The winner for hardware revenue in December is.....Sony

[Sullla]

Gazz, I'm trying to give you the benefit of the doubt here, but I still disagree with most of what you say. To go through some points individually: 

Gazz said:

I adknowledge your argument, if Sony loses a lot of money on the PS3 then high revenue means high losses like someone of Sony once said himself if memory serves me right. The argument just holds no ground if losses on the PS3 are small and Sony makes a decent profit on the PS2 and PSP.

This is probably the crux of the difference right here; your position is that Sony is taking minimal losses on PS3 sales, while PS2 and PSP numbers bring in enough revenue to offset those losses. I see the PS3 as very, very far away from profitability at the moment. While I don't have proof of this, here's what we do know:

• Sony was losing $250 on each 60GB and $300 on each 20GB console at launch (Nov. 2006)
• Sony has since cut prices twice in America, once in Japan and Europe, and introduced many software bundles.
• Sony has lost money in every single financial quarter the PS3 has existed, often very large amounts. Total losses in the "PS3 era" are over $3b already.
• Sony stated that they "hope" to achieve profitability on the PS3 by the end of fiscal year 2009 (Mar. 09), but refuse to guarantee anything. 

Offsetting this, we have:

• Independent (non-Sony) analysts stating that they believe Sony is close to or breaking even on PS3 sales.
• Value speculation and theories from forum members.

I believe that the circumstantial evidence strongly suggests that Sony is losing money on the PS3, and is not close to profitability. I will be happy to change my stance as soon as their financials demonstrate a turnaround, of course.

@ Bdbdbd and Sullla: I never said that Sony didn't invest in R&d. It's just possible that Sony already invested a load of money in previous quarters (nice taxes trick I might add) into research and now simply don't have to invest that much anymore. Speculative you say? Ofcourse it is, but it isn't very unlikely. I just noticed FishyJoe mentioning that Sony has a bad track record for making realistic projections. Is that speculative? Yes, ofcourse. Assuming that a company does something based on previous behaviour, where that same company has also shown many examples of doing the exact opposite is as speculative as hell.

OK... what? First of all, I'm curious as to what exactly Sony was researching to cause such huge losses in the first two quarters of this year if it wasn't the PS3 causing those losses. (R&D on the PS3 clearly did cause most of the losses in the previous fiscal year.) It couldn't cost that much to redesign the PSP, right? I can't imagine that a new PS2 model would result in gigantic expenses either. I think it's enormously more likely that the underperformance of the PS3 caused the bulk of those costs. (Remember, Sony initially expected to sell 5m PS3s by March of 2007, and then another 11m [16m total] by March 2008. They only actually sold to consumers less than 3m by Mar. 07, and they're clearly going to miss their Mar. 08 target by millions and millions of units.)

The boldest sentence just makes no sense. Assuming that a company will generally follow previous behavior is a rational and logical way to approach the situation. For example, if Sony has posted six consecutive quarters of losses, it is likely that they will follow with a seventh. It is not guaranteed, of course, but I would need a compelling argument to break with the prevailing trend. Since none of Sony's platforms really lit the charts on fire this past quarter, I'm going to stick with the past numbers on this one.

That just leaves my speculation on what Sony did to make a 2 billion loss last year. Most of that money was spend on getting sufficient supplies for the PS3. Let's assume that Sony made just 1.5 million consoles with a manufacturing price around 800 dollars. That alone already makes up for 1.2000.000 dollars. Add gamedevelopment, R&D, producing the new PSP (they were already busy with those then), advertising and so on. There have also been numerous rumors that the losses made by Blu-ray were thrown in to the game division.

You are correct that most of Sony's gaming losses in fiscal year 2007 came from R&D on the PS3. However, your accounting (bolded above) is not the way that companies usually handle inventory. When manufacturing PS3s, Sony doesn't include the cost until an actual sale is made. That is, they record a one-time gain (or loss) at the time of the sale, instead of an $800 loss at the time of production and then another $600 profit at the time of sale. Unsold inventory is usually listed as assets in financial reports. Most of the Q2 2008 losses from Sony came from their unsold PS3s (listed as $600 assets in financials) being marked down to $500 assets during the first price cut in July.

In other words, Sony doesn't have some huge backlog of losses that are now being turned into profits as units get sold. If you are expecting some kind of miracle out of the blue like that to turn Sony's gaming profits around, sorry to disappoint you.

I think we are going to see some pretty good figures from Sony this time around. They are most likely to make a loss this time around, but I think they are starting to turn around profitwise and this may have been one of the last bad financial figures we'll see from them in a long time

I guess we'll see, won't we? That's probably a safe prediction, since Sony's gaming division has nowhere to go but up. If they keep slashing prices in a desperate bid to gain marketshare, however, profitability is NOT going to increase. Sony will have an interesting choice to make in that regard: accept a minor position in the market and try to achieve profitability, or spend spend spend in an attempt to sell more units. I know which of the two most fans on this site would like to achieve - but they aren't the ones getting paid to make decisions. Long-term, I'm more pessimistic on Sony's financials than you are. If they couldn't turn much of a profit with the PS2, which had over 70% of the market, how are they ever going to break-even with the PS3?

Nice discussion. Best wishes.