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Forums - Sales Discussion - SONY LOSSES, especially PS3 – New & Improved Analysis - End Mar 2008

Warning:  This thread has a lot of material AND there are many posts.  Each post is a fiscal year.

 

PLEASE READ CAREFULLY.   This is a fairly in-depth analysis.  All assumed figures will be indicated with a (*).  All other numbers are taken directly from Sony publicly reported financial statements.

 

I have used FY ending Mar 2005 as a reference to baseline PS2 and PSP profit figures.



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Game FY Ending Mar 2005 (Figures from Sony financials)

Revenue: 6,281 Million
Profit: 404 Million

PS1 Division (HW = 2.77 Million, SW = 10 Million)
While this division was on its last legs, I allocated an operating profit of $48(*) million.

PS2 Division (HW = 16.17 Million, SW = 252 Million)
The underlying assumption for SW net profit is $2(*) per unit. Given that, I allocated an operating profit of $666(*) million.

PSP Division (HW = 2.97 Million, SW = 5.70 Million)

Direct Quote from Sony for FY Mar 2005:
-Profit decreased due to PSP start up expenses, despite being partially offset by an increase in software sales

My take on the statement indicates that PSP hardware lost money, while software made some money. Therefore I also took a $2(*) per unit net profit for PSP software.

Therefore, I allocated a loss of $108 (*) per PSP console to reflect all costs including “launch costs” for the hardware.

With these PSP numbers, the operating LOSS for the PSP division is $310(*) million.

Summary for FY Mar 2005:
($48 million PS1 + $666 million PS2 - $310 million PSP) = $404 million PROFIT = ACTUAL SONY REPORTED FIGURE.

Other Direct Quote from Sony for FY Mar 2005 (for reference):
-Profit decreased due to decrease in hardware sales (meaning PS1 and PS2 sales)


This FY Mar 2005 was used to determine costs about the PSP division. In the following years, you can see that the assumptions about the PSP made some sense.

In the previous threads, people pointed out that the PSP lost money on hardware – and this actually confirms that.



Game FY Ending Mar 2006

Revenue: 8,193
Profit: 75

In this year’s financials, PS1 is gone, and PS3 is first mentioned.

PS2 Division (HW = 16.22 Million, SW = 223 Million)
Using similar figures, I allocated a profit of $608(*) Million – less than last year as PS2 SW sales declined.

PSP Division (HW = 14.06 Million, SW = 41.6 Million)

These are the key quotes from Sony:
Profit from PS2 and PSP businesses exceeded those in the previous fiscal year
Profit decrease due to PS3 R&D costs and preparation for PS3 launch

The first quote is about PS2 and PSP profits greater than last year.
In our analysis, PS2 + PSP profits equaled $356(*) million. Therefore, this FY should be more.

Now if we assume that PSP still lost $108(*) per console, then the whole division would lose money. Clearly then this is not the case. At about a loss of $23(*) per PSP console, the profit for both divisions will be LESS than last year – which would contradict Sony’s statements.

Therefore, the PSP loss should be between $0 to $23(*) per console. Without “launch” costs, I allocated a loss that is somewhere in the middle for the PSP of $5 (*) per console.

With this assumption, the profit for the PSP division is only $13(*) million, despite the fact of selling so much more software. Anything more than a $5(*) loss per PSP console would make the division unprofitable, thus also somewhat contradicting Sony’s statements *(see note). I interpreted the statement at PS2 and PSP individually are profitable. Another interpretation is listed on the notes after the summary.

The total profit for 2 divisions then equal $621(*) million.

However, the actual profit is only $75 million – therefore a loss of $546 million is now allocated to PS3 R&D.

Summary for FY Mar 2006:
($608 million PS2 + $13 million PSP less $546 million for PS3) = $75 million PROFIT = ACTUAL SONY REPORTED FIGURE.

Note: The interpretation of the statement regarding PSP and PS2 profits is the key. On the high end range of $23(*) loss per PSP console, then the total profit for PSP and PS2 will equal $368(*) million. In this interpretation, PS2 and PSP have greater profits as a whole than last year, not individually.

Then the PS3 loss would be $293(*) million.



Game FY Ending Mar 2007

Revenue: 8,617
Profit (Loss): (1,969)

PS2 Division (HW = 14.20 million, SW = 193 million)
Operating profit = $528(*) million

PSP Division (HW = 8.36 million, SW = 54.1 million)

Key Sony Quote:
PSP operating income increased due to cost reductions

I took this to mean that PSP hardware is now breaking even or even a slight profit. In the previous year, we allocated a $5(*) loss per console. For this year, I assumed a small profit of $2(*) per console.

Therefore, the profit allocated to this division is $125(*) million.

PS3 Division (HW = 5.5 million, SW = 13.2 million)

Key Sony quotes for the PS3:
PS3 price lower than production cost
PS3 launch costs

For the PS3 software, I’ve also assumed a $2(*) profit for software. Therefore, the profit for the PS3 software division equals $26(*) million.

The PS2 and PSP profits equal $653(*) million and the PS3 software at $26(*) million, then the attributable LOSS to the PS3 hardware division, including launch costs equal $2.648(*) Billion.

This works out to approx. $481.50(*) LOSS PER PS3 CONSOLE.

Summary:
($528 million PS2 + $125 million PSP + $26 million PS3 software less $2.648 Billion loss on PS3 hardware) = ($1,969) million loss = ACTUAL REPORTED SONY FIGURE.



Game FY Ending Mar 2008

Revenue: 12,842
Profit (Loss): (1,245)

PS2 Division (HW = 13.73 million, SW = 154 million)
Division profit equals $445(*) million

PSP Division (HW = 13.89 million, SW = 55.5 million)
With a profit of still $2(*) (same as last year) per PSP console, the division profit equals $139(*) million.

Key Sony Quote:
Loss reduced due to strong performance of PSP business

PS3 Division (HW = 9.24 million, SW = 57.9 million)

Key Sony Quotes:
Loss reduced due to cost reduction of PS3
Loss reduced due to increased PS3 software sales

With software still at $2(*) per unit, then PS3 software profits equal $116(*) million
PS3 hardware attributable LOSS equals $1.945 Billion OR approx. $210.50(*) per PS3 console.

Summary:
($445 million PS2 + $139 million PSP + $116 million PS3 software LESS $1.945 Billion PS3 hardware) = ($1,245) million = ACTUAL REPORTED SONY FIGURE


TOTAL PS3 HARDWARE, LAUNCH LOSSES = (546 million Mar 2006 + 2,648 million Mar 2007 + 1,945 million Mar 2008) = $5.139(*) Billion



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Additional Scenario Analysis:

For people who think that software is much more profitable than $2 per unit. Here are the summary IF PS2, PSP, PS3 software was $3(*) per unit:

PSP LOSS Per Unit FY End Mar 2005 = $198

PS3 HW Losses ($811 million Mar 2006 + $2,908 million Mar 2007 + $2,212 million Mar 2008) = $5.931 Billion TOTAL LOSS



ok....



 

Enjoy and discuss. I'll be back later to see if you guys have any questions, comments or contributions.

Thanks.



Interesting, but I really need some time to digest this, even though I've read Sony's earnings releases quite a lot. Will be back.



For serious reading and discussion only. :)