The thing is, Sony knew how important games are AND their console was delayed by laser problems. Plus before the release it was taken for granted that PS3 would win this generation.
There is the main problem right there. Sony ignored MS's head start and similarily powered console. And they completely ignored Nintendo and their so called Revolution (in all fairness most people did except for the Nintendo fans anyway). But those were 2 big mistakes.
Thinking your GAME system will sell without GAMES is the utmost of arrogance.
Add to that the high price point and that Sony is losing money on each system they are in big trouble.
People say "wait for this game or that game" Well being a Nintendo fan I probably said that more than once for the Gamecube, but it didn't matter. Nintendo released some great games for the Gamecube but it never helped them magically catch up.
Remember Nintendo is still upping supply. Currently the Wii is about 4M ahead. If the Wii stopped selling right now, Sony would still need 20 Months to catch up (at their current rate of about ~200k/month ww). 20 Months... And each week nintendo is selling more than Sony will all month... Even the 3rd parties that are in bed with Sony will have to take notice of that trend.
NO GAME will magically increase the PS3 sales 500% and sustain it. Sure games will give them a bump for a week or two, but that is it. And it will still be behind Wii and likely 360 for that month.
All the games that were gonna help them that have released just fizzled. So what game is next?
Also every day the Wii becomes "cooler" to people and the PS3 becomes less "cool". You think people in Japan will all of a sudden start buying it? I don't think so. They would need month after month after month of AAA exclusives to start to change the trend and that isn't going to happen.
When Nintendo announced they were upping production Sony should have cut the price. They could have coincided that with the pulling of the 20GB model and make the 60GB one $100 less.
So what can they do now?
1) Do nothing and pray:
2) Cut the cost a bit, like $100. MS will match. It won't help Sony. Plus they will lose more money.
3) Cut the cost a lot, like $250. MS will try to match. It will help Sony, but they will lose a lot of money.
Also, now, any price cut will be seen as a sign of weakness.
Sony got arrogant. Tried to use their almost monopoly in the console business to help their other businesses like Blu Ray. They assumed people would buy it at any price and they were wrong. They assumed people would buy it without any games and they were wrong. Now they are paying the price.