by almost 80 percent to 8.7 billion yen (about $75 million), sales increased by 31.4 percent to 958.6 billion yen (about $8.34 billion). In the fourth quarter hardware shipments for the PSP were slightly down across the globe (2 million units vs, 2.5 million one year ago), and the company said it shipped 2.32 million PS2 units worldwide, a steep decrease from the 6.08 million shipped during the same period a year earlier. That contributed to a fourth-quarter decline for the game division. However, on an annual basis PS2 shipments were still about on par with last year at 16 million units worldwide and PSP hardware shipments helped boost the division's sales with an increase of 11 million units to 14 million.

The results for Sony's game division during the current fiscal year will not be good however, as the company ramps up investments for the PlayStation 3, which launches worldwide this November. Sony expects the segment to hemorrhage 100 billion yen ($871.6 million) in operating losses during the business year as it prepares the PS3 for launch.

That said, in the future Sony believes it can cut down on PS3 related costs quite a bit. "We believe that we can lower costs dramatically (on the PS3) through chip shrinkage and by cutting the number of parts but there is no way to avoid high costs in the first year," Sony Senior Vice President Takao Yuhara told a Tokyo news conference, according to Reuters.

Sony believes it will be able to sell 6 million PS3 units by March 2007, the end of the current fiscal year. If the company can pull that off, then it will have eclipsed Microsoft's Xbox 360 target in a shorter timeframe. MS expects to sell 4.5 to 5.5 million Xbox 360s by this June. While the Xbox 360 may approach 6 million units sold in about 7 months since its launch, Sony expects to do the same in only 4 or 5 months. Of course, if Sony wants to catch up with the 360's head start, the company will need to ship as many as it can and as fast as possible.

"After the introduction of the PS3 we will focus our efforts on expanding the platform as rapidly as possible," said Nobuyuki Oneda, Sony's chief financial officer, at the news conference. "We will also attempt to lower the manufacturing costs by reducing the number of parts used in hardware and reducing the costs of the semiconductors and other key components. By so doing, we aim to bring the PS3 business to profitability at the earliest possible time."

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