Sony and the PS3. How bad is it?

[PalmiNio]

 

Oki guys. This is not a attack on PS3 as a gaming/media device, this is pure finance talk. The fact is that no matter how well PS3 is selling at any price and no matter how good games and the machine is, the industry is about making money. The whole thing of this comes from a case I had at uni namned "PlayStation 3: Game over?". It's a harvard case on how bad PS3 is hurting Sony in the gaming industry.

So this is first a recap of the current situation for both the game division and the whole company. Then my questions on how bad is it….

Fiscal Q1 (Calendar Q2)

Sony as whole
Net income drop of around 50% to 326.9 million dollars, from Q1 2007. From a net income of 18,5 billion dollar.

Gaming division

Ps3 sold 1.56, a plus of the double since 2007. The division produces a 51 million dollar profit,

-          PS2 is down 43% from 2.66 to 1,51. PSP is up 75% from 2.13 to 3.72

Fiscal Q2 (Calendar Q3)

Sony as company
Net income drop of 71,8% from Q2 2007. Revenues of 19,90 billion dollars but only a net income of 200 million which is around 1% of the revenue

Gaming division

Sony’s game division loses: 379 million dollars
PS3 sold 2,43 million, a plus of 1,12 million from last year

-          PS2 and PSP are selling with profit. The margins for these to should be better then same quarter 2007. So the losses on PS3 should be even higher then 379 billion, due to hardware.

-          The sales of PS2 is decreasing with 780 000 compared to Q2 2007 and PSP increasing with 600 000.

How much have they lost on PS3 yet?

According to Sony them self they have lost 2.16 billion dollars in 2007 on PS3 and will lose 1.16 billion on it in 2008.

It is also said that the cost of launching it in 2006 was 563 million dollars. This is the lost of the gaming division in whole of 2006. Partly due to launch, partly due to sales, partly due to development. But this is the total loss of the whole division so the lost of just PS3 should be higher.

This should also include the developing cost in earlier years like FY2005 where Sony notes that despite great PS2 and PSP sales the net income is low due to PS3 costs.

So my question is

-          How much and when will PS3 cut in price.

M Many people are talking about 2009 in being the big year for Sony. But looking at numbers they are in the worst position of cutting prices. Declining sales of PS2 will reduce net income since that machine should be the one with best margins

The pricecut will not likely come in the first 6 month of 2009, the sales are to low and since the great comeback of Microsoft this year I think Sony will try the same tactic. I guess we won’t get more then 50 dollar lower, the case of 100 dollar would hurt Sony to much yet another year. The last pricecut was made much do to stripdown of hardware, they don’t have that option anymore.

-          Won’t the pricecut force Sony to yet another year on losing money on PS3 hardware?

Even with 50 dollars of the PS3 won’t make money next year as a total. I think the 45nm CELL will come in Q3 and give some space but that pace will be eaten directly with pricecut.

-          Will a pricecut help Sony to catch up with 360? Looking at numbers Microsoft has a even better position on cutting it again

Many people talk about 2009 being PS3 year and that a pricecut will give them a comeback. I believe that the YTY sale will be higher, around 15-17 million total. But Microsoft also has the option to lower all versions with 50 dollars to. End of the year the gap will still be around 7 million

-          Will they ever make enough money in the end so the PS3 actually will be on plus?

No. PS2 is the biggest success ever, PS3 won’t repeat that. Yeah Sony is talking about their 10-year plan but the PS3 has to hard competition and to bad start so even if it will last 10 years the last years won’t be as good as PS2 and they won’t make up for all the costs.

So please help me out on other thoughts and ideas for my own case on that case.....