PlayStation 3 Price Cut Chops at Sony Profits

Sony’s core electronics business more than doubled profits in the last quarter of 2006, but failed to offset price cuts to its PlayStation 3 game console, leading to an overall profit decline of just over 5 percent, the company said Tuesday.

The company said sales and operating revenue increased 9.8 percent to 2.6 trillion yen (US$21.4 billion) while net profit fell 5.3 percent to 159.9 billion yen.

Sony PlayStation 3

Sony Computer Entertainment, the division responsible for its PlayStation gaming consoles, was the only one of Sony’s main business units that registered a loss in the quarter. It lost 54.2 billion yen primarily due to the retail price of the more expensive of the two consoles being reduced from a planned 62,790 yen to 49,980 yen in Japan. The cut was made, Sony said, due to negative feedback from consumers.

Sony’s electronics business saw profits more than double to 177.4 billion yen on 16.9 percent higher sales of 1.9 trillion yen, the company said.

The unit had a generally positive quarter with sales of Bravia liquid crystal display (LCD) televisions and Cybershot digital still cameras increasing. Europe saw the biggest percentage sales jump, up 21 percent, thanks to better LCD TV and Vaio PC sales, while tough competition in the U.S. TV market meant sales there increased by just 3 percent.

Sony Pictures returned to profitability as sales there jumped 47 percent, but sales in the financial services division fell 9 percent.

Underlining the generally positive results, Sony revised its full-year profit forecast upward for the year to the end of March. It now expects to record a net profit of 110 billion yen for the year, up from its previous forecast of 80 billion yen, although still lower than the 124 billion yen it reported last year. The sales forecast was left unchanged.

Sony’s mid-term business plan has targeted a profit margin of 5 percent for the coming fiscal year. Sony’s electronics business is already meeting its part of the target and will continue to do so next year; however, the games unit needs to improve, Sony Chief Financial Officer Nobuyuki Oneda said at a Tokyo news conference on Tuesday.

He expects to bring the company’s games unit closer to breaking even in the second half, he said.

Sony will target cost savings in the PlayStation 3 by introducing more advanced chips and consolidating components to reduce the overall number of parts, he said.

Sony Headquarters

The company is already on the way to the first of these targets, with the recent start of production of a new version of the Cell processor built with a 65-nanometer production process. The chip in current consoles is built using a 90-nanometer process, and the upcoming switch will mean a chip that is 40 percent smaller. Costs will fall in line with the size reduction, Sony said. It did not say when the new chip will appear in consoles.

Sony wouldn’t provide any PlayStation 3 shipment estimates for the coming financial year but said it remains confident it will ship 6 million consoles up to March. It also revised upward its PlayStation 2 shipment forecast from 11 million units to 13 million units. Sony counts shipments as finished consoles leaving its factory for Sony warehouses and distributors.

Oneda ruled out the possibility of further price cuts in the near future, but hinted that this could happen in two or three years’ time.

-Martyn Williams, IDG News Service (Tokyo Bureau)

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