The Yen is Killing Sony - Is a PS3 Price Cut Even Possible for 2009??

[amirnetz]

Bboid said:

amirnetz said:

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They only care about the business performance of Sony. From their perspective the PS3 is responsible for taking a highly profitable business division and turning it into a cash sinkhole. It is responsible from dropping Sony from a dominant "win the market by default" player to an struggling niche player in the console gaming market in just two short years.

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You couldnt be more off track.  Analysts and shareholders who understand the entire companies market structure know the gaming sector alone is an incredibly small piece of the Sony pie that is only capable of at least breaking even on the most current product in the foreseeable future.  Analysts and shareholders who understand Sony's market structure are more focused on the dominate sectors of the company: eletronics, financial holdins and music.  While they care about profits of all sectors, these are the dominant sectors that will make or break the company and are experiencing the brunt of the effects from global fall in demand for electronic products, global recession and Yen appreciation.

You really need to get your numbers right. The problem with gaming is that it is small in sales but huge in loses.

Let's look at the cold hard numbers of Gaming vs Electronics in Q2 2008 (the last reported quarter):

Sony's Total Sales = $19.9B, Total Profit = 106M

Electronics Division: Sales = $15.9B, Profit = $727M

Game Division: Sales = $2.6B, Loss = $379M

So the "increadibly small piece of the Sony pie" is eating away HALF the profits of the Electronics division which is responsible for 80% of the company's revenue.

Just imagine that Sony shuts down the gaming division all together. The revenue will go down by 13% but the profits will increase by 370%. Not a bad trade-off!

"But... but... but... you are just showing a bad quarter to make your point" you must be thinking.

Well let's look back... in Q2 of 2007 Sony's losses from the gaming division where more than double those of Q2 2008 (almost 1.5 times worst). So 2008 is actually a major improvement over 2007.

The gaming division is not "increadibly small piece of the Sony pie". it is a major drag on the performance of the whole company. The fact that the total revenue of the division is so small makes things even worst for the gaming division. When such a small business unit has such an adverse result on the big company shareholders, analysts and management are all asking: "is it worth it? will it ever pay for itself? can we really afford such a luxery of a business that is losing so much money?"

Everyone is going to look for positive signs in the next financial reports. Competitively, the writing is already on the wall - Sony will not be a dominant player this generation, no matter what they do. Now all is left is to see if there is hope to actually make money even without dominance - something that Sony never had to do before. If the gaming division will fail to show that they are well on track to profitability then some significant action will be forced on it. 

 Source: http://www.sony.net/SonyInfo/IR/financial/fr/08q2_sony.pdf