Sony's $1.56 Billion Loss: Blame the PS3

Bloomberg, the high profile financial analyst investment information company, estimates that Sony’s third quarter profit margin may fall as much as 50% compared to last year, according to a recent report released by the firm. The main reasoning behind the forecast is because Sony’s "flagship Playstation 3 lost market share to Nintendo Co.’s Wii."

Although Sony may be losing money in its game division, there remains the possibility of the company making a profit at the end of the year because of other profitable divisions. Third quarter losses were attributed to Sony’s CEO, Sir Howard Stringer, for failing to market the PS3 effectively against the Wii. "The results [of the 3rd quarter loss] may highlight Chief Executive Officer Howard Stringer’s failure to fend off Nintendo, whose $250 Wii console outsells the PlayStation 3 by two-to-one. Sony may still exceed its full-year profit target because of a weaker yen, sales of Bravia [HD] televisions, and growth at its movie unit."

Bloomberg surveyed several business analysts and the general consensus was that Sony mishandled the PS3 launch with production slowdowns. The survey also indicated that Sony will most likely have to cut the price of their PS3 machines in order to remain competitive–a move which Sony vehemently resists and denies. "After botching the PS3’s debut with production delays and cutting the price to compete against cheaper Wii and Xbox players, Sony will probably lose a record 191.9 billion yen ($1.56 billion) from games this fiscal year, compared with profit of 8.7 billion yen ($71.33 billion) the previous year."

Initial losses during new game console releases are not out of the ordinary and, if anything, losses are expected by game machine manufacturers for the first year or so of production, due to the development and research costs and other overhead invested into new hardware. With the emergence of the PS3 coming in among heavy competition from the 360 and Wii, and having the disadvantage of trying to convince the public of added value with regards to price points, Sony will need a new battle plan in marketing the PS3 that will make its console more appealing to prospective consumers–and will draw them away from the Wii and Xbox 360.


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Author: GamerNode Staff View all posts by

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