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Sony FY 2008 Q2 Results Analysis SONY BLEEDING LOOKING BAD

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bumidan said:
That's good.

We'll wait till Jan 09 to get the holiday quarter.
But with the yen down, it may be entirely likely that the MORE PS3s they sell, THE MORE MONEY they may lose.

There may not be a PS2 to offset some of those PS3 losses...

though PSP hardware may be profitable enough to offset all those PS2 declines.

last year same quarter, they sold 4.9 million PS3s.
i think they are almost breaking even on the PS3s, so the quarter should still be profitable.

they made 12.9 billion yen or about 113 million US$ the last holiday quarter.

so they are in OK shape, even for this year I think.

You think they're breaking even with the previous exchange rates or the current ones?

 



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I'm being optimistic and say that even with the current exchange rates, they would break even or make some profit - because it is a holiday quarter.

Maybe they reduce costs on the PS3 even further...



bumidan said:
I'm being optimistic and say that even with the current exchange rates, they would break even or make some profit - because it is a holiday quarter.

Maybe they reduce costs on the PS3 even further...

Oh, I was referring to PS3 hardware only in my question. They were expecting to break even towards the end of the fiscal year, but when they said that the exchange rate problem hadn't started yet. Unless things are going much better than planned, they can't be breaking even on Europe/USA PS3 hardware right now.

The only thing which is improving for the gaming division is PS3 software sales. It seems they have increased around 80%. Then we have decreasing PS2 and PSP hardware and software sales, the two SCE cash cows.

I didn't do any calculations, but superficially it looks like the increase in PS3 SW may get almost all eliminated by the PS2/PSP decreases. Then the exchange rate problem shows up and decreases revenue by 15-20% across the board, which is the biggest issue in this quarter IMO.

The real unknown is whether there were big cost decreases in PS2 and PSP... That's the one thing which could get them close to profitability in my view.

 



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Aren't you guys exagerating it a bit ? They are still building up their user base and still in early half of console lifetime so while they might take the beating this year the perspective for 2009 is much better.

And how do you get 2$ per ps3 software profit ? This seems extremly low for current gen machine.



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@Zlejedi: My analyses are only for the current quarter, not for 2009.

Regarding bumidan's numbers, I can't really speak for them since I'd have to read all the previous threads. I believe he has been trying to fine tune his parameters, but I'm not sure about the validity of his method.

 



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bumidan said:
I'm being optimistic and say that even with the current exchange rates, they would break even or make some profit - because it is a holiday quarter.

Maybe they reduce costs on the PS3 even further...

A more telling story to me is if they can post an annual profit ( operating income ) in the current fiscal year because the long term expectation ( I remember Sony's CFO quote from 2006 ) was to start to be in the black with the fiscal year ending march 2009 ( I'm talking about SCE ). 

We can start to see if the plan has change its course or not.



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celine said:
bumidan said:
I'm being optimistic and say that even with the current exchange rates, they would break even or make some profit - because it is a holiday quarter.

Maybe they reduce costs on the PS3 even further...

A more telling story to me is if they can post an annual profit ( operating income ) in the current fiscal year because the long term expectation ( I remember Sony's CFO quote from 2006 ) was to start to be in the black with the fiscal year ending march 2009 ( I'm talking about SCE ).

We can start to see if the plan has change its course or not.


I believe they already downplayed those expectations in the latest financial report due to the currency exchange problem. That, by the way, was before the dollar/euro really weakened and the recession fully hit.

I just found the quote I mentioned (see the bolded parts if you don't want to read all of it).


Ishino from Mitsubishi UFJ. Two questions. One, in the – you revise downward, but the yen keeps appreciating the euro. If you assume 120 yen per euro, what sort of downside risk or downward revision risk including segment information? That’s what I’d like to know. Second point, TV and Game business, especially TV, what sort of impact will it have on profit and loss of TV business because of the change in exchange rate, Game as well?

Nobuyuki Oneda

The 120 yen, well, at today’s exchange rate, 125 yen and 97/98 yen, then operating income will be about 90 – further 90 billion yen. This will be an impact on operating income. That said, we hedge our positions. So it will be offset by 30 billion yen. But this offset will be in the non-operating, but before tax income our impact will be about 60 billion because 30 billion goes to non-operating income. Now, TV, 140 yen and 100 yen are the assumptions. But several tens of billions yen of impact if 120 yen instead of 140 yen or 90-something instead of 100 yen. And impact by segment, we would like to refrain from disclosing this. As far as Game is concerned, while euro has a major impact on Game business, I would say 30 billion yen impact because of the exchange rate change, because we are assuming 140 yen per euro – so given present level. I think – and that is incorporated in this estimate. If that is the case, 90 billion yen impact on operating income, excluding hedging, then 70 billion, 80 billion red ink for TV and 50 billion for gain, well, yes, if we take just the impact of exchange rate movement, that might be possible.


By the way, there's a very interesting piece of info there, when we mentions the benefit of hedging as being one third of revenue. That means my estimates aren't too far from reality.

 



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bumidan said:
the big thing is the structural deficit.

lets pretend they produced a blockbuster game that quarter.

So if all our assumptions are relatively "correct", then if they produced a hit like MGS4 (1st party), then:

Sales = 4 million units
Assume profit is greater coz it is 1st party = $5 per unit (instead of $2)

then that is still only $20 million, out of a loss of almost $400 million

Lets even pretend they made HALO 3 in that quarter.
According to MSFT - Halo 3 earned REVENUES of $330 million.

EVEN IF (VERY BIG IF) they made a NET PROFIT OF $50 million on Halo 3, then IT STILL DOESN'T PUT A DENT in that LOSS.

So even if they keep producing a Halo 3 1st party BLOCKBUSTER every quarter, they lose money.
Again, note that last quarter Sony made money.
And HOPEFULLY in the Holiday quarter, they will also make money.

But PS2 is basically dying, PSP is not selling any software (where the high margins) are.
PS3 is selling decent software and hardware

But the division is still BLEEDING money...
so there must be some sort of structual problems, because it is now 2 years in.

that is assuming the PS3 is almost BREAKING EVEN on hardware already....

I think your estimation of software profits are way too low.

For example a revenue of $330 million will easily translate in a profit of $200 million for Halo 3. Assuming the development costs plus marketing costs are around $100 million is already an overestimation imo. 

However, Sony doesn't have first party hits like Halo 3. We can assume that some have been profitable, but indeed don't make a real impact on SCE's financial situation. Most 1st party software has been bundled anyway. In my estimation on the software that has been released there's no cumulative gain.

I think PS2 and PSP hardware make at least $10 profit, PS2 probably much more. Retail price is $120 for an 8 year old console. I wouldn't be surprised if it made $75 per console.

The main lossmaker is PS3 hardware and the enormous overhead of gamestudio's. Sony has more gamestudio's than Nintendo, and I've estimated before that Sony's software doesn't earn money. At this moment there are several enormous projects underway with huge teams that all need to be paid. Gran Turismo 5, Killzone 2, God of War 3 etc. We can easily assume that the best (and therefore most expensive) teams are working on these titles.

If you try to incorporate that in your estimations it could be even better, although I'm impressed with what you've done so far.

 



Sony still generated a profit, HDTV sales and profits were up, some HDTV sales may be attributed to the PS3 which is an excellent HD gaming console as well as an excellent Blu-Ray player.

I think Sony will be able to weather through the current economic crisis without really major problems this year.



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MikeB said:
Sony still generated a profit, HDTV sales and profits were up, some HDTV sales may be attributed to the PS3 which is an excellent HD gaming console as well as an excellent Blu-Ray player.

I think Sony will be able to weather through the current economic crisis without really major problems this year.

 

wow, someone hasn't been paying attention. Sony itself has already announced to have major problems, especially with the current Yen rate. There's a big chance that Sony as a whole will be in the red this Q and FY. SCE doesn't even stand a chance of being profitable over the whole year.

Besides: most HDTV's are being sold because they're flat and because the neighbours have one. Mainstream consumers don't have a clue what HD. Saying the PS3 contributes to HDTV sales is the world upside down.